A Comprehensive Rail Rate Index for Grain
There are several annual rail rate indices commonly used to depict changes in the prices paid for rail service. While 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. Grain is a rail commodity whereby bids in the secondary 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. In this paper, we develop new rail rate indices for unit trains and shuttle trains and compare them against a rail cost index. The new indices are an improvement upon past grain rail rate indices by including information from the secondary rail market, fuel surcharges, and tariff rates into a weekly index between the years 1997 and 2011. The improved indices show a higher level of detail when compared to other annualized indices, allowing for a more thorough analysis of grain rates. These indices 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 whether earlier conclusions about rail market power still hold.
by Adam Sparger and Marvin Prater