Railroads
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Industry Overview
The US railroad industry includes about 360 railroads with combined annual revenue of about $57 billion. Major freight railroads include Union Pacific, Burlington Northern Santa Fe, CSX, and Norfolk Southern. Amtrak is the sole nationwide passenger rail service. The industry is highly concentrated: the 50 largest companies generate nearly 100 percent of revenue.
The US government classifies freight railroads by size. Seven line-haul Class I railroads operate nationwide on high-density, intercity traffic lanes. Class I carriers account for more than 90 percent of the industry revenue and about two-thirds of overall track mileage. About 30 regional Class II railroads typically operate routes of about 500 miles between two to four states. More than 300 shortline Class III railroads haul cargo 350 or fewer miles on local rail lines.
Commuter, switching and terminal, and tourist railroads are not included in the industry.
Competitive Landscape
Demand is driven by sales of bulk commodities and other items best transported by rail. The profitability of individual companies depends on operating efficiently and controlling maintenance expenses. Large companies have advantages in owning systems that connect numerous markets and enable them to serve national customers. Small companies can compete effectively by serving local markets.
Products, Operations & Technology
Major services are the transport of commodities, including coal, grain, crushed rock, and chemicals; containers of consumer goods; automobiles; and passengers. The overwhelming majority of railroad revenue comes from transporting commodities. Coal accounts for 40 percent of these commodities by tonnage. Container transport, also known as intermodal rail traffic, moves consumer goods to ships and trucks without unloading the freight between modes of travel. Intermodal rail traffic of goods and commodities accounts for over 20 percent of rail transportation revenue, according to the Association of American Railroads (AAR).
Moving commodities by rail begins at the source of raw materials. Trains typically carry only a single commodity from its origin to the line’s terminus. Intermodal rail travel typically begins at port with cranes moving mixed consumer goods in containers from ship to railcar. The trip terminates at a classification yard, where cargo is diverted or unloaded, and train cars are uncoupled and either moved to storage tracks or reassembled for a new route. The time required for this final process, known as terminal dwell, is an important measure of railroad efficiency. Class I trains spend an average of 24 hours in terminal dwell.
Freight cars come in many forms. Autoracks are multi-level cars that transport automobiles. Well cars are designed to carry shipping containers; some cars allow containers to be double-stacked. Tank cars carry bulk liquids and gases. Boxcars are versatile cars used to transport general freight. Flatcars hold loads that are too large to be enclosed in boxcars. Hoppers have opening doors on the underside of the car to transport and discharge loose commodities such as coal, grain, ore, and ballast. The average freight car capacity is just over 90 tons. Cars typically have a useful life of 20 to 40 years.
Important operating metrics include average line-haul speed or velocity, a measure of train efficiency, and ton-miles, the movement of one ton a distance of one mile. Average velocity for a Class I railroad is about 25 miles per hour. Revenue per ton-mile, a proxy for rail rates, is a measure of revenue a railroad brings in for its services and averages around 3 to 4 cents, according to AAR. Revenue ton-miles, on the other hand, are the total number of ton-miles moved within the industry or by a single company. The railroad industry moves nearly 2 trillion ton-miles annually, according to the Federal Railroad Administration.
Railroads invest heavily in infrastructure needs: steel, concrete, wood, and rock ballast for rail lines; signal cables; new locomotives and rail cars; and switch and cross ties. State governments often subsidize the investment in track infrastructure. Amtrak, the sole nationwide passenger travel service, operates mainly over lines controlled by freight railroads.
Technological improvements have led to huge productivity gains within the railroad industry. Automated real-time inspection systems detect rail failures; GPS and radio frequency identification (RFID) tags allow for real-time freight tracking. Class I railroads use complex computer workstations and telecommunication networks to efficiently schedule and manage freight traffic.
