SIC 4011 Railroads, Line-Haul Operating

 
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SIC 4011

This category covers establishments engaged primarily in line-haul railroad passenger and freight operations. Railways primarily engaged in furnishing passenger transportation confined principally to a single municipality, contiguous municipalities, or a municipality and its suburban areas are classified in SIC 4111: Local and Suburban Transit and SIC 4119: Local Passenger Transportation, Not Elsewhere Classified.

NAICS CODE(S)

482111

Line-Haul Railroads

INDUSTRY SNAPSHOT

Line-haul is defined as "the movement of freight between terminals." More generally, line-haul railroads are those that transport passengers or freight long distances on a network of tracks that disperse goods and passengers across the United States. In the mid-2000s railroads held 42 percent of the nation's intercity freight market based on ton-miles, compared to trucks with 28 percent, pipeline with 17 percent, and water with 13 percent. By revenue, trucks accounted for the majority with 80 percent, and railroads accounted for 10 percent. In 2003 the line-haul railroad industry generated $38.3 billion in revenues.

After struggling financially during the 1990s due to overcapacity and low demand, the railroads were moving record tonnage of freight by the mid-2000s. Spurred by a revived national economy and a shortage of trucks, manufacturers turned to railroads to help move goods across the country. According to the Association of American Railroads (AAR), in 2004 U.S. railroads carloads totaled 17.42 million, up 3 percent from 2003. Records were set for number of intermodal units (10.99 million) and total ton-miles (1.61 trillion). Railroads did face ongoing overhead problems due to high infrastructure maintenance costs and a highly unionized workforce. Amtrak, the nation's passenger rail system, faced a budgetary crisis in the mid-2000s as the federal government debated its future.

ORGANIZATION AND STRUCTURE

According to the Association of American Railroads, there were 549 common carrier freight railroads operating in the United States in 2003. Class 1 were those railroads with revenues of at least $277.7 million. In the mid-2000s, there were seven Class 1 railroads operating in the United States: The Burlington Northern and Santa Fe Railway, CSX Transportation, Grand Trunk Corporation, Kansas City Southern Railway, Norfolk Southern Combined Railroad Subsidiaries, Soo Line Railroad, and Union Pacific Railroad. Although Class 1 accounted for only 1 percent of U.S. freight railroads, they accounted for 71 percent of track mileage, 89 percent of employees, and 93 percent of the industry's revenues.

Regional railroads are linehaul companies with at least 350 miles of route miles or at least $40 million in revenues. In 2003 there were 42 U.S. regional railroads. They tend to serve areas of two to four states and employ between 75 and 500 workers. Local linehaul railroads have less than 350 route miles and earn less than $40 million in revenues. Most perform point-to-point deliveries within a single state and run less than 50 miles of track. In 2003 there were 304 local linehaul operators. Switching and terminal companies perform pick up and delivery services within a particular area to connect different linehaul operations, usually for a flat fee per car transported. In 2003, 206 switching and terminal companies doing business in the United States. Finally, two major Canadian rail freight companies operate in the United States: Canadian National Railway and Canadian Pacific Railway.

In the mid-2000s, nearly 90 percent of railroads were privately owned, including all Class 1 railroads and all but one regional railroad. Unlike U.S. passenger railroads and railroad companies in many other countries, U.S. freight railroads received no significant government funding, and the companies spent millions annually in capital investments. Between 1980 and 2004 Class 1 railroads laid out some $340 billion on infrastructure and equipment maintenance and upgrades.

Coal is the single most important commodity for rail freight, making up 44 percent of all intercity rail tonnage in 2003, and 21 percent of Class 1 tonnage. Other important commodities include chemicals, agricultural products, and automobiles and auto parts. Intermodal freight was a growing sector of the industry during the 2000s. Intermodal freight uses containers or trailers that travel by at least one other means, usually truck or ship.

BACKGROUND AND DEVELOPMENT

Railroads, defined as vehicles that move along a track on flanged wheels, have been in use since the sixteenth century, when human- or horse-pulled carts on tracks were used in Europe to haul ore out of mines. The first mechanically self-propelled railroad system was created in 1681 by Ferdinand Verbeist, a French Jesuit missionary in Peking, China. It was not until 1804, however, when the steam locomotive was invented in Wales, that the railroad's potential as a system of mass transportation was realized. In the westward expansion of the United States, the railroad industry became significant both as a key factor in national growth and as a formidable economic force in its own right.

In 1825 John Stephens of Hoboken, New Jersey, built the first American steam locomotive, ushering in an era of development that would make the railroad industry an integral part of the expansion of America. Only two years later, the Baltimore and Ohio Railroad Company (B&O) was created to carry passengers and goods from Baltimore to Ellicott City, Maryland, 13 miles away. As B&O expanded (its tracks reached West Virginia by 1834), railway companies sprang up in other areas of the country during the 1830s, many of which were destined to become the Class 1 railways of the present.

Railroad building continued at an amazing pace between 1830 and 1860. With their ability to connect places previously separated by prohibitive distances, the railroads made possible the settlement of the western half of the continent. Railroads also liberated the country from its reliance on water transportation and made it possible for cities to grow away from rivers and canals, as the new lines could deliver goods and building materials to new homesteaders and carry raw materials to other cities. It became physically and economically possible to tap the continent's huge reserves of raw materials such as lumber. New cities and towns were formed due to their proximity to railroad lines.

By the beginning of the Civil War, 30,000 miles of track had been laid across the country. Railroads played an important strategic role in that conflict, as they were a means of delivering crucial supplies and troops. The Union army's control of railroads—the owners of which were located mainly in the industry-rich North—was a significant factor in its eventual victory.

In some ways the industry determined the political and social geography of westward expansion. In 1869 the first transcontinental railroad was created when the tracks of the Union Pacific from the East met those of the Central Pacific from the West at Promontory, Utah. America had entered the Railway Age.

Big Business

From the end of the Civil War in 1865 until the turn of the twentieth century, the industry grew at a fantastic rate, becoming America's first "big business." Although the railroad expanded the possibilities for agricultural sales, it did so at a price. Future conflicts between industry and agriculture were foreshadowed when, during the economic depression of the 1870s, a farmers' group called the Grange protested the high rates charged by railroad "middlemen" to ship their goods. The case went to the Supreme Court. Its decision of 1877, Munn v Illinois, gave states the power to regulate business with a strong public aspect like that of the railroads. National (long haul) rates remained unregulated, however, leaving the industry open for control by businesses of national stature.

The development of the railroads was inextricably linked to that of other industries. Andrew Carnegie's innovations in steel allowed the creation of rails that were much more durable than the previous ones made of more malleable iron. The increase in anthracite coal mining in the late nineteenth century reduced the price of coal and made coal-fueled steam engines cheaper and more feasible. The railroads, in turn, made it possible to transport and distribute coal and steel to new towns and cities, many of which were centered around mills and factories needing these goods. The railroad thus became an essential link in the cycle of industrialization of the 1870s and 1880s that made mass production and mass marketing a way of life for a growing nation.

It took a new organization of business on a greater scale to support all this growth; in the last quarter of the century, the rise of big business was seen nowhere more clearly than in the railroads. Initially the competing companies fought rate wars to lure customers, but bankruptcy followed for many. In the late 1870s, railroad executives set up "pools," informal rate-setting agreements that fixed rates in a market. They also cut wages, which eventually led to the formation of unions to protect worker rights.

The railroads' profit margins, coupled with their workers' unstable and often dangerous working conditions, created an increasingly explosive atmosphere in the industry. In 1877 railroad workers staged what was to become the first nationwide strike, a conflict that required military and police intervention. In the years between 1881 and 1905, the country witnessed 36,757 strikes, a situation that resulted in the creation of unions...

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