Summary

Pursuant to a congressional request, GAO: (1) reviewed the economic and financial impacts of the Staggers Rail Act on railroads and shippers; (2) analyzed the financial performance of the railroad industry; and (3) compared railroads' financial performance with that of other transportation industries.

GAO found that: (1) the Staggers Rail Act provided greater rate-setting and contracting freedom; (2) cost reduction measures, abandonments, sales of unprofitable lines, and productivity improvements made the railroad industry more competitive; (3) improved competitiveness allowed railroads to regain a share of the intercity freight transportation market; (4) shippers benefited from reduced railroad regulation; (5) railroad reliability increased and freight car shortages, which might interrupt a business, declined; (6) rates did not change to the same degree for all shippers and, because of line abandonments and joint rate cancellations, some shippers experienced increased costs or reduced service; (7) shippers expressed dissatisfaction with the Interstate Commerce Commission's (ICC) relief procedures and questioned whether ICC adequately protected their interests; and (8) in response to shippers' concerns, ICC adopted new policies and procedures for mediating rates and other disputes. GAO also found that: (1) reduced costs and increased efficiency increased the nation's largest railroads' profits, improved their ability to pay long-term obligations, and reduced their debt levels; (2) while ICC deemed certain railroads' revenues as adequate, the railroad industry as a whole did not achieve revenue adequacy and its return on investments did not equal or exceed the current cost of capital; (3) railroads lagged behind both trucks and natural gas pipelines in profitability; and (4) since the 1981-1982 recession, railroads have improved their average annual return on investments by only 3 percent, compared with 16 and 6 percent improvements for trucking and gas pipelines, respectively.