Class I Railroads, The Industry Standard

Class I railroads, which, unlike their smaller companions do not really have another name by which they are known (Class III's, for instance are referred to as short lines while Class II's normally go by the term, "regionals"). Perhaps that is because they are the industrial leaders and are always at the forefront of the latest technologies and newest locomotives roaming across the industry's vast network. Over the years the number major railroads has shrunk due to mergers that began in the late 1950s/early 1960s.  The company's which remain today include seven mega systems across North America; including the Canadian roads, Canadian Pacific and Canadian National, these are CSX Transportation, Norfolk Southern, Union Pacific, BNSF Railway, and Kansas City Southern.  It is unknown whether there will one day be just two gigantic networks but throughout the foreseeable future this idea seems remote.

While the definition of a major railroad has changed over the years one thing about the class has always remained the same, it is defined as the largest operating systems, in terms of revenue, throughout North America.  During the industry's classic years (pre-1970s) a Class I could be any line of 100 miles or more, as long as it met a minimum operating revenue.  Today, this has vastly changed as none are smaller than Kansas City Southern's 6,000 route miles.  I apologize that much of the “stuff” below can be rather boring as it includes many facts and details, but for those who have a deep interest in railroading (or business in general) will likely find it interesting. As of 2014, the Association of American Railroads (AAR) defined Class Is as having operating revenues at, or exceeding, $475.75 million annually (they note that the 2015 definition may actually slightly decrease).  As reference this number has changed many times over the years, mostly the result of rising inflation. 

For instance, in 1939 a premier U.S. railroad was defined as having operating revenues of at least $1 million annually but this figured changed to $3 million in 1956, $5 million in 1965, $10 million in 1976, $50 million in 1978, $250 million in 1993, and $319.3 million in 2005, and today's current figure (please note that not all dollar amount changes have been included here). It’s also hard to believe that over that time period the number of big railroads has shrunk from more than 130 in 1939 to only seven today.  The industry's peak mileage occurred in 1916 when it reported more than a quarter-million miles in service; 254,037.  Today, this number has shrunk considerably as other modes of transportation, notably air lines and highways, have resulted in the abandonment of nearly 100,000 miles.  There are currently more than 160,000 miles in service with Class I's owning about 95,000 miles.  The rest has been spun off to smaller short lines and regionals mentioned above.

Could There Ever Be A New Class I?

In the modern age and the fact that the current seven Class I's, especially the five located in the U.S., have all but cornered the market the concept of a new Class I appearing seems unlikely although the idea is not entirely out of the realm of possibility.  The most likely candidates for such a transition to Class I status would be one of the prominent Class II's making the jump, such as Montana Rail Link or Indiana Rail Road.  However, as successful as these roads have been over the last three decades even they have a considerable ways to go to meet the nearly half-billion annual revenue status needed to reach the Class I threshold.  The most obvious way for this to happen, of course, would be via some type of continued growth through new acquisition by purchasing routes considered redundant by others.  Unfortunately, the thought of outright new lines being constructed is nearly unheard of today due to the extensive regulatory process, environmental laws, and public, "NIMBY" (Not-In-My-Backyard) opposition.

During the industry's formative era and through the early 20th century it was relatively easy for railroads to acquire the property and right-of-way if only they could raise the necessary funds for actual grading, construction, and materials.  Today, that concept is extremely difficult for any project involving significant mileage although short stretches have found more success in seeing completion.  A good example is the Tongue River Railroad of southern Montana.  The first proposal for this new 80-mile route was launched in 1981 to serve a surface coal mine at Ashland; it would then run north to Miles City and link with the then-Burlington Northern (now BNSF Railway).  After numerous battles with environmental groups and land owners, all the while completing several environmental studies the Surface Transportation Board (STB) finally rejected the idea in April of 2016, more than 30 years later.  The other possibility in seeing new capacity brought forth would be via reviving long-abandoned corridors.  This idea has been carried out in a few cases since the 1990s but only on short stretches.  

The thought of seeing a major rebuild, such as the Milwaukee Road's Pacific Coast Extension (central Montana to Seattle), the Erie Railroad's/Erie Lackawanna's Chicago main line (Ohio to Chicago), or Baltimore & Ohio's St. Louis main line (central West Virginia - southern Ohio) seems extremely unlikely.  While these lines were direct, high-quality corridors that for the most part saw extensive use (in the case of the three examples mentioned, the reasoning behind their abandonment has often been questioned) the idea of their resurrection is all but impossible since the rights-of-way have been reclaimed in several locations.  In addition, the entire environmental/regulatory process would, again, have to be surmounted.  Today, there are many thousands of miles of preserved rights-of-way all across the country which have been railbanked for the express purpose of possible reactivation.  However, again, the prospect of any significant segments actually seeing rails again is slim for the aforementioned reasons.

Although there are currently only seven operating systems within the United States’ borders, these companies comprise a staggering 93 percent of the industry’s revenues. Similarly Class Is also make up the majority of overall route miles as well as total freight tonnage moved. The below table highlights each railroad (including Canadian National and Canadian Pacific) regarding their 2014 operating revenue. Of note Kansas City Southern de Mexico is part of the Kansas City Southern system. It should be noted that this latest graph now shows CSX ahead of Norfolk Southern in regards to operating revenue. For years this was not the case. However, after CSX gained a new head man in the way of Michael Ward in the early 2000s the railroad has been making large strides in improved service and operating ratios, particularly in just the last few years. 

For more statistical data please click here. As you can see from the previous link, the Association of American Railroads' website provides virtually all of the information you may be researching regarding the railroad industry. However, if you are interested in digging deeper into railroad statistics and similar such information, another fine resource is the Bureau of Transportation Statistics' website.   Finally, more statistical information is available at Freight Rail Works, a Class I-sponsored initiative.  While the western roads of Union Pacific and BNSF continue to outpace all other major roads currently in terms of revenues, do not be surprised with CSX's size and improved efficiency if it begins to close this gap somewhat in the coming years. In any event, for railroad enthusiasts and historians unfortunately the number of large lines in operation likely will not be growing any time soon, that is unless one of the major short line owners would somehow manage to begin unifying their small lines which quite likely will not happen. 

One of the most interesting recent developments in the industry occurred in the fall of 2015 when Canadian Pacific openly announced its plans to seek a merger with Norfolk Southern.  The rumors of this endeavor had been circulated since 2014 and CP had already sought a similar union with CSX, which flatly rejected the attempt.  The Canadian road, through CEO, E. Hunter Harrison, sent a letter to NS requesting a merger in November, 2015.  After some time of careful deliberation NS also turned down the proposal.  However, in this instance CP continued pursuing the endeavor and sent further requests for a merger, each one also rejected.  There was even talk that CP may attempt a hostile takeover by replacing top NS board members with those more sympathetic to a merger.  Ultimately, CP quietly dropped the idea in the spring of 2016 and the nervousness across the industry subsided.  Had it gone through, the CP-NS merger would surely have led to a domino effect of the other Class I's merging.  

In the end, it was not a particularly savvy proposal fraught with numerous issues, the least of which was the U.S and Canadian regulatory complications which needed to be sorted out.  Many experts considered the merger a bad business decision and during the entire process CP drew little support.  Besides Class Is there are also a number of Class IIs, commonly referred to as regionals, and Class IIIs, which are known as short lines or terminal/switching railroads. While these classes of railroads make up just a fraction of the overall annual tonnage hauled throughout the country they make up the greatest number of railroads, totaling well over 500. Likewise, in many ways, these smaller railroads can be the most interesting, reminders of single-car customer shipping and local freights making their way down a backwoods branch line. For more information on regionals, please click here. Lastly, for more information on short lines, please click here

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