Freight Rates and Rail Captivity – Impacts on the U.S. Chemical Industry and Other Shippers

This new research shows that many domestic producers who depend on rail are affected by high rates—and the problem is getting worse. The report, released on behalf of organizations representing manufacturers, farmers, utilities and others, explains the detrimental impact of soaring freight rail rates and outlines a renewed effort to pass freight rail policy reforms. 

Summary: Rate Premiums Soar for Wide Array of American Manufacturers

To determine the premium manufacturers pay on each shipment, Escalation Consultants Inc. calculated the railroads variable cost and the revenue to variable cost (RVC) ratio for more than thirty-nine million carloads of rail traffic. The RVC is an important indicator because traffic with rates greater than 180 percent RVC is subject to potential Surface Transportation Board (STB) review for being unreasonably high.

The study found that U.S. chemical shippers pay billions of dollars in freight rate premiums each year, and that the lack of rail competition harms U.S. producers. 

  • In 2011, more than half (57 percent) of all rail rates exceeded 180 percent RVC;
  • From 2005 to 2011, the total rate premium paid by commodity shippers increased 90 percent even though carload volume declined by 1.1 percent;
  • As a result, the total rate premium paid by commodity shippers in 2011 exceeded $16 billion;
  • The commodity groups with the largest total rate premiums were coal ($5.2 billion), chemicals and plastics ($4.5 billion) and transportation equipment ($1.2 billion);
  • Many rates were far above the STB’s jurisdictional threshold of 180% RVC—for example, nearly one quarter (23 percent) of rates exceeded 300 percent RVC, or three times the railroad’s variable cost.

ACC’s Policy Position

While a strong rail industry is vital to the U.S. economy, excessive rates can be a burden on U.S. manufacturing and provide a competitive advantage to foreign producers. ACC and its members support policies that would unleash market forces in the rail industry and help ensure an efficient flow of commerce. » Learn more about ACC rail policy

Strengthening Rail Competition—A Key to Economic Growth

The development of shale gas is a “game changer” that can rejuvenate America’s chemistry industry, strengthen U.S. manufacturing, boost exports, and create jobs. Ensuring a competitive freight rail system can help maximize this advantage for the U.S. economy.
» Learn more about shale gas