The short line and regional railroad business is a $3.7 billion industry that operates and maintains 32% of U.S. railroads in route mileage, account for 7% of the rail industry’s freight revenue and employs 11% of total railroad employees. There are 560 short line and regional railroads today that generate a wide range of revenues. Short line and regional railroads operate shorter rail lines, usually between 10 – 100 miles of track, that connect to the main lines operated by the larger Class I railroads. These railroads are usually considered the “first and last mile” in the railroad transportation supply chain, with most of their traffic interchanged with the larger carriers. The industry is characterized by fragmentation, strong EBITDA margins and consistent predictable growth. The main competition for railroads is trucks. Compared to trucks, railroads are four times more fuel efficient, significantly more environmentally friendly, and far more safe.

The railcar industry emerged in the late nineteenth century in response to a growing demand for specialty railcars. Today, there are an estimated 1.2 million rail cars in the U.S. fleet – 792,000 are owned by rail car companies and shippers; 364,000 owned by Class I’s; and 90,500 owned by small railroads.

Industry Highlights

Railroads represent the largest mode of freight transportation in the U.S., comprising over 42% of total revenue ton-miles (an industry measure of output that reflects the weight of a shipment and the distance over which it is carried)

Railroads have been the foundation of our country providing strong business opportunity for over 150 years. Since the founding of the Standard and Poors, ninety Railroad operations have been included. Today many of these indexing Railroads are still included and play a vital role in commerce.

Short line and regional railroads (Class II, Class III, and Switching/Terminal) are an important component of the railroad industry, accounting for $3.9 billion, or 7%, of the industry’s revenue.

The American Jobs Creation Act of 2004 (H.R. 4529) created a two-fold benefit to the railroad industry. It phased out the 4.3-cent a gallon fuel tax on railroads, which saves short line and regional railroads more than $10 million a year in fuel costs. Furthermore, it allowed Class II and Class III railroads to earn tax credits against their federal income tax bill by making track maintenance investments.

Truck vs. Rail

Trucking has been negatively impacted by higher fuel prices, more traffic on the roadways and regulatory changes. Recent regulatory changes include the Environmental Protection Agency’s stricter emissions standards for diesel engines and the Department of Transportation’s hours of service rules which limit truck drivers’ driving hours. Additionally, trucking companies are experiencing difficulty in attracting and retaining drivers and have had to increase salaries to overcome driver shortages.

On average, railroads use one-third the fuel per ton-mile relative to trucking, and railroad fuel efficiency is improving all the time. In 1980, U.S. railroads moved a ton of freight an average of 235 miles per gallon of fuel. In 2007, the comparable figure was 436 miles, an 85 percent improvement.

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