Railroad Regulation
Changes in Freight Railroad Rates from 1997 through 2000 Gao ID: GAO-02-524 June 7, 2002The Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980 gave freight railroads increased freedom to price their services according to market conditions. A number of shippers are concerned that freight railroads have used these pricing freedoms to unreasonably exercise their market power in setting rates for shippers with fewer alternatives to rail transportation. This report updates the rate information in GAO's 1999 report (RCED-99-93) using selected commodities and with effective competitive transportation alternatives. From 1997 through 2000, rail rates generally decreased, both nationwide and for many of the specific commodities and markets that GAO examined. However, rail rates for some commodities and distance categories--such as wheat moving long distances and coal moving short distances--have stayed about the same or increased. In other instances, such as wheat moving medium distances, rail rates stayed about the same or decreased. Overall, the proportion of rail shipments above the Surface Transportation Board's statutory jurisdictional threshold for considering rate relief actions--where railroad revenues for the shipment exceed 180 percent of variable costs--stayed relatively constant at 30 percent from 1997 through 2000. However, the proportion of shipments for which revenues exceeded variable costs by 180 percent varied, depending on commodity and markets.
GAO-02-524, Railroad Regulation: Changes in Freight Railroad Rates from 1997 through 2000
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GAO: Report to the Chairman, Committee on Transportation and
Infrastructure,
House of Representatives:
June 2002: Railroad Regulation: Changes in Freight Railroad Rates from
1997
through 2000:
GAO-02-524:
Contents:
Letter:
Results in Brief:
Background:
Rail Rates Generally Continued to Fall:
Proportion of Rail Industry Revenues Exceeding 180 Percent of Variable
Costs Generally Were Stable:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Real Rail Rates for Coal:
Appendix III: Real Rail Rates for Wheat and Corn Shipments:
Appendix IV: Real Rail Rates for Chemicals and Transportation
Equipment:
Figure 1: Rail Rate Index for the Transportation of Selected
Commodities, 1990-2000:
Figure 2: Real Rail Rates for Coal, Selected Medium-Distance Routes,
1990-2000:
Figure 3: Real Rail Rates for Wheat, Selected Medium-Distance Routes,
1990-2000:
Figure 4: Real Rail Rates for Corn, Selected Medium-Distance Routes,
1990-2000:
Figure 5: Real Rail Rates for Plastic Materials or Synthetic Fibers,
Resins, or Rubbers, Selected Short-Distance Routes, 1990-2000:
Figure 6: Real Rail Rates for Motor Vehicles, Selected Medium-Distance
Routes, 1990-2000:
Figure 7: Percentage of Rail Industry Revenue Exceeding 180 Percent of
Variable Costs for Selected Commodities, 1990-2000:
Figure 8: R/VC Ratios for Medium-Distance Shipments of Wheat, 1990-
2000:
Figure 9: Real Rail Rates for Coal, Selected Short-Distance Routes,
1990-2000:
Figure 10: Real Rail Rates for Coal, Selected Long-Distance Routes,
1990-2000:
Figure 11: Real Rail Rates for Wheat, Selected Short- and Long-Distance
Routes, 1990-2000:
Figure 12: Real Rail Rates for Corn, Selected Short- and Long-Distance
Routes, 1990-2000:
Figure 13: Real Rail Rates for Potassium/Sodium Compounds, Selected
Short-, Medium-, and Long-Distance Routes, 1990-2000:
Figure 14: Real Rail Rates for Plastic Materials or Synthetic Fibers,
Resins, or Rubbers, Selected Medium- and Long-Distance Routes, 1990-
2000:
Figure 15: Real Rail Rates for Motor Vehicles, Selected Long-Distance
Routes, 1990-2000:
Figure 16: Real Rail Rates for Motor Vehicle Parts or Accessories,
Selected Medium- and Long-Distance Routes, 1990-2000:
Abbreviations:
Conrail: Consolidated Rail Corporation:
R/VC: revenue-to-variable cost:
June 7, 2002:
The Honorable Don Young Chairman, Committee on Transportation and
Infrastructure House of Representatives:
Dear Mr. Chairman:
The Railroad Revitalization and Regulatory Reform Act of 1976 and the
Staggers Rail Act of 1980 gave freight railroads increased freedom to
price their services according to market conditions. A number of
shippers are concerned that freight railroads have used these pricing
freedoms to unreasonably exercise their market power in setting rates
for shippers with fewer alternatives to rail transportation. In 1999,
we generally reported that most rail rates had decreased from 1990
through 1996, and that rates for shipments of selected commodities with
effective competitive transportation alternatives--such as from other
railroads, trucks, or barges--generally had decreased to a greater
extent than rates for shipments without such alternatives. [Footnote 1]
However, some rates had increased. These results were consistent with
the pricing freedoms provided by federal law that allows railroads to
price their service in relation to market demand and competition.
This report responds to your request that we update the rate
information in our 1999 report using the same commodities and markets.
For the period from 1997 through 2000, we (1) examine changes in rates
and (2) describe changes in the proportion of shipments above the
Surface Transportation Board‘s statutory jurisdictional threshold for
rate relief actions (shipments in which revenues exceed 180 percent of
variable costs). [Footnote 2] To do so, we used the Carload Waybill
Sample maintained by the Surface Transportation Board to determine
rates for coal, grain (wheat and corn), chemicals (potassium and sodium
compounds and plastic materials or synthetic fibers, resins, or
rubber), and transportation equipment (finished motor vehicles and
motor vehicle parts or accessories). [Footnote 3] These commodities
represented a substantial portion of total industry revenue. We
analyzed rate changes for these commodities in the top five
transportation corridors (measured by tons shipped) according to length
of haul (short, medium, and long). (See app. I for additional
discussion of our methodology.) Although the focus of our work centered
on the 1997-2000 period, we also present the results of our previous
work covering the 1990- 1996 period for perspective.
Results in Brief:
From 1997 through 2000, rail rates generally decreased, both nationwide
and for many of the specific commodities and markets that we examined.
[Footnote 4] However, rail rates for some commodities and distance
categories--such as wheat moving long distances (over 1,000 miles) and
coal moving short distances (up to 500 miles)--have stayed about the
same or increased. In other instances, such as wheat moving medium
distances (501 to 1,000 miles), rail rates stayed about the same or
decreased. There may be a variety of reasons why rail rates change over
time, including increases or decreases in production or export of
various commodities (such as coal or grain); changes in railroad costs;
changes in use of contracts that tie rates to specific volumes of
business; service problems that could affect the ability of railroads
to supply railcars, crews, and locomotive power to meet the demand for
rail transportation; or the degree of competition from other rail or
nonrail (such as barge or truck) transportation providers. In general,
as expected, rail rates were lower in areas with more, rather than
less, competition from other transportation providers.
Overall, the proportion of rail shipments above the board‘s statutory
jurisdictional threshold for considering rate relief actions--where
railroad revenues for the shipment exceed 180 percent of variable costs
(variable costs are those costs that change with the quantities
shipped)--stayed relatively constant at about 30 percent from 1997
through 2000. However, the proportion of shipments for which revenues
exceeded variable costs by 180 percent varied depending on commodity
and markets. For example, in 2000, 62 percent of chemicals were
transported at rates generating revenues exceeding 180 percent of
variable costs. However, in the same year, only 17 percent of
transportation equipment (which includes motor vehicles and motor
vehicle parts or accessories) was transported at rates above this
level. Although revenue-to-variable cost ratios are often used as
indicators of shippers‘ captivity to railroads, changes in such ratios
over time may not be a reliable indicator of trends in the actual rates
being paid by shippers. Such ratios can be increasing at the same time
as rates are decreasing and, conversely, decreasing at the same time as
rates are increasing. In particular, if industry productivity increases
and the cost savings are passed entirely on to customers in the form of
rate reductions, revenue-to-variable cost (R/VC) ratios may increase,
since both the numerator and denominator would be decreased by the same
amount.
In commenting on a draft of this report, both the board and the
Department of Transportation generally agreed that it accurately
portrayed rail rate trends over the 1997 through 2000 period. The board
said it is difficult to identify with specificity why rail rates change
in the short run, especially for specific commodities over specific
routes. The board suggested that our report recognize additional
factors, such as commodity supply, that influence rate changes. The
department suggested that our Results in Brief could better recognize
that R/VC ratios by themselves are not good indicators of railroad
market power. We revised the report to reflect these comments.
Background:
Railroads are the primary mode of transportation for many products,
especially for such bulk commodities as coal and grain. Yet by the
1970s, American freight railroads were in a serious financial decline.
Congress responded by passing the Railroad Revitalization and
Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980. These
acts reduced rail regulation and encouraged greater reliance on
competition to set rates. Railroads have also continued to consolidate
(through such actions as mergers, purchases, changes in control, and
acquisitions) to reduce costs, increase efficiencies, and improve their
financial health.
The 1976 act limited the authority of the Interstate Commerce
Commission (now the Surface Transportation Board) to regulate rates to
instances in which there is an absence of effective competition--that
is, where a railroad is ’market dominant.“ The 1980 act made it federal
policy to rely, where possible, on competition and the demand for rail
services (called demand-based differential pricing) to establish
reasonable rates. Differential pricing recognizes that inherent in the
rail industry cost structure are joint and common costs that cannot be
attributed to particular traffic. Under demand-based differential
pricing, railroads recover a greater proportion of these unattributable
costs from rates charged to those with a greater dependency on rail
transportation. Among other things, the 1980 act also (1) allowed
railroads to market their services more effectively by negotiating
transportation contracts (generally offering reduced rates in return
for guaranteed volumes) containing confidential terms and conditions;
(2) limited collective rate-setting to those railroads actually
involved in a joint movement of goods; and (3) permitted railroads to
change their rates without challenge in accordance with a rail cost
adjustment factor. Furthermore, both acts required the Interstate
Commerce Commission to exempt railroad transportation from economic
regulation in certain instances. The Staggers Rail Act required
exemptions where regulation is not necessary to carry out rail
transportation policy and where a transaction or service is of limited
scope, [Footnote 5] or where regulation is not needed to protect
shippers from an abuse of market power. During the 1980s and 1990s,
railroads used their increased pricing freedoms to improve their
financial health and competitiveness.
In addition, the railroad industry has continued to consolidate in the
last 2 decades to become more competitive by reducing costs and
increasing efficiencies. (This consolidation continues a trend that has
been occurring since the nineteenth century.) In 1976, there were 30
independent Class I railroad systems, consisting of 63 Class I
railroads. (Class I railroads are the nation‘s largest railroads.)
Currently there are 7 railroad systems, consisting of 8 Class I
railroads. Half of that reduction was attributable to consolidations.
[Footnote 6] The 8 Class I railroads are the Burlington Northern and
Santa Fe Railway Co.; CSX Transportation, Inc.; Grand Trunk Western
Railroad, Inc.; Illinois Central Railroad Co.; Kansas City Southern
Railway Co.; Norfolk Southern Railroad Co.; Soo Line Railroad Co., and
Union Pacific Railroad Co.
The Surface Transportation Board is the industry‘s economic regulator.
The board is a decisionally independent adjudicatory agency
administratively housed within the Department of Transportation. Among
other things, board approval is needed for market entry and exit of
railroads and for railroad mergers and consolidations. The board also
adjudicates complaints concerning the quality of rail service and the
reasonableness of rail rates. Under the ICC Termination Act of 1995,
the board may review the reasonableness of a rate only upon a shipper‘s
complaint. Moreover, the board may consider the reasonableness of a
rate only if (1) the revenue produced is equal to or greater than 180
percent of the railroad‘s variable costs for providing the service and
(2) it finds that the railroad in question has market dominance for the
traffic at issue. If the revenue produced by that traffic equals or
exceeds the statutory threshold, then the board examines intramodal and
intermodal competition to determine whether the railroad has market
dominance for that traffic and, if so, whether the challenged rates are
reasonable.
From 1997 through 2000, there were two periods during which major
portions of the rail industry experienced serious service problems. The
first began in July 1997, during implementation of the Union Pacific
Railroad and Southern Pacific Transportation Company merger. As a
result of aging infrastructure in the Houston, Texas, area that was
inadequate to cope with a surge in demand, congestion on this system
began affecting rail service throughout the western United States. Rail
service disruptions and lengthy shipment delays continued through the
rest of 1997 and into 1998. The board issued a series of decisions that
generally were designed to enhance the efficiency of freight movements
by changing the way rail service is provided in and around the Houston
area. These decisions principally focused on the Houston/Gulf Coast
area and included an emergency service order to address the service
crisis. In addition, CSX Transportation and Norfolk Southern
Corporation began experiencing service problems in the summer and early
fall of 1999, shortly after they began absorbing their respective parts
of the Consolidated Rail Corporation (Conrail). These service problems
caused congestion and shipment delays, primarily in the Midwest and
Northeastern parts of the country. By early 2000, those service
problems had largely been resolved without formal board action.
Rail Rates Generally Continued to Fall:
Rail rates generally have continued to fall nationwide for the
commodities we studied and in the specific markets we reviewed.
However, in several markets rates either increased over the 4-year
period for certain commodities or increased and then later fell,
resulting in an overall decrease for the period. There may be a variety
of reasons why rail rates change over time, including increases or
decreases in production or export of various commodities (such as coal
or grain); changes in railroad costs; changes in use of contracts that
tie rates to specific volumes of business; service problems that could
affect the ability of railroads to supply railcars, crews, and
locomotive power to meet the demand for rail transportation; or the
degree of competition. We do not attempt to identify and explain all
the various reasons for changes in the rail rates we examined. Rather,
our aim is to put rate changes for particular commodities into context
with some of the economic or rail industry conditions that might have
affected them from 1997 through 2000.
Rates for Selected Commodities Have Generally Continued to Fall
Nationally:
Rates for coal, grain (wheat and corn), chemicals (potassium and sodium
compounds and plastic materials or synthetic fibers, resins, or
rubber), and transportation equipment (finished motor vehicles and
motor vehicle parts or accessories) generally fell from 1997 through
2000. [Footnote 7] (See fig. 1.) These decreases followed the general
trend we previously reported on for the 1990-1996 period and, as
before, tended to reflect railroad cost reductions brought about by
continuing productivity gains in the railroad industry that have
allowed railroads to reduce rates in order to be competitive.
Figure 1. Rail Rate Index for the Transportation of Selected
Commodities, 1990-
2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
From 1997 through 2000, the rates for coal decreased slightly but
steadily from about 1.5 cents per ton-mile to about 1.4 cents per ton-
mile. Coal production fluctuated over this period but generally
decreased from about 1.12 billion tons in 1998 to about 1.08 billion
tons in 2000. The production of coal shipped for export also generally
decreased from about 83.5 million tons in 1997 to 58.5 million tons in
2000. The Energy Information Administration attributed these decreases
to, among other things, a draw down in coal stocks by utilities and
reluctance on the part of some coal producers to expand production.
[Footnote 8] Lower demand for rail transportation resulting from lower
production generally results in lower rail rates. However, the demand
for rail transportation (and consequently rail rates) can also be
affected by changes in coal held as inventory and other supply- related
factors. Board officials suggested that the decrease in coal rates
during this period could also be attributed in part to increasing
competition between low-sulfur Powder River Basin coal from the West
and higher- sulfur Eastern coal, and to the expiration and resulting
renegotiation of many long-term coal transportation contracts.
The rates for wheat increased slightly from 1997 to 1998--from about
2.46 cents per ton-mile in 1997 to about 2.47 cents per ton-mile--
before falling back in 1999 and 2000 to just under 2.4 cents per ton-
mile. Rates for wheat may have decreased because overall production
decreased, from 67.5 million tons for the 1997-1998 season to 60.5
million tons for the 2000-2001 season, despite a modest increase in
demand for exports (from 28.1 million tons to 30.0 million tons over
the same period). Preliminary information indicates that in 1998, the
most recent year for which data were available, railroads transported
over half (about 55 percent) of all wheat shipments.
Corn rates generally decreased from about 2 cents per ton-mile in 1997
to about 1.8 cents per ton-mile in 2000. Corn production fluctuated
between 1997 and 1999 (the latest year for which data are available),
increasing from 9.2 million bushels in 1997 to 9.8 million bushels in
1998 before falling back to 9.4 million bushels in 1999. However, the
domestic use of corn (the primary use of corn) increased by about 4
percent--from 7.3 million bushels in 1997 to 7.6 million bushels in
1999. This increase suggests, all else being equal (including rail
costs), greater demand for transportation and possibly higher rail
rates. Yet, rail rates for corn are influenced by a number of factors.
Significant amounts of corn are produced in areas accessible to
navigable waterways and, therefore, the transportation of corn is less
dependent on rail. (About 25 percent of corn was shipped by rail in
1998, the latest year for which data are available.) In addition, rates
may be affected by the supply of corn. From 1997 through 1999 (the
latest year for which data are available) the total supply of corn
increased from 10.1 million bushels to 11.2 million bushels. [Footnote
9] It is possible that intermodal:
competition, increased domestic use of corn, and an increasing supply
of corn may have all influenced rail rates for corn. [Footnote 10]
The rates for chemicals (as illustrated by rates for potassium/sodium
and plastics) decreased slightly from 1997 through 2000 at a steady
rate. According to data from the American Chemistry Council, the
production of chemicals in the potassium/sodium classification
increased between 1997 and 1999. Plastics production also steadily
increased over the period. [Footnote 11] These data suggest that, all
things being equal, rail rates should have increased over the period
because of a higher demand for rail transportation. However, over 65
percent of chemicals are transported less than 250 miles, a distance
that is truck competitive, which may indicate that railroad rates are
sensitive to truck competition. In addition, not all chemicals that are
produced require immediate transportation. An official with the
American Chemistry Council told us that chemical manufacturers often
produce a product, load it onto railcars, and store the railcars until
the product is sold, at which point it is transported to destination.
Although the tonnage of chemicals shipped by rail generally increased
between 1997 and 2000, railroads accounted for only 20 percent of the
tonnage transported in 2000. This is up slightly from the 19 percent
transported in 1997. [Footnote 12]
Rates for motor vehicles and parts also generally decreased over the 4-
year period, but not at a steady rate. This occurred during a time when
U.S. car and truck production generally fluctuated between 12 million
and 13 million units. Car production, in particular, generally
decreased over the period from about 5.9 million units to about 5.5
million units, according to Crain Communications, Inc., a publisher of
Automotive News . The automotive industry is heavily dependent on
railroads, and the Association of American Railroads--a railroad trade
group--estimates that railroads transport about 70 percent of finished
motor vehicles. Automotive production declines, among other things,
might have contributed to generally decreasing rail rates. Data on auto
parts production were not available.
In its own study, the board found that the average, inflation-adjusted
rail rate had continued a multi-year decline in 1999 and that, since
1984, real rail rates had fallen 45 percent. [Footnote 13] It found
that real rail rates had decreased for both eastern and western
railroads. According to the board, the results of its study implied
that, although railroads retain a degree of pricing power in some
instances, nearly all productivity gains achieved by railroads since
the 1980s (when railroad economic regulation was reduced) have been
passed on to rail customers in the form of lower rates. The board
estimated that rail shippers would have paid an additional $31.7
billion for rail service in 1999 if revenue per ton-mile had remained
equal to its 1984 inflation-adjusted level. The board acknowledged,
however, that even though real rail rates had decreased overall,
individual rates might have increased and, further, that some rail
customers might feel disadvantaged if their rates did not fall to the
same extent as their competitors‘ rates.
Rail Rates for Specific Markets Generally Have Continued to Fall:
Our analysis of rail rates for coal, grain (corn and wheat), chemicals
(potassium, sodium, plastics, and resins), and motor vehicles and motor
vehicle parts in selected high-volume transportation markets generally
showed that rates continued to decrease from 1997 through 2000.
However, this was not true in all markets. Rail rates may have been
sensitive to competition, and rail rates were generally higher in areas
considered to have less railroad-to-railroad competition.
Coal:
Real rail rates for coal, although fluctuating in some markets,
generally decreased from 1997 through 2000. In virtually every market
we analyzed--both in the East (Appalachia) and in the West (Powder
River Basin)--rates decreased. For example, on a medium-distance route
from Central Appalachia to Orlando, Florida, rates decreased from about
2.2 cents per ton-mile in 1997 to 1.7 cents per ton-mile in 2000.
[Footnote 14] (See fig. 2.) The 2000 rate was also substantially less
than the rate of 2.6 cents per ton- mile in 1990.
Figure 2. Real Rail Rates for Coal, Selected Medium-Distance Routes,
1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Competition may have played a role in the decrease in coal rates that
we examined. In the West, the two Class I railroads that served the
Powder River Basin during the 1990-1996 period, the Burlington Northern
and Santa Fe Railway and the Union Pacific, continued to serve the
market from 1997-2000. In the East, three Class I railroads served
Central Appalachia until mid-1999: Conrail, CSX Transportation, and
Norfolk Southern. [Footnote 15] Following its acquisition by the latter
two carriers, Conrail began being absorbed into CSX Transportation and
Norfolk Southern in June 1999, with the latter two carriers continuing
to serve the market. As part of this transaction, certain areas of
Pennsylvania and West Virginia (part of the Appalachia Coal Supply
Region) that had been served exclusively by Conrail, although conveyed
to Norfolk Southern, are available to CSX on an equal-access basis for
25 years, subject to renewal.
Finally, rail rates for coal can be influenced by coal production as
well as existing supplies of coal. In general, coal production in the
Appalachian area decreased from 1997 to 2000--from about 468 million
tons to about 421 million tons. On the other hand, coal production in
the Western region (which includes the Powder River Basin) increased
between 1997 and 1999--from about 451 million tons to about 512 million
tons--before falling back to 510 million tons in 2000. In its 2000
review, the Energy Information Administration noted that coal
production in Wyoming (which dominates coal production in both the West
and the United States) was driven higher by an increasing penetration
of Powder River Basin coal into Eastern markets--an action creating
competition for coal produced in the East. [Footnote 16] Board
officials told us that in order for Powder River Basin coal to
penetrate Eastern markets, railroads have had to offer very low
transportation rates. In addition, they suggested that rail rates for
Powder River Basin coal are lower than rail rates for Appalachian coal
because of the ability of railroads to use larger (110-car unit) trains
to pick up the coal and because of more favorable terrain (flatter and
straighter routes) to transport the coal from the mines. Coal supply
(as measured by year-end coal stocks) generally fluctuated over the
1997 through 2000 period-- increasing from about 140 million tons in
1997 to 183 million tons in 1999, before falling back to 142 million
tons in 2000.
Wheat and Corn:
From 1997 through 2000, real rail rates for shipments of wheat and corn
generally stayed the same or decreased for the markets that we
reviewed. [Footnote 17] For example, wheat shipments moving over
medium-distance (501 miles to 1,000 miles) routes generally followed
this pattern. (See fig. 3.) The exception was wheat shipped from the
Oklahoma City, Oklahoma, economic area to the Houston, Texas, economic
area. [Footnote 18] On this route, rail rates generally increased by 12
percent--from 1.9 cents per ton-mile in 1997 to 2.2 cents per ton-mile
in 2000. The largest increase occurred between 1997 and 1998, when
rates went from 1.9 to 2.1 cents per ton-mile. This increase came at
about the same time as the service crisis in the Houston/Gulf Coast
area that delayed the delivery of railcars and, in some cases, halted
freight traffic. Although board officials did not think railroads used
rail rates to allocate the supply of railcars during this time, such an
action could have occurred for particular commodities on particular
routes. The increases also came at the same time as wheat production in
Oklahoma rose from about 170 million bushels in 1997 to just under 200
million bushels in 1998. This may be consistent with an increase in the
handling of bulk grain by the Port of Houston Authority between 1997
and 1998, from about 388,000 tons to 1.2 million tons. [Footnote 19]
These factors may also have contributed to a general increase in rail
rates for these movements. Even with these increases, the rail rate in
2000 was still less than it was in 1990--about 2.2 cents per ton-mile
in 2000, as compared with 2.5 cents per ton-mile in 1990.
Figure 3. Real Rail Rates for Wheat, Selected Medium-Distance Routes,
1990-2000:
[See PDF for image]
Note: For confidentiality, data points for the route from the Duluth
economic area to the Chicago economic area for 1993 and 1999 were
excluded.
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Rail rates for wheat from the northern plains locations of the Great
Falls, Montana, and Grand Forks, North Dakota, economic areas on
medium- distance routes generally decreased over the period. [Footnote
20] Wheat production and demand for rail transportation may have been
influencing factors. Although the volume of export wheat was increasing
over the 1997 to 2000 period, wheat production in various states
fluctuated. For example, wheat production in Montana steadily declined
between 1997 and 2000, from about 182 million bushels to about 154
million bushels. In contrast, wheat production in North Dakota (the
second highest wheat producing state behind Kansas in 2000) fluctuated
between about 240 million bushels and 315 million bushels, alternately
increasing and decreasing beginning in 1997. Whether wheat is
transported or not depends on many factors, including the price of
wheat and the amount of carryover stocks from year to year. In 2001,
the U.S. Department of Agriculture reported that grain car loadings on
railroads had steadily decreased over the previous 5 years, with the
exception of 1999. [Footnote 21] This was attributed, at least
partially, to farmers holding on to grain because of large harvests,
large carryover stocks, and low prices.
Rate trends between 1997 and 2000 for the shipment of corn were similar
to those for wheat. Again, rate trends for corn can be illustrated in
the rail rates for medium-distance routes. (See fig. 4.) The rates for
most of these routes generally either stayed about the same or
decreased over the period. Similar patterns are seen in the other
distance categories. However, some rail rates on short-distance routes
increased between 1999 and 2000. This was particularly true for corn
shipments within the Minneapolis, Minnesota, economic area, where rates
went from about 3.5 cents per ton- mile in 1999 to about 4.2 cents per
ton-mile in 2000. The specific reasons for this increase are not clear.
Corn production in Minnesota generally decreased during this period,
from about 990 million bushels in 1999 to about 957 million bushels in
2000. However, in November 1999, the U.S. Department of Agriculture
reported that, while corn production and exports were expected to
decrease, the domestic use of corn was expected to remain strong, and
that domestic use of corn was heavily dependent on rail and truck
transportation. [Footnote 22] Other than livestock feed, domestic use
of corn includes corn sweeteners (used in the soft drink industry) and
ethanol (a fuel additive). Minnesota also has an active livestock
industry, and the state ranked third highest in the country in the
number of hogs and pigs produced and hogs marketed in 1999 (behind Iowa
and North Carolina).
Figure 4. Real Rail Rates for Corn, Selected Medium-Distance Routes,
1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Rail rates for wheat and corn shipments appear to be sensitive to both
inter- and intramodal competition. As shown in figure 3, rates for
wheat shipments from the Duluth, Minnesota, to the Chicago, Illinois,
economic areas--a potential Great Lakes water competitive route--
continued to be between 0.72 cents to just under 2 cents per ton-mile
lower in 2000 than rates on other medium-distance routes we examined
that potentially had fewer transportation alternatives (for example,
shipments from Great Falls). In addition, as shown in figure 4, rail
rates for corn shipments from the Chicago and Champaign, Illinois,
economic areas to the New Orleans, Louisiana, economic area--
potentially barge-competitive routes--were substantially lower (up to
1.7 cents per ton-mile in 2000) than rates on other medium-distance
corn routes we examined that potentially had fewer transportation
choices (for example, shipments from the northern plains states).
Sensitivity to intramodal (railroad-to-railroad) competition also
continued to be evident. For example, rail rates from 1997 through 2000
for wheat shipments originating in the Wichita, Kansas, and Oklahoma
City, Oklahoma, economic areas were about 1.4 cents per ton-mile lower
than rail rates for wheat shipments from the Great Falls economic area
to the Portland, Oregon, economic area over the same period. The
central plains area is considered to have more railroad competition
than the northern plains area.
Shipment size can also influence railroad costs and, therefore, rates.
Loading more cars at one time increases efficiency and reduces a
railroad‘s costs. From 1997 through 2000, the average shipment size for
wheat continued to be higher in the central plains than in the northern
plains. For example, the average shipment size for wheat from the
Wichita economic area from 1997 through 2000 was about 88 railcars, as
compared with about 43 railcars for wheat shipments from the Great
Falls economic area. In both instances, the average shipment size
increased in the 1997 through 2000 period as compared with the 1990
through 1996 period--by about 17 railcars for wheat shipments from the
Wichita area (from about 71 railcars to about 88 railcars) and by about
5 railcars for wheat shipments from the Great Falls area (from about 38
railcars to about 43 railcars). As discussed above, rates in the
central plains states were typically lower than those in the northern
plains states for the routes we examined.
Chemicals and Transportation Equipment:
Real rail rate changes for chemical and transportation equipment (motor
vehicles and motor vehicle parts) shipments were mixed for the 1997
through 2000 period for the markets we reviewed--some rates fell while
others stayed the same or increased. These trends can be seen in short-
distance (500 miles or less) shipments of plastics. [Footnote 23] (See
fig. 5.) Two of the more notable trends are shipments within the
Beaumont, Texas, and Lake Charles, Louisiana, economic areas. In the
Beaumont economic area, real rail rates increased from 42.6 cents per
ton-mile in 1997 to 55.8 cents in 1998 before falling to 29.1 cents in
2000. In the Lake Charles economic area, rail rates increased from 25.9
cents per ton-mile in 1996 to 29.7 cents per ton-mile in 1997 before
falling (by about 78 percent) to 6.5 cents per ton-mile in 1998. After
increasing again in 1999, the rates decreased to 4.8 cents per ton-mile
in 2000 on this route. Rates in the other markets generally stayed
about the same or decreased. While it is not clear why these rates
changed the way they did, the changes came at the time (1997- 1998) of
a severe service crisis in the Houston/Gulf Coast area. Board officials
said that generally, in their view, it did not appear that railroads
used rail rates to allocate resources during the service crisis; they
suggested that the erratic nature of the year-by-year rate changes
reported for certain of these intra-terminal movements (which,
according to the board, tend to be small shipment sizes) may have been
related to the heterogeneous nature of this chemicals traffic and to
the low sampling rates for smaller shipment sizes--1 in 40 waybills for
movements of 1 to 2 car shipments, and 1 in 12 waybills for 3 to 15 car
shipments--in the stratified Carload Waybill Sample .
Figure 5. Real Rail Rates for Plastic Materials or Synthetic Fibers,
Resins, or
Rubbers, Selected Short-Distance Routes, 1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Real rail rates for shipments of finished motor vehicles and motor
vehicle parts or accessories also showed a variety of trends. In 1999,
we reported that one of the more dramatic changes in rates was for the
transportation of finished motor vehicles from Ontario, Canada, to
Chicago. (See fig. 6.) The rates on this route decreased about 40
percent between 1990 and 1996. Since that time, the rates on this route
have largely stabilized at about 12 cents per ton-mile, with a slight
increase between 1997 and 2000. In general, rail rates for the
transportation of motor vehicle parts or accessories on both long- and
medium-distance routes decreased. The notable exception is rates for
the transportation of motor vehicle parts or accessories between the
Detroit, Michigan, and Dallas, Texas, economic areas. On this route,
the rates generally increased from about 9 cents per ton-mile in 1997
to about 22 cents per ton-mile in 2000--about a 139 percent increase.
Most traffic in motor vehicles and motor vehicle parts or accessories
is either under contract or exempt from economic regulation. Use of
contracts suggests that rate decreases may be related to price
discounts offered in return for guaranteed volumes of business.
However, board officials noted that in recent years, railroads have
increasingly been offering motor vehicle manufacturers service packages
in which railroads provide premium service for higher rates. This may
account for rate increases on specific routes.
Figure 6. Real Rail Rates for Motor Vehicles, Selected Medium-Distance
Routes,
1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Proportion of Rail Industry Revenues Exceeding 180 Percent of Variable
Costs Generally Were Stable:
Between 1997 and 2000, the proportion of all railroad revenue that came
from shipments transported at rates that generated revenues exceeding
180 percent of variable costs stayed relatively constant at just under
30 percent. (See fig. 7.) This result is about 2 percentage points less
than the average for the 1990-1996 period. In addition to being a
jurisdictional threshold for the board to review the reasonableness of
rates, revenue-to-variable cost ratios are sometimes used as indicators
of shippers‘ captivity to railroads. If used in this way, the higher
the R/VC ratio, the more likely it is that a shipper can use only rail
to meet its transportation needs. [Footnote 24]
Figure 7. Percentage of Rail Industry Revenue Exceeding 180 Percent of
Variable
Costs for Selected Commodities, 1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Individual commodity results differed markedly. In 2000, 62 percent of
chemicals (which include potassium, sodium, and plastics) and 42
percent of coal were transported at rates generating revenues exceeding
180 percent of variable costs. [Footnote 25] However, only 17 percent
of transportation equipment (which includes motor vehicles and motor
vehicle parts or accessories) and 32 percent of farm products (which
includes wheat and corn) were transported at rates above this level.
Board officials suggested that the comparatively high and rising R/VC
ratios for chemicals traffic is likely attributable in part to the fact
that the railroads‘ greater liability exposure associated with
transporting hazardous materials is not reflected in the costs
attributable to this traffic under the board‘s rail costing system.
Board officials told us that higher rail rates for transporting
hazardous chemicals are reflected in higher revenues for a railroad.
However, additional costs incurred because of the higher liability
exposure (such as court judgments against a company and set asides for
future claims) are shown as special or extraordinary charges that do
not become part of the variable costs of a movement in the board‘s rail
costing system.
In contrast to the fairly constant overall proportion of goods shipped
with revenues exceeding 180 percent, the results for four broad classes
of commodities decreased or increased noticeably. For example, the
proportion of farm products transported at above 180 percent R/VC
increased from 23 percent to 32 percent from 1997 through 2000,
following an increase from 1990 to 1994 (from 22 to 32 percent) and a
decline from 1994 to 1996 (from 32 to 23 percent). The proportion of
coal shipped above this ratio decreased from 50 percent to 42 percent
from 1997 through 2000, continuing a gradual overall decrease from
1990.
In some instances, the average R/VC ratios for the 1997-2000 period
were considerably higher or lower than the average R/VC ratios for the
1990- 1996 period. For example, the largest increase in average R/VC
ratios for the routes that we reviewed was for medium-distance
shipments of plastics from the Houston, Texas, economic area to the
Little Rock, Arkansas, economic area. On this route, the average R/VC
ratio increased by about 64 percentage points--from an average of 154
percent (1990-1996) to an average of 218 percent (1997-2000). The R/VC
ratio on this route peaked at 250 percent in 1999. The R/VC ratio on
this route was generally increasing while the rail rate was generally
decreasing, suggesting that both rates and variable costs were
decreasing and that railroads did not pass on all cost reductions to
customers in the form of rate reductions. In contrast, the largest
decrease in average R/VC ratios for the routes we examined was about
116 percentage points, which occurred for motor vehicle shipments
between the Chicago economic area and the Dallas economic area--from an
average of 240 percent (1990-1996) to an average of 124 percent (1997-
2000). Over this latter period, rail rates on this route decreased from
about 8.7 cents per ton-mile in 1997 to about 8 cents per ton-mile in
2000. This suggests that variable costs increased during this period.
The R/VC ratios we observed are consistent with railroads‘ ability to
use differential pricing, and they are sensitive to competition. For
example, over the 1997-2000 period and the 1990-1996 period, the R/VC
ratio for medium-distance shipments of wheat from the Great Falls
economic area (a northern plains location) exceeded those for wheat
shipments from the Wichita, Oklahoma City, and Duluth economic areas
for the specified destinations. (See fig. 8.) There are fewer
potentially competitive alternatives to rail in the northern plains
states. In contrast, shipments originating in the central plains states
(for example, from Wichita and Oklahoma City) are considered by some to
have more alternatives to rail than in the northern plains. Duluth (a
northern plains origin) offers a competitive alternative of
transportation by water. The anomaly appears to be medium-distance
wheat shipments originating in the Grand Forks, North Dakota, economic
area (a northern plains origin) transported to the St. Louis, Missouri,
economic area. The R/VC ratio for this route, although consistently
above the R/VC ratio for shipments from the Duluth economic area (with
potential water competition), was generally below that of Wichita and
Oklahoma City (with potentially more rail competition) from 1997
through 2000. This suggests that wheat shipments on this route may have
been sensitive to barge competition from the Mississippi River or rail
competition in the central plains states or the Midwest.
Figure 8. R/VC Ratios for Medium-Distance Shipments of Wheat, 1990-
2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
The use of R/VC ratios has limitations. In particular, the ratios are
subject to misinterpretation because they are simple divisions of
revenues by variable costs. It is possible for rates paid by shippers
to be dropping while the R/VC ratio is increasing--a seemingly
contradictory result. For example, if revenues (which are the rates
paid by shippers) are $2 and variable costs are $1, then the R/VC ratio
is 200 percent. If costs decrease by 50 cents and railroads pass this
cost decrease on to shippers by decreasing rates by 50 cents, the R/VC
ratio becomes 300 percent. Therefore, by itself, the R/VC ratio could
suggest that railroads are using their market power to make shippers
worse off when this might not be the case. Board officials suggested
that the R/VC ratio shown in figure 8 for the movement of wheat from
the Great Falls economic area to the Portland economic area is one such
instance of this. In this case, rail rates from Great Falls generally
decreased over the 1997 through 2000 period from about 3.5 cents per
ton-mile in 1997 to about 3.2 cents per ton-mile in 2000. Board
officials said unit costs were also decreasing, in part, because of
increases in shipment size and various carrier-specific productivity
improvements related to the 1995 Burlington Northern Railroad merger
with the Atchison Topeka & Santa Fe Railway Company. The R/VC ratio on
this route increased from 240 percent in 1997 to 308 percent in 2000.
Similarly, using the example above, if variable costs increase by 50
cents (from $1 to $1.50) and railroads increase their rates by the same
amount (from $2 to $2.50), then the R/VC ratio becomes 167 percent.
Again, the R/VC ratio alone would suggest that shippers are better off-
-because the R/VC ratio decreased from 200 percent--when this might not
necessarily be the case.
Although R/VC ratios have limitations, they can be useful indicators of
railroad pricing and of whether railroads may be using their market
power to set rates. As described previously, the R/VC ratio is a
jurisdictional threshold for the Surface Transportation Board to
consider rate relief cases. The board uses other analytical techniques
to determine whether rates are reasonable.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Surface Transportation Board
and the Department of Transportation for their review and comment. The
board provided its comments in a meeting that included its general
counsel and chief economist. In general, the board agreed with the
material presented in our draft report and stated that it accurately
portrayed rail rate trends over the period of our study. It said that
the overall trend of declining rates that we found is consistent with
studies and analyses prepared by the board. Board officials said that,
while it can be difficult to identify with specificity the reasons why
rail rates might change in the short run, especially rates for specific
commodities over specific routes, the draft report did an admirable job
in discussing factors that could influence rate changes. Among the
specific comments made were (1) that low rail rates have allowed
Western coal to penetrate Eastern coal markets and (2) that R/VC ratios
for chemicals may not fully reflect the costs of increased liability
exposure faced by railroads in transporting hazardous chemicals. We
made changes to the report to reflect the board‘s comments. The board
offered additional clarifying, presentational, and technical comments
that, with few exceptions, we incorporated into our report.
The Department of Transportation, in oral comments made by the
director, Office of Intermodal Planning and Economics, Federal Railroad
Administration, said that the report fairly and accurately portrayed
the changes in railroad freight rates over the study period, and that
rail rates were responsive to market conditions and competition. The
department suggested that our Results in Brief section should indicate
that R/VC ratios cannot be relied upon as measures of railroad market
power. We modified the Results in Brief to provide a fuller discussion
of R/VC limitations.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 21 days
after the date of this letter. At that time, we will send copies of
this report to congressional committees with responsibilities for
freight railroad competition issues; the administrator, Federal
Railroad Administration; the chairman, Surface Transportation Board;
and the director, Office of Management and Budget. We will also make
copies available to others upon request. This report will also be
available on our home page at http://www.gao.gov .
If you or your staff have any questions about this report, please
contact either James Ratzenberger at ratzenbergerj@gao.gov or me at
heckerj@gao.gov . Alternatively, we may be reached at (202) 512-2834.
Key contributors to this report were Stephen Brown, Richard Jorgenson,
and James Ratzenberger.
Sincerely yours,
JayEtta Z. Hecker Director, Physical Infrastructure Issues:
Signed by JayEtta Z. Hecker.
(544029):
FOOTNOTES
[1] U.S. General Accounting Office, Railroad Regulation: Changes in
Railroad Rates and Service Quality Since 1990, GAO/RCED-99-93
(Washington, D.C.: Apr. 16, 1999).
[2] The Surface Transportation Board is the industry‘s economic
regulator. Among other things and upon request, it decides disputes
between shippers and railroads over the reasonableness of rates. Rates
are not presumed unreasonable solely because they are above this
threshold.
[3] The Carload Waybill Sample is a sample of documents prepared from
bills of lading (authorizing railroads to move shipments and collect
freight charges) that are submitted by railroads annually.
[4] Rates are measured as cents per ton-mile. A ton-mile is 1 ton of
freight transported 1 mile. Unless otherwise noted, all rates are in
1996 dollars. We used 1996 dollars to facilitate comparisons of the
results in this report with those presented in our 1999 report.
[5] A transaction is something other than a continuing service provided
by railroads that requires board approval (such as the control of one
railroad by another or an abandonment of track).
[6] Other reasons for the reduction in the number of Class I railroads
were carrier bankruptcies and various changes in the threshold for
qualifying as a Class I railroad (from $5 million in 1976 to $250
million in 1992, as measured in 1991 dollars, and adjusted for
inflation since then). Bankruptcies eliminated 2 of the 30 Class I
railroad systems, while changes in the Class I standard moved 9 systems
out of Class I status.
[7] For this analysis we used rate indexes. A rate index attempts to
measure price changes over time by holding constant the underlying
collection of items that are consumed (for example, items shipped). See
appendix I for a discussion of the rate indexes that we constructed.
[8] Fred Freme, U.S. Energy Information Administration, U.S. Coal
Supply and Demand: 2000 Review (undated).
[9] The total supply of corn is a combination of carryover stock,
production, and imports.
[10] According to the board, corn rates also tend to be lower than
wheat rates, in part, because corn is more likely than wheat to move in
longer 110-car unit trains which are more cost efficient than shorter
trains.
[11] Potassium/sodium production increased from about 69 million tons
in 1997 to about 70 million tons in 1999 before falling back in 2000 to
just under 68 million tons. Plastics production increased from about
52.6 million tons in 1997 to about 58 million tons in 2000.
[12] In contrast, the tonnage of chemicals transported by truck
remained at about 55 percent between 1997 and 2000.
[13] Surface Transportation Board, Rail Rates Continue Multi-Year
Decline, Office of Economics, Environmental Analysis, and
Administration (Dec. 2000). The board measured rail rates as gross
revenue per ton-mile of freight originated and stated these rates in
1999 dollars. The board used a rate index in which it aggregated annual
rate changes for the 1984 to 1999 period for different commodity groups
by weighting each commodity‘s year-by-year rate change by its share of
total rail revenue in those two years.
[14] Appendix II contains illustrations of real rail rates for coal
shipments on short- and long-distance routes.
[15] The Central Appalachia Coal Supply Region includes eastern
Kentucky, Virginia, and southern West Virginia.
[16] Fred Freme, Energy Information Administration.
[17] Appendix III contains illustrations of the real rail rates on
selected long- and short-distance routes for wheat and corn.
[18] An economic area is a collection of counties in and about a
metropolitan area (or other center of economic activity); there are 172
economic areas in the United States, and each of the 3,141 counties in
the country is contained in an economic area.
[19] Wheat production in Oklahoma subsequently declined to about 143
million bushels (preliminary estimate) in 2000. Bulk grain statistics
for the Port of Houston Authority may include shipments from other
domestic locations as well as imports.
[20] Real rail rates for other distance categories reflected similar
trends, except for rate increases between 1999 and 2000 on three of the
five short-distance (500 miles or less) routes we examined.
[21] U.S. Department of Agriculture, Agricultural Marketing Service,
Grain Transportation Prospects (Feb./Mar. 2001).
[22] U.S. Department of Agriculture, Agricultural Marketing Service,
Grain Transportation Prospects (Nov. 1999).
[23] Appendix IV contains illustrations of real rail rates for
chemicals and transportation equipment shipments in other distance
categories.
[24] Generally, greater competition results in lower rates charged for
goods and services. In a competitive market, producers will offer goods
or services if, over the short term, they can at least recover those
costs that vary with the level of production.
[25] Consistent with our 1999 report, we examined changes in R/VC
ratios for broader categories of products than we did for changes in
rates.
[End of section]
Appendix I: Scope and Methodology:
As for our 1999 report, we used the board‘s Carload Waybill Sample to
identify railroad rates from 1997 through 2000 (the latest data
available at the time of our review), which we then analyzed to
determine rate changes. The Carload Waybill Sample is a sample of
railroad waybills (in general, documents prepared from bills of lading
authorizing railroads to move shipments and collect freight charges)
submitted by railroads annually. We used these data to obtain
information on rail rates for specific commodities in specific markets
by shipment size and length of haul. According to board officials,
revenues derived from the Carload Waybill Sample are not adjusted for
such things as year-end rebates and refunds that may be provided by
railroads to shippers who exceed certain volume commitments.
Some railroad movements contained in the Carload Waybill Sample are
governed by contracts between shippers and railroads. To avoid
disclosure of confidential business information, the board disguises
the revenues associated with these movements before making this
information available to the public. Consistent with our statutory
authority to obtain agency records, we obtained a version of the
Carload Waybill Sample that did not disguise revenues associated with
railroad movements made under contract. Therefore, the rate analysis
presented in this report presents a truer picture of rail rate trends
than analyses that may be based solely on publicly available
information. Since much of the information contained in the Carload
Waybill Sample is confidential, rail rates and other data contained in
this report that were derived from this database have been aggregated
at a level sufficient to protect this confidentiality.
As in our 1999 report, we analyzed coal, grain (wheat and corn),
chemicals (potassium and sodium compounds and plastic materials or
synthetic fibers, resins, or rubber), and transportation equipment
(finished motor vehicles and motor vehicle parts or accessories)
shipments. These commodities represented about 52 percent of total
industry revenue in 2000 and, in some cases, had a significant portion
of their rail traffic transported on routes where the ratio of revenue
to variable costs equaled or exceeded 180 percent.
We used rate indexes and average rates on selected corridors to measure
rate changes over time. A rate index attempts to measure price changes
over time by holding constant the underlying collection of items that
are consumed (in the context of this report, items shipped). This
approach differs from comparing average rates in each year because,
over time, higher- or lower-priced items can constitute different
shares of the items consumed. Comparing average rates can confuse
changes in prices with changes in the composition of the goods
consumed. In the context of railroad transportation, rail rates and
revenues per ton-mile are influenced, among other things, by average
length of haul. Therefore, comparing average rates over time can be
influenced by changes in the mix of long- and short-haul traffic. Our
rate indexes attempted to control for the distance factor by defining
the underlying traffic collection to be commodity flows occurring in
2000 between pairs of census regions.
To examine the rate trends on specific traffic corridors, we first
chose a level of geographic aggregation for corridor endpoints. For
grain, chemical, and transportation equipment traffic, we defined
endpoints to be regional economic areas defined by the Department of
Commerce‘s Bureau of Economic Analysis. For coal traffic, we used
economic areas to define destinations and used coal supply regions--
developed by the Bureau of Mines and used by the Department of Energy-
-to define origins. An economic area is a collection of counties in and
about a metropolitan area (or other center of economic activity); there
are 172 economic areas in the United States, and each of the 3,141
counties in the country is contained in an economic area. As in our
1999 report, we placed each corridor in one of three distance-related
categories: 0-500 miles, 501-1,000 miles, and more than 1,000 miles.
Although these distance categories are somewhat arbitrary, they
represent reasonable proxies for short-, medium-, and long- distance
shipments by rail.
To address issues related to revenue-to-variable cost ratios we
obtained data from the board identifying revenues, variable costs, and
R/VC ratios for commodities shipped by rail at the two-digit Standard
Transportation Commodity Code level. We used data from the Carload
Waybill Sample to identify the specific revenues and variable costs and
to compute R/VC ratios for the commodities and markets we examined.
Using this information we then identified those commodities and markets
whose R/VC ratios were consistently above or below the 180 percent R/VC
level.
We performed our work from December 2001 through May 2002, in
accordance with generally accepted government auditing standards.
[End of Section]
Appendix II: Real Rail Rates for Coal:
The following are real (inflation-adjusted) rail rates for coal
shipments in the various markets and distance categories we reviewed.
The distance categories are as follows: short is 0 to 500 miles, medium
is 501 to 1,000 miles, and long is greater than 1,000 miles.
Figure 9. Real Rail Rates for Coal, Selected Short-Distance Routes,
1990-2000:
[See PDF for image]
Note: The Central Appalachia Coal Supply Region includes eastern
Kentucky, Virginia, and southern West Virginia. The Northern Appalachia
Coal Supply Region includes Maryland, Ohio, Pennsylvania, and northern
West Virginia. The Illinois Basin Coal Supply Region includes western
Kentucky, Illinois, and Indiana.
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Figure 10. Real Rail Rates for Coal, Selected Long-Distance Routes,
1990-2000:
[See PDF for image]
Note: The Powder River Basin Coal Supply Region includes Montana and
Wyoming.
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
[End of Section]
Appendix III: Real Rail Rates for Wheat and Corn Shipments:
The following are real (inflation-adjusted) rail rates for wheat and
corn shipments in the various markets and distance categories we
reviewed. The distance categories are as follows: short is 0 to 500
miles, medium is 501 to 1,000 miles, and long is greater than 1,000
miles.
Figure 11. Real Rail Rates for Wheat, Selected Short- and Long-Distance
Routes,
1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Figure 12. Real Rail Rates for Corn, Selected Short- and Long-Distance
Routes,
1990-2000:
[See PDF for image]
Note: For confidentiality, data points for 1996, 1998, and 1999 within
the Des Moines economic area were excluded.
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
[End of Section]
Appendix IV. Real Rail Rates for Chemicals and Transportation
Equipment:
The following are real (inflation-adjusted) rail rates for selected
chemical and transportation equipment shipments in the various markets
and distance categories we reviewed. The distance categories are as
follows: short is 0 to 500 miles, medium is 501 to 1,000 miles, and
long is greater than 1,000 miles.
Figure 13. Real Rail Rates for Potassium/Sodium Compounds, Selected
Short-,
Medium-, and Long-Distance Routes, 1990-2000:
[See PDF for image]
Note: For confidentiality, the 1997 data point for the route from the
New Orleans economic area to the Baton Rouge economic area was
excluded.
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Figure 14. Real Rail Rates for Plastic Materials or Synthetic Fibers,
Resins, or
Rubbers, Selected Medium- and Long-Distance Routes, 1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Figure 15. Real Rail Rates for Motor Vehicles, Selected Long-Distance
Routes,
1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
Figure 16. Real Rail Rates for Motor Vehicle Parts or Accessories,
Selected
Medium- and Long-Distance Routes, 1990-2000:
[See PDF for image]
Source: GAO‘s analysis of the Surface Transportation Board‘s data.
[End of Figure]
[End of Section]
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