Taken together, these acts  anchor the federal government’s role in the freight rail industry by  establishing numerous goals for regulating the industry, including to    allow, to the maximum extent possible, competition and demand for  services to establish reasonable rates for transportation by rail;    minimize the need for federal regulatory control over the rail  transportation system and require fair and expeditious regulatory  decisions when regulation is required;    promote a safe and efficient rail transportation system by allowing rail  carriers to earn adequate revenues, as determined by STB;    ensure the development and continuation of a sound rail transportation  system with effective competition among rail carriers and with other  modes to meet the needs of the public and the national defense;  foster sound economic conditions in transportation and ensure  effective competition and coordination between rail carriers and other  modes;    maintain reasonable rates where there is an absence of effective  competition and where rail rates provide revenues that exceed the  amount necessary to maintain the rail system and attract capital;    prohibit predatory pricing and practices to avoid undue concentrations  of market power; and    provide for the expeditious handling and resolution of all proceedings. Railroad Industry Is Increasingly Healthy and Rail Rates Have Generally Declined Since 1985, Despite Recent Rate Increases

The changes that have occurred in the railroad industry since the  enactment of the Staggers Rail Act are widely viewed as positive. In  addition, rail rates have generally declined since 1985, even though rates  began to increase in 2001 and experienced a 9 percent annual increase  between 2004 and 2005—the largest annual increase in 20 years. Railroad Industry’s Financial Health Has Improved Substantially

There is widespread consensus that the freight rail industry has benefited  from the Staggers Rail Act. In 2005, rates increased for all 13 commodities that we  reviewed. 3). Reported Miscellaneous Revenue, Including Fuel Surcharges, Increased Ten- Fold Since 2000

In 2005 the amount of industry revenue reported as miscellaneous  increased ten-fold over 2000 levels, rising from about $141 million to over  $1.7 billion (see fig. Captive Shippers Are Difficult to Identify But Concerns Remain and Past STB Actions Have Led to Little Effective Relief

In October 2006, we reported that captive shippers are difficult to identify  and STB’s efforts to protect captive shippers have resulted in little  effective relief for those shippers. We also reported that economists and  shipper groups have proposed a number of alternatives to address  remaining concerns about competition – however, each of these  alternative approaches have costs and benefits and should be carefully  considered to ensure the approach will achieve the important balance set  out in the Staggers Act. Some areas with access to one Class I railroad also have more than half of  their traffic traveling at rates that exceed the statutory threshold for rate  relief. STB Has Taken Actions to Protect Captive Shippers but Efforts Have Led to Little Effective Relief

STB has taken a number of actions to provide relief for captive shippers. STB Has Taken Steps to Address Problems, but Actions Are Too Recent to Be Evaluated

STB has taken some actions to address our past recommendations, but it  is too soon to determine the effect of these actions. In October 2006 we  reported that the continued existence of pockets of potential captivity at a  time when the railroads are, for the first time in decades, experiencing  increasing economic health, raises the question whether rail rates in  selected markets reflect justified and reasonable pricing practices, or an  abuse of market power by the railroads. However, in June 2007, STB  stated that it intended to implement our recommendation using funding  that was not available at the time of our October report to solicit proposals  from analysts with no connection to the freight railroad industry or STB  proceedings to conduct a rigorous analysis of competition in the freight  railroad industry. It will be important that these  analysts have the ability that STB has through its statutory authority to  inquire into railroad practices as well as sufficient access to information to  determine whether rail rates in selected markets reflect justified and  reasonable pricing practices, or an abuse of market power by the  railroads. We also recommended that STB review its method of data collection to  ensure that all freight railroads are consistently and accurately reporting  all revenues collected from shippers, including fuel surcharges and other  costs not explicitly captured in all railroad rate structures. While these are  positive steps, these rules did not address how surcharges are reported in  the Carload Waybill Sample. As stated earlier, STB has also taken steps to refine the rate relief process  since our 2006 report. While  these appear to be positive steps that could address longstanding concerns  with the rate relief process, it is too soon to determine the effect of these  changes to the process, and we have not evaluated the effect of these  changes. Freight Railroads: Updated Information on Rates and Other Industry  Trends. Railroad Regulation: Economic and Financial Impacts of the Staggers  Rail Act of 1980. Shipper Rail Rates: Interstate Commerce Commission’s Handling of  Complaints.
Why GAO Did This Study

The Staggers Rail Act of 1980 largely deregulated the freight railroad industry, giving the railroads freedom to price their services according to market conditions and encouraging greater reliance on competition to set rates. The act recognized the need for railroads to recover costs by setting higher rates for shippers with fewer transportation alternatives. The act also recognized that some shippers might not have access to competitive alternatives and might be subject to unreasonably high rates. It established a threshold for rate relief and granted the Interstate Commerce Commission and the Surface Transportation Board (STB) the authority to develop a rate relief process for those "captive" shippers. GAO's reported on rates, competition, and other industry trends in reports issued in October 2006 and August 2007. This statement is based on those reports and discusses (1) the changes that have occurred in the railroad industry since the enactment of the Staggers Rail Act, including changes in rail rates since 1985, (2) the extent of captivity in the industry and STB's efforts to protect captive shippers, and (3) STB's actions to address GAO's recent recommendations.

What GAO Found

The changes that have occurred in the railroad industry since the enactment of the Staggers Rail Act are widely viewed as positive, since the financial health of the industry has improved and most rates have declined since 1985. The freight railroad industry's financial health improved substantially as railroads cut costs through productivity improvements and new technologies. However, rates began to increase in 2001, and in 2005 rates jumped nearly 9 percent--the largest annual increase in twenty years--and rates increased for all 13 commodities that we reviewed. Revenues that railroads report as "miscellaneous revenue"--a category that includes some fuel surcharges--increased more than ten-fold from $141 million in 2000 to over $1.7 billion in 2005. It is difficult to precisely determine how many shippers are "captive" because available proxy measures can overstate or understate captivity. However some data indicate that potentially captive traffic appears to have decreased, while at the same time, data also indicates that traffic traveling at rates significantly above the threshold for rate relief has increased. In October 2006, we reported that STB's rate relief process to protect captive shippers have resulted in little effective relief for those shippers. We also reported that economists and shipper groups have proposed a number of alternatives to address remaining concerns about competition--however, each of these alternative approaches have costs and benefits and should be carefully considered. STB has taken some actions to address our past recommendations, but it is too soon to determine the effect of these actions. Our October 2006 report noted that the continued existence of pockets of potentially "captive shippers" raised questions as to whether rail rates in selected markets reflected reasonable pricing practices, or an abuse of market power. We recommended that the Board undertake a rigorous analysis of competitive markets to identify the state of competition. STB has awarded a contract to conduct this study; while this is an important step, it will be important that these analysts have STB's authority and access to information to determine whether rail rates in selected markets reflect reasonable pricing practices. We also recommended that STB ensure that freight railroads are consistently reporting all revenues, including miscellaneous revenues. While STB has revised its rules on fuel surcharges, these rules did not address how fuel surcharges are reported and STB has not yet taken steps to accurately collect data on other miscellaneous revenues. STB has also taken a number of steps to revise its rate relief process. While these appear to be promising steps, it is too soon to tell what effect these changes will have and we have not evaluated them.