MPC
Research Projects (1999-00)

Identifying Number

MPC-189

Project Title

The Differential Effects of Deregulation on Rail Rates

University

North Dakota State University

Project Investigator

John Bitzan
Upper Great Plains Transportation Institute, NDSU
(701)231-8949
john.bitzan@ndsu.edu

External Project Contact

Project Objective

The study will perform an investigation of rail rate changes resulting from deregulation, with a focus on how rate changes have differed by commodity, level of transportation competition, and over time.

Project Abstract

It is well documented that railroad deregulation in the U.S. has been successful overall. Studies have shown increased productivity, decreased rates, and increased profitability in the rail industry as a result of deregulation. However, general evidence suggests that while railroad deregulation has benefited shippers overall, through continued rail viability, rate savings, and improved service, the benefits have not been evenly shared. In some cases, overall improvements in consumer welfare may have been achieved at the expense of a particular segment of shippers. An example of this type of improvement is the efficiency gains that have been realized as a result of an acceleration of the abandonment of light-density rail lines. These efficiency gains have resulted in lower rates and better service for many shippers, but have resulted in lost service for others.*

(*To the extent that abandonment has ensured continued rail viability, all shippers have benefited.

Other improvements in consumer welfare have been realized by most, if not all, shippers; but the magnitude of the improvement gains has varied widely among shippers. For example, although most rail shippers have realized decreased rail rates as a result of deregulation, the rate reductions have been larger for some shippers than others. This was not an unexpected result of deregulation, as we moved to a less uniform rate setting environment where the elasticity of demand for rail service varies widely among shippers. Certainly, the increased flexibility in pricing and in maintaining infrastructure that have resulted from deregulation have been necessary and beneficial. Documented impacts of deregulation have shown the benefits of this increased flexibility. Nonetheless, while the overall results are not disputed, several industry participants continue to complain about perceived inequities in the current system. Moreover, recent legislative proposals have focused on these perceived inequities, proposing fundamental changes in the nature of railroad regulation. However, intelligent policymaking requires accurate information. Before making policy changes, it is important to have a complete understanding of the impacts that regulatory change has on shippers and carriers.

For the most part, the effects of deregulation on shippers and carriers have been well documented. However, one component of past regulatory change that is not well documented is the extent of differential rate changes that have been realized as a result of deregulation. A recent study by Wilson (1992) examines the asymmetric effects of deregulation on rates for 34 general commodity classifications, and finds differential effects among commodities. Nonetheless, the study does not assess the differential effects of deregulation on shippers with different transportation options shipping the same commodity. This study will investigate the rate structure in the rail industry, and how it has changed as a result of deregulation, highlighting the differential impacts that deregulation has had on rates among commodities, regions, and over time.

Task Descriptions

• Task 1 – Identify general commodity classifications to be used for rate analysis. Because general rate structures vary among commodities, and because of a desire to examine differential effects of deregulation within commodity groupings, separate rate models will be estimated for each commodity class.
• Task 2 – Formulate and estimate statistical rail rate models to examine the effects of deregulation on rates, focusing on differences among shippers with varying elasticities of demand for rail service. Specifically, the effects of variables affecting the elasticity of demand for rail service on deregulation rate impacts will be assessed. For example, the model will show how the effects of deregulation on rates have varied with differences in railroad concentration, the level of waterway access, and proximity to major markets.
• Task 3 – Make an assessment of rail deregulation's impacts on rates, how the impacts have varied among commodities, and how they have varied within commodities. The assessment will include an application of rate function parameter estimates to hypothetical pre and post deregulation shipments to illustrate the effects of factors influencing the elasticity of demand for rail service on rate changes resulting from deregulation. Moreover, the assessment will examine the time effects of deregulation and how they have differed among commodities and regions.
• Task 4 – Prepare a final report.

Milestones, Dates

• Starting Date: September 1999
• Project Milestones:
  • Task (1): January 2000
  • Task (2): April 2000
  • Task (3): July 2000
  • Task (4): August 2000
• Ending Date: August 2000

Yearly and Total Budget

$35,000 MPC Funds

Student Involvement (e.g. Thesis, Assistantships, Paid Employment)

None

Relationship to Other Research Projects

N/A

Technology Transfer Activities

Final report and subsequent methodology to companies, presentations of results.

Potential Benefits of the Project

The Staggers Rail Act signaled a major change in transportation policy in 1980. Yet its impacts are still not completely understood. Before making further policy changes in the way railroads are regulated, it is imperative that policymakers understand the full impacts of past regulatory change, and the implications that such impacts have for formulating future rail transportation policy. This research will enhance the information base available to policy makers, such as Congress, the Surface Transportation Board, and the United States Department of Agriculture, by documenting an important impact of past regulatory change.

TRB Keywords

Railroad transportation, rates, deregulation