A Comprehensive Rail Rate Index for Grain

The Transportation Research Forum, founded in 1958, is an independent, nonprofit organization of transportation professionals who conduct, use, and benefit from research. Its purpose is to provide an impartial meeting ground for carriers, shippers, government officials, consultants, university researchers, suppliers, and others seeking exchange of information and ideas related to both passenger and freight transportation. More information on the Transportation Research Forum can be found on the Web at www.trforum.org. INTRODUCTION Rail rates have always been a contentious issue between railroads and shippers. On the one hand, rates must be sufficient to cover railroads' total costs, as well as provide an acceptable return on investment. However, rates should not be priced so high that the availability of railroad service becomes limited to only a handful of shippers, while forcing the rest to either adopt alternative transportation modes, if practical, or go out of business. As such, several recent studies have developed rail rate indices to analyze the changes in rail rates over time in order to evaluate the fairness and competitiveness of the railroad industry. While some of these studies have included a rail rate index for grain, none have been a comprehensive index from a shipper's point of view. This study creates a new comprehensive rail rate index for grain that includes the pricing components that are somewhat unique to grain movements: rail tariffs, fuel surcharges, and secondary railcar auction values. Grain is an important railroad commodity. In 2010, grain represented 5.5% of all carloads originated, 8.2% of total tons, and 8.4% of total revenue for the Class I railroads (AAR 2010). In turn, railroads hauled 33% of all grain transported in the United States in 2007 (USDA/AMS 2011). The Surface Transportation Board (STB) notes that grain shippers have been concerned about rail rates over the past few years (STB 2009a). Some of their major concerns include greater reliance on shipper-owned rolling stock, pricing disincentives for single-and multi-car service, and lower rates for longer hauls. In addition, the Government Accountability Office (GAO) expressed its concern over competition and captivity in the rail industry (GAO 2006; GAO 2007). The STB and GAO developed rail rate indices for the rail industry overall, and the GAO developed a separate index for grain. Although their methodologies for creating rate indices differed, their findings were similar. The GAO's grain rate index, on the other hand, shows that grain rates have steadily increased between 1987 …