Vertical Integration Versus Infrastructure Separation for Railroads: Different Optimums for Different Settings?

Open access is sometimes seen as promoting rail competition effectively when infrastructure geography and market demand restricts routings — e.g. in Europe. European railways are passenger-oriented, highly scheduled, poorly standardized, and lines serve specialized functions. Conversely, American railroads are freight-oriented, flexible, and highly standardized. Consequently, optimal forms of organization differ. American railroads compete vigourously for through-traffic, and seek efficiency gains through competition and mergers. European railways are focused on local traffic, and are consolidated on a national basis. The technical, cultural, national and corporate incompability between European national systems precludes vertically-integrated parallel competition as a solution, requiring the operational complexity of infrastructure separation to create a pan-European network. However, American railroads, with some mandated infrastructure divestment, may compete positively, yet generate value effectively through creative inter-modal cooperation as true transportation retailers, without resorting to open access. Efficient organizational structure will ensure rail’s survival through the 21st Century.