Home > Encyclopedia of Business and Finance > Staggers Rail and Motor Carrier Acts of 1980

Prior to the Staggers Act, the railroad industry was suffering: Many railroads had financial problems, and the conditions of rail facilities had deteriorated. Public demand for a better rail system caused Congress to take action and pass the Staggers Act, which has resulted in rail profits and improved service. The Staggers Rail Act of 1980 marked the most significant change in rail policy since the Interstate Commerce Act of 1887. It eliminated most common-carrier obligations, granted railroads greatly increased commercial freedom, and generally reversed previous policy. The act was an effort to deregulate the nation's railroads. In deregulating the nation's railroads, Congress intended (1) to return the nation's railroads to financial health, (2) to re place government regulation wherever possible with the powers of competition, and (3) to continue to provide captive shippers with protection from "unreasonable" rates. Brennan (1997) re ports that since the passage of the Staggers Act, the U.S. freight railroads have been virtually rebuilt. He indicated that economic deregulation has freed up resources such that investor-owned railroads can successfully focus on improved safety and reliability. Thus, the free-market environment has allowed a once-dying industry to recapitalize and make a future for itself.

The regulating agency for the railroads was the Interstate Commerce Commission (ICC). The intent of the Staggers Act was to replace federal regulation with market competition. The ICC was charged by Congress in the Staggers Act to promote rail-to-rail competition. Unfortunately, the ICC did not fully succeed in its charge. The ICC's successor, the Surface Transportation Board (STB) of the U.S. Department of Transportation, was created by Congress in 1995. The STB is responsible for railroad mergers, consolidations, and trackage rights. Railroads are still regulated in terms of entry, exit, and mergers. Railroads largely control their pricing. Changes must be approved by the STB and, if they are, the railroad is not subject to antitrust regulations (Poole, 1997).

The railroad industry is an example of an oligopoly, which is a form of industry structure characterized by a few firms that dominate the market, each large enough to influence market price (Brennan, 1997). In the United States there are nine recognized Class I railroads that form an oligopoly: Burlington, Northern Sante Fe Rail way, Conrail, Canadian Pacific Railway, CSX Transportation, Illinois Central, Kansas City Southern Lines, Norfolk Southern, and Union Pacific. Class I rail companies account for 73 percent of the rail mileage operated, 89 percent of freight railroad employees, and 91 percent of freight railroad revenue (Brennan, 1997).

There is not complete agreement, by most measures, that railroad deregulation under the Staggers Act has been a success. The act has lowered rail rates on most commodities, saved shippers money, provided more timely service, and eliminated the necessity for large taxpayer bailouts. Brennan (1997) also agrees that rail profits increased and service improved as a result of the passage of the act. He maintains that the effects of rail deregulation include improvements in service quality and profits, less pressure on rates, and efficiency improvements. The railroad industry has transformed itself from a money-losing business into a much more concentrated and profitable one.

Pete Carpenter, president of CSX Transportation (CSX, 1996), hailed the success of railroads in the sixteen years since the passage deregulation legislation. He cautioned, however, that a challenge to the industry and government today is the need for a passenger commuter rail system that does not denigrate freight services. He indicated that the railroad industry has a good future and is well-poised to take advantage of current market demands.