Antitrust Issues In The Rail Transportation Industry

The rail transportation industry is subject to state and federal
antitrust laws and various industry-specific regulations. The Surface
Transportation Board (STB), as the industry primary regulator,1 has
jurisdiction over common carriers. Certain rail industry practices fall
exclusively within the STB’s jurisdiction and outside of the realm of
federal and state antitrust laws. A comprehensive analysis of the antitrust
exemptions and immunities for railroads will be provided throughout this
The chapter is structured in four parts. Part A offers an overview of
the U.S. rail transportation industry and of its history of consolidation.
Part B focuses on the history of industry regulation from the Interstate
Commerce Act of 1887 through the ICC Termination Act of 1995 and
the current structure of the STB. Part C analyzes the scope of current
industry regulation with respect to issues such as common carrier
obligations, pooling arrangements, competitive access, entry and exit,
and interline traffic. Part D addresses relevant antitrust issues with
respect to the industry, including mergers and acquisitions, joint
ventures, and alliances. Lastly, Part E discusses the future of railroad
A. The U.S. Railroad Industry
U.S. rail freight predominantly operates on a “vertical integrated”
model.2 In other words, U.S. railroads control both the track and rail
services, operating on infrastructure that they own, build, maintain, and
1. The Federal Railroad Administration also has jurisdiction over some
aspects of railroad operations.
2. A vertical integrated rail model is defined as a system in which “a
railroad generally both owns the track and operates trains over that track.”
AAR, America’s Freight Railroads: Global Leaders (Apr. 2013), at 2,
available at
42 Transportation Antitrust Handbook
self-finance.3 This model dates back to the early 1830s with the
completion of the first “common carrier”: the Baltimore & Ohio
Railroad.4 The vertical integrated model is distinct from the various
models found in other countries, where railroads control rail services and
operations, but government or other entities own the trackage and other
The STB today classifies U.S. freight railroads into three classes
based on annually adjusted operating revenue thresholds. In 2011, the
revenue threshold was $433 million for Class I railroads, $34.6 million to
$433 million for Class II or regional railroads, and under $34.6 million
for Class III or local line hauls.6 Different rules and regulations apply to
each class of railroads.7
The current U.S. railroad network includes seven Class I railroads
and more than 560 regional and local line haul railroads. The latter are
also known as “short lines.” Class I railroads account for 69 percent of
the industry’s mileage, 90 percent of its employees, and 94 percent of its
freight revenue (but constitute only 1 percent of the number of freight
railroad companies).8 With the exception of Burlington Northern Santa
Fe (BNSF),9 all of the Class I railroads are publically traded: Union
3. AAR, A Short History of U.S. Freight Railroads (Apr. 2013), at 4,
available at
Papers/A-Short-History-of-US-Freight.pdf; AAR, America’s Freight
Railroads: Global Leaders, supra note 2, at 2.
4. Paul Stephen Dempsey, Transportation: A Legal History, 30 TRANSP. L.J.
235, 247 (2003).
5. Makeda F. Jahanshahi, The US Railroad Industry and Open Access, 5
TRANSP. POLY 73, 73-81 (1998).
6. For the railroad revenue thresholds for the last five years through 2012,
7. The STB, for example, applies different criteria to review mergers
between Class I railroads and mergers not involving large rail carriers.
DEVELOPMENTS 1499 (7th ed. 2012) [hereinafter ALD].
8. AAR, Overview of America’s Freight Railroads (Apr. 2013), at 1,
available at
9. The Federal Role in National Rail Policy: Hearing Before the S. Comm.
on Commerce, Sci., and Transp., 110th Cong. 1 (2010) (statement of
Daniel R. Elliott, III, Chairman, STB). In 2009, Warren Buffett’s
Berkshire Hathaway purchased BNSF for $34 billion. American
Railways—High-Speed Railroading, ECONOMIST, July 24, 2010, at 69
[hereinafter American Railways].
Antitrust Issues in the Rail Transportation Industry 43
Pacific (UP), CSX, Norfolk Southern (NS), Grand Trunk, Soo Line, and
Kansas City Southern (KCS).10
Notably, none of these privately held rail carriers provides passenger
transportation. Since the creation of Amtrak by the Rail Passenger
Service Act of 1970, Class I rail carriers no longer provide passenger
transportation in the United States.11
Railroads generate freight revenue primarily from the shipment of
commodities, in particular coal. In 2011, coal accounted for 43 percent
by volume and 25 percent by value of U.S. Class I railroad business.12
More than 70 percent of the coal delivered to coal-fueled power plants is
delivered by rail,13 but the volume of coal shipments has slowly declined
since 2008. This is due principally to lower natural gas prices, which
increase the competitiveness of electricity generated from natural gas as
opposed to coal, and new EPA regulations, which place new coal-fired
power plants under more restrictive carbon dioxide emission
After coal, the railroad business’ three most important commonly
shipped commodities are chemicals, farm products, and non-metallic
10. Grand Trunk consists of the U.S. operations of Canadian National,
including the former Grand Trunk Western, Illinois Central, and
Wisconsin Central. Soo Line is owned by Canadian Pacific. See AAR,
Overview of America’s Freight Railroads (May 2008), at 1, available at
11. Rail Passenger Service Act of 1970, Pub. L. No. 91-518, 84 Stat 1327.
On the rationale for the creation of Amtrak, see AAR, A Short History of
U.S. Freight Railroads, supra note 3, at 3; Laurence E. Tobey, Costs,
Benefits, and the Future of Amtrak, 15 TRANSP. L.J. 245 (1987).
12. AAR, Class I Railroad Statistics (May 10, 2012), at 3, available at
13. AAR, Railroads and Coal (Aug. 2013), at 1, available at
14. Id. In November 2012, th e AAR petitioned the STB to initiate a
rulemaking procedure to determine whether the existence of indirect
competition coming from natural gas would justify a reassessment of the
STB jurisdiction over coal shipping rates. See Press Release, AAR, AAR
Urges STB to Consider Competition from Natural Gas in Select Coal
Rate Cases (Nov. 19, 2012), available at

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