The Union Pacific Railroad is one of the few Class I railroads to have endured throughout the years.

(Audio Visual Designs, Earlton, NY./Photo:Union Pacific Railroad., Public domain, via Wikimedia Commons)

 

RAILROAD CLASSES

Railroad classes are the system by which freight railroads are designated in the United States. Railroads are assigned to Class I, II or III according to annual revenue criteria originally set by the Surface Transportation Board in 1992. With annual adjustments for inflation, the 2019 thresholds were US$504,803,294 for Class I carriers and US$40,384,263 for Class II carriers. (Smaller carriers were Class III by default.)

There are six Class I freight railroad companies in the United States: BNSF Railway, CSX Transportation, Canadian National Railway, CPKC, Norfolk Southern Railway, and Union Pacific Railroad. Canadian National also operates in Canada and CPKC operates in Canada and Mexico.

In addition, the national passenger railroad in the United States, Amtrak, would qualify as Class I if it were a freight carrier, as would Canada's Via Rail passenger service. Mexico's Ferromex freight railroad would also qualify as Class I, but it does not operate within the United States.

 

Background

Initially (in 1911) the former federal agency Interstate Commerce Commission (ICC) classified railroads by their annual gross revenue. Class I railroads had an annual operating revenue of at least $1 million, while Class III railroad incomes were under $100,000. Railroads in both classes were subject to reporting requirements on a quarterly or annual schedule. In 1925, the ICC reported 174 Class I railroads, 282 Class II railroads, and 348 Class III railroads.

The $1 million criterion established in 1911 for a Class I railroad was used until January 1, 1956, when the figure was increased to $3 million. In 1956, the ICC counted 113 Class I line-haul operating railroads (excluding "3 class I companies in systems") and 309 Class II railroads (excluding "3 class II companies in systems"). The Class III category was dropped in 1956 but reinstated in 1978. By 1963, the number of Class I railroads had dropped to 102; cutoffs were increased to $5 million by 1965, to $10 million in 1976 and to $50 million in 1978, at which point only 41 railroads qualified as Class I.

In a special move in 1979, all switching and terminal railroads were re-designated Class III — even those with Class I or Class II revenues.

In early 1991, two Class II railroads, Montana Rail Link and Wisconsin Central, asked the ICC to increase the minimum annual operating revenue criteria (then established at US$93.5 million) to avoid being redesignated as Class I, which would have resulted in increased administrative and legal costs. The Class II maximum criterion was increased in 1992 to $250 million annually, which resulted in the Florida East Coast Railway having its status changed to Class II.

The thresholds set in 1992 were:

  • Class I: A carrier earning revenue greater than $250 million
  • Class II: A carrier earning revenue between $20 million and $250 million
  • Class III: A carrier earning revenue less than $20 million

Since dissolution of the ICC in 1996, the Surface Transportation Board (STB) has become responsible for defining criteria for each railroad class. The STB continues to use designations of Class II and Class III as there are different labor regulations for the two classes. The bounds are typically redefined every several years to adjust for inflation and other factors.

Class II and Class III designations are now rarely used outside the rail transport industry. The Association of American Railroads typically divides non–Class I companies into three categories:

  • Regional railroads: operate at least 350 miles (560 km) or make at least $40 million per year.
  • Local railroads: smaller than a regional railroad, but engage in line-haul service.
  • Switching and terminal railroads: mainly switch cars between other railroads and/or provide service in a common terminal.

 

Classes

In the United States, the Surface Transportation Board categorizes rail carriers into Class I, Class II, and Class III based on the carrier's annual revenue. The thresholds, last adjusted for inflation in 2019, are:

  • Class I: A carrier earning revenue greater than $504,803,294
  • Class II: A carrier earning revenue between $40,387,772 and $504,803,294
  • Class III: A carrier earning revenue less than $40,387,772

In Canada, a Class I rail carrier is defined (as of 2004) as a company that has earned gross revenues exceeding $250 million (CAD) for each of the previous two years.

 

The Norfolk Southern Railway is a typical example of a Class I railroad in the eastern United States.

Pictured is a locomotive from the Norfolk Southern Railway.

(Emmett Tullos from Jackson AL, United States, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons)

 

Class I

Class I railroads are the largest rail carriers in the United States. In 1900, there were 132 Class I railroads, but as the result of mergers and bankruptcies, the industry has consolidated and as of April 2023, just six Class I freight railroads remain.

BNSF Railway and Union Pacific Railroad have a duopoly over all transcontinental freight rail lines in the Western United States, while CSX Transportation and Norfolk Southern Railway operate most of the trackage in the Eastern United States, with the Mississippi River being the rough dividing line. Canadian National Railway (via its subsidiary Grand Trunk Corporation) operates north-south lines near the Mississippi River. Canadian Pacific Kansas City, doing business as CPKC, runs from southern Canada, then goes south through the central United States to central Mexico.

In addition, the national passenger railroads in the US and Canada—Amtrak and Via Rail—would both qualify as Class I if they were freight carriers. Mexico's Ferromex would qualify as a Class I railroad if it had trackage in the United States.

 

Railroad Trackage (Canada) Trackage (U.S.A.) Trackage (Mexico)
BNSF Railway Yes Yes No
Canadian National Railway Yes Yes* No
CPKC Yes Yes Yes
CSX Transportation Yes Yes No
Norfolk Southern Railway Yes Yes No
Union Pacific Railroad No Yes No

* Operated by Grand Trunk Corporation, a wholly owned subsidiary of Canadian National Railway.

 

The Iowa Interstate Railroad is a typical example of a Class II regional railroad in

Iowa, Nebraska, and Illinois. Pictured is a locomotive from the Iowa Interstate Railroad.

(aqua scissors, CC BY-SA 2.0 <https://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons)

 

Class II

A Class II railroad in the United States hauls freight and is mid-sized in terms of operating revenue. Switching and terminal railroads are excluded from Class II status. Railroads considered by the Association of American Railroads as "Regional Railroads" are typically Class II. Some examples of Class II railroads would be the Florida East Coast Railway, the Iowa Interstate Railroad, and the Alabama and Gulf Coast Railway.

 

In the United States, a Class II railroad, sometimes referred to as a regional railroad, is a railroad company that is not Class I, but still has a substantial amount of traffic or trackage (and is thus not a short line). The Association of American Railroads (AAR) has defined the lower bound as 350 miles (560 km) of track or $40 million in annual operating revenue. (The Class I threshold is $250 million, adjusted for inflation since 1991). As of 2021, a Class II railroad in the United States has an operating revenue greater than $39.2 million but less than $489.9 million.

 

Current Class II railroads

Name Mileage
Alabama and Gulf Coast Railway 476
Alaska Railroad 506
Buffalo and Pittsburgh Railroad 756
Dakota, Missouri Valley and Western Railroad 502
Decatur and Eastern Illinois Railroad 182
Evansville Western Railway 124
Florida East Coast Railway 386
Indiana Rail Road 424
Iowa Interstate Railroad 573
Kansas and Oklahoma Railroad 910
Kyle Railroad 555
Nebraska Kansas Colorado Railway 509
New England Central Railroad 594
New York, Susquehanna and Western Railway 439
Paducah and Louisville Railway 280
Portland and Western Railroad 632
Providence and Worcester Railroad 624
Rapid City, Pierre and Eastern Railroad 970
Red River Valley and Western Railroad 574
Wheeling and Lake Erie Railway 902
Wisconsin and Southern Railroad 778

Former Class II railroads

 

The Buckingham Branch Railroad is a typical example of a Class III shortline in Virginia.

Pictured is a locomotive from the Buckingham Branch Railroad.

(William Grimes at English Wikipedia, Public domain, via Wikimedia Commons)

 

Class III

Class III railroads are typically local shortline railroads serving a small number of towns and industries or hauling cars for one or more railroads; often, they once had been branch lines of larger railroads or even abandoned portions of main lines. Some Class III railroads are owned by railroad holding companies such as Genesee & Wyoming or Watco. Some examples of Class III railroads would be the Maryland and Delaware Railroad, the San Pedro Valley Railroad, and the Buckingham Branch Railroad.

 

A locomotive of the Kyle Railroad, a shortline railroad that runs from north-central Kansas into eastern Colorado.

(Civilengtiger, CC0, via Wikimedia Commons)

 

Shortline Railroads

A shortline railroad is a small or mid-sized railroad company that operates over a relatively short distance relative to larger, national railroad networks. The term is used primarily in the United States and Canada. In the former, railroads are categorized by operating revenue, and most shortline railroads fall into the Class III or Class II categorization defined by the Surface Transportation Board.

 

History

At the beginning of the railroad age, nearly all railway lines were shortlines, locally chartered, financed and operated; as the railroad industry matured, local lines were merged or acquired to create longer mainline railroads.

Especially since 1980 in the U.S. and 1990 in Canada, many shortlines have been established when larger railroad companies sold off or abandoned low-profit portions of their trackage. Shortline operators typically have lower labor, overhead and regulatory costs than Class I railroads and therefore are often able to operate profitable lines that lost money for their original owners.

Shortlines generally exist for one or more of the following reasons:

  • to link two industries requiring rail freight together (for example, a gypsum mine and a wall board factory, or a coal mine and a power plant)
  • to interchange revenue traffic with other, usually larger, railroads
  • to operate a tourist passenger train service.

 

Classification

Because of their small size and generally low revenues, the great majority of shortline railroads in the U.S. are classified by the Association of American Railroads (AAR) as Class III. As defined by the Surface Transportation Board (STB), a Class III is a railroad with an annual operating revenue of less than $28 million. In Canada, Transport Canada classifies shortline railroads as Class II.

There are three kinds of shortlines in the U.S.: handling, switch, and ISS (Interline Settlement System).

  • Handling shortlines exist only to move cars along their tracks for larger railroads. They are not listed in the route on a railcar's waybill. Handling shortlines may have compensation agreements with the larger railroads they serve that do not depend on per car rates.
  • Switch shortlines are similar to handling shortlines except that they are listed on a railcar's route, and they collect a fee for each car they move on their tracks.
  • ISS shortlines operate the same as Class I and II railroads. They are included in the routes of railcars. Also, they serve as the billing railroads for loads that originate on their lines. For loads not originating on their lines, ISS shortlines still collect a portion of the freight rate.

It was reported in 2009 that shortline railroads employ 20,000 people in the U.S., and own 30 percent of the nation's railroad tracks. About a quarter of all U.S. rail freight travels at least a small part of its journey over a short-line railroad.

An ever-growing number of shortline operators have been acquired by larger holding companies which own or lease railroad properties in many states, as well as internationally. For example, Genesee & Wyoming controls over 100 railroads in over 40 U.S. states and four Canadian provinces. A consequence of such consolidation is that shortline railroads may no longer be "by state".

 

Switching and terminal railroads

A switching and terminal railroad is a freight railroad company whose primary purpose is to perform local switching services or to own and operate a terminal facility.

Switching is a type of operation done within the limits of a yard. It generally consists of making up and breaking up trains, storing and classifying cars, serving industries within yard limits, and other related purposes. Those movements are made at slow speed under special yard rules.

A terminal facility may include a union freight station, train ferry, car float, or bridge. Its purpose is to connect larger carriers to other modes of transport or other carriers.

Those companies may be jointly owned by several major carriers, as are the Kansas City Terminal Railway, Belt Railway of Chicago, Terminal Railroad Association of St. Louis, Galveston Railroad, and Conrail Shared Assets Operations.

The Internal Revenue Service provides tax incentives for this type of company, which may also be created when a larger railroad abandons an unprofitable line, and a shortline railroad later takes over operations to connect shippers to the larger company.

 

See Also:

Railroads A-Z