Freight Rail Costing and Regulation: The Uniform Rail Costing System

Railroad regulation in the post-Staggers Act regime compares the revenues earned to a measure of the “variable cost” of the shipment. While revenues are readily observed, the “variable cost” is calculated using the “Uniform Rail Costing System” (URCS) that was developed by the Interstate Commerce Commission. We characterize the properties of the URCS rail costing methodology and its role in rate regulation, and we assess whether it produces an economically valid estimate of the cost caused by a rail shipment. We find that the URCS methodology is an accounting cost allocation procedure that does not recover an estimate of the cost of a rail shipment that a rational railroad operator would use to make pricing or operating decisions. We then explain why in the post-Staggers Act regime, even if an economic meaningful shipment cost measure were available, this information would not come any closer to solving the problem of determining what is an unreasonable price for a railroad to charge. We conclude by arguing that the use of the URCS methodology should be abandoned in railroad rate reasonableness regulation and replaced with a price benchmarking approach.

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    • © Springer Science+Business Media, LLC, part of Springer Nature 2018. The contents of this paper reflect the views of the author[s] and do not necessarily reflect the official views or policies of the Transportation Research Board or the National Academy of Sciences.
  • Authors:
    • Wilson, Wesley W
    • Wolak, Frank A
  • Publication Date: 2016-9

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  • English

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  • Accession Number: 01677583
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Jul 31 2018 12:30PM