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GAO Report: Freight Rail Pricing

December 08, 2016
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The U.S. Government Accountability Office (GAO) has released the report Freight Rail Pricing: Contracts Provide Shippers and Railroads Flexibility, but High Rates Concern Some Shippers. GAO found that while rail contracts and tariffs are similar, contracts offer the flexibility to customize rates and terms to a specific shipper. Both contract and tariff rates are based on market factors, such as competition, according to representatives from the four largest U.S. freight railroads. However, they noted that in developing contract rates, a railroad will also examine factors specific to each shipper and may negotiate discounts in exchange for the shipper committing to provide a specified volume over the contract’s duration. According to railroad representatives, the volume commitments negotiated in a contract allow the railroad to more efficiently allocate its resources and ensure consistent revenues. Also, selected shippers told GAO that they can more efficiently manage multiple shipping routes under one contract because of the stability in rates over the duration of the contract. In contrast, tariffs may be preferred for smaller shipments.

This GAO report does not focus specifically on rural transportation issues, but it may be of interest to rural transportation practitioners because of its discussion of agriculture and natural resource-based freight issues, and because of its analysis of captive and non-captive shippers.  Captive shippers are those shippers served by a single railroad without an economically viable transportation alternative, which may affect some rural businesses.

For more information or to view the report, click here.