| The U.S. freight railroad industry has operated in a deregulated market environment since the Staggers Rail Act was passed in 1980. Railroading had been a financially troubled industry in the decades prior to deregulation. Rail earnings had long been stagnant, and deteriorated over time. Several railroads went into bankruptcy in the 1970s. It was strongly hoped that the regulatory reform would provide a relief for the industry's serious financial situation.;These improvements were driven largely by the industry's significant productivity gain since deregulation, not by changes in economic trends or setting rates at a high level. Rail rates actually declined substantially for most major commodities after deregulation. Also, freight demand did not change in ways particularly favorable to railroads. Although railroads benefited from a sharp rise in domestic coal production in the 1970s, the post-Staggers period generally saw a stagnant growth of production of both major raw materials and rail-flavored manufactures.;The significance of the post-deregulation rail productivity gain is that the industry improved considerably the extent of utilization of its major capital assets (track and rolling stock), and at the same time reduced labor requirements much faster than these assets. Deregulation contributed significantly to this process, directly or indirectly.;Looking at the railroads' investment capacity, however, it seems still premature to conclude that the industry as a whole has been restored to a long-term financial health at least as of the mid-1990s. Whether the industry as a whole can attain financial viability in the long run still remains to be seen.;By the mid-1990s, the industry improved its financial performance significantly. Railroad stock outperformed broader market indexes considerably from the late 1970s through the mid-1990s. Railroad cash flow have in fact improved gradually since deregulation. Undoubtedly, the industry has become much healthier than it had been in the past in terms of earnings capacity. In addition, although the rail traffic growth had long been chronically stagnant, total rail output (in terms of revenue ton-miles) began to grow fairly rapidly in the late 1980s. |
