Since the passage of the Stagger Rail Act of 1980, there has been an increase in the number of small railroads (Class III). Why has this number increased while the number of Class I railroads have decreased? By the 1970s, the rail carrier industry was struggling. Several rail lines went bankrupt in the later part of that decade. Owners of the rail lines complained that a heavy regulatory environment had led to over capacity and other unprofitable outcomes.
The Stagger Act (1980) was an attempt to balance the interests of railroad companies against the interests of consumers. As with any governmental attempt at intervention in the economic market, there are unintended consequences. The railroad industry, as a whole, is in better financial condition than it was in 1980. The question as to whether customers have been served well by the Stagger Act is still an open question, however. This has led to a renewed interest in “balanced oversight of this very concentrated public interest industry” (Whiteside, 2007).
Prior to 1980, a higher number of Class I railroads were in operation. By and large, these carriers were neither efficient nor profitable. The Staggers Act created conditions in which the larger rail lines could merge to benefit the overall health of the industry. At the same time, companion legislation such as the Motor Carrier Act aided that already booming industry. With the rise of competing modes of transportation, the rail industry had to change its service model in order to remain viable.
The Stagger Act essentially encouraged that process (Coyle, Bardi, Novack, 2004). As air carriers increased their dominance in long-haul transport and motor carriers dominated short-haul, the rail industry adapted. Regional spin-off rail lines emerged. These lines focused on moving goods in areas that could not be served by the other forms of transport. Meanwhile, the removal of merger restrictions encouraged the larger lines to consolidate.