Variability of Track Investment with Traffic for Class I Railroads in the United States

Abstract

Class I railroads operate more than 191,000 kilometers of rail line in the United States, in which they have invested $196 billion. Although these railroads are privately owned, they are regulated by the US Surface Transportation Board (STB). Some of the cost factors used by the STB in decision making are based on data from 68 to 80 years ago. These factors were developed in an era of stricter regulation, constrained business practices, low returns to investment, and lower traffic levels. In this study, new data and methods are used to assess the assumption that 50% of a railroad’s investment in basic track components (such as rails, ties, and ballast) is fixed with respect to traffic. Investments in these assets are modeled as a function of traffic density, using 33 years of data for Class I railroads. A model is formulated that includes fixed effects and isolates the variation of track investment with gross tonne-kilometers. In this study, track investments are shown to be highly variable with traffic density: more so than is currently assumed. This finding has implications for regulatory practice. The 50% variable factor is used in formulas to determine if the STB has jurisdiction over a rate and, in some cases, whether the rate is reasonable.