A Comprehensive Rail Rate Index for Grain

Several annual rail rate indices depict changes in the prices paid for rail service. Although accurate for general analyses, each of these indices falls short in capturing the three major components of total railroad grain rates: tariff rates, fuel surcharges, and secondary railcar market costs. Bids in the secondary grain railcar market can affect whether the actual rate paid by shippers is above or below the published tariff rate. The seasonality of rates inherent in grain transportation is captured through the secondary market but is neither contained in other grain rail rate indices nor apparent in annualized data. In addition, most grain rate indices do not include fuel surcharges, which have become a major component of the total rate paid for any rail commodity movement. This paper develops new rail rate indices for unit trains and shuttle trains and compares them with a rail cost index. The new indices improve on other grain rail rate indices by including information from the secondary rail market, fuel surcharges, and tariff rates into a weekly index that covers the period between 1997 and 2011. The improved indices show a higher level of detail than annualized indices, allowing for a more thorough analysis of grain rates. They show grain rail rates generally higher than do other indices, with a notable departure from rail costs at the beginning of the economic recession in 2009. A comparison of the rail indices with rail costs calls into question earlier conclusions about rail market power. In constant dollars, rail rates for unit trains increased 67 percent between April 2005 and December 2011, and rail rates for shuttle trains increased 29 percent between May 2006 and December 2011.