How the U.S. Rail System Works
Backgrounder

How the U.S. Rail System Works

A spate of train derailments, most notably in East Palestine, Ohio, has reinvigorated the debate over the nation’s railroad infrastructure. Here’s how U.S. rail could be brought up to speed.
A U.S. flag waves above a freight train in Bosler, Wyoming.
A U.S. flag waves above a freight train in Bosler, Wyoming. Patrick T. Fallon/AFP/Getty Images
Summary
  • U.S. rail infrastructure is divided between privately owned freight and state-owned passenger rail.
  • Freight rail is an integral part of U.S. supply chains, but the country’s passenger service falls far behind that of other advanced economies. Proposals to expand high-speed rail have faltered.
  • A recent flurry of high-profile derailments, including a disaster in East Palestine, Ohio, has increased scrutiny over the industry’s safety record and accelerating consolidation.

Introduction

Coast-to-coast railroads helped build the modern United States into an economic powerhouse, and they continue to play an important if controversial role. Today, privately owned freight rail remains competitive with other modes of transportation, carrying energy supplies and crucial industrial materials. Spurred by decades of consolidation, a handful of freight companies have become increasingly efficient and profitable, but critics say these gains have come at the cost of poor labor conditions and weakened safety controls.

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Meanwhile, passenger rail has struggled. Systems in Asia and Europe outpace those in the United States by a wide margin, leading to calls for more funding and proposals to build high-speed trains. But skeptics say the benefits of high-speed rail are overblown and the costs astronomical. After decades of disinterest from Washington, the Joe Biden administration is prioritizing infrastructure spending, with over $100 billion earmarked for investment in rail. 

What is the state of U.S. rail infrastructure?

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The U.S. rail network is among the most extensive in the world, comprising more than 140,000 miles of track. The majority of that network is owned and operated by freight rail enterprises. Amtrak, the federally chartered U.S. passenger railroad operator, runs on 21,400 miles of track, nearly three-quarters of which is leased from private companies.

The two categories of U.S. rail face starkly different economic outlooks. While freight rail companies have recorded record multibillion-dollar profits in recent years, Amtrak has run a billion-dollar deficit, with a repair backlog estimated at $45.2 billion. Amtrak’s prospects have further dimmed since the COVID-19 pandemic disrupted U.S. travel. In the last fiscal year before the pandemic, which extended from October 2018 to September 2019 (FY2019), Amtrak recorded a ridership [PDF] of 32.5 million trips and an operating revenue of $3.5 billion. By FY2022, neither ridership (22.9 million trips) nor revenue ($2.8 billion) had recovered to prepandemic levels.

Other transportation modes were also battered by the pandemic but remain much more popular than passenger rail. U.S. airplane ridership hit 674 million passengers in 2021, about three-quarters of its 2019 level, and U.S. road travel in 2021 was just 1 percent lower than its 2019 level. Amtrak is also frequently delayed: fourteen of the service’s fifteen long-distance routes do not meet performance standards established by the Federal Railroad Administration, the agency tasked with safety regulation and the development of rail policy. Amtrak says most delays are due to passenger trains being forced to wait for freight trains running on the track ahead of them.

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Despite these concerns, overall rail infrastructure has improved over the past decade. In 2021, it received a “B” rating from the American Society of Civil Engineers (ASCE), an industry group, which was the highest rating given to any category of infrastructure and an improvement over the “C-” rail received a decade prior. ASCE cited the need for more investment in both freight and passenger rail; in 2021, a U.S. government commission estimated that it would cost $117 billion to upgrade the Northeast Corridor, an Amtrak route that connects Boston, Massachusetts, and Washington, DC.

What is the role of rail infrastructure in the U.S. economy?

Railroads play a fundamental role in the transport of goods through the U.S. market. In 2020, U.S. commercial rail moved over a quarter of all freight transported in the United States, including for critical U.S. industries such as energy, chemicals, and agricultural products. The following year, freight rail carried about 70 percent of coal deliveries [PDF], up to 70 percent of total transport for the gasoline ingredient ethanol [PDF] and 25 percent of grain shipments [PDF]. 

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Freight shipping is both cheaper and more environmentally friendly than trucking, the most common form of commercial transportation. Rail costs about one-third of the price of moving goods by truck, while emitting just 10 percent of the greenhouse gases. Emerging green technologies could reduce emissions even further, especially given the International Energy Agency’s estimate that passenger and freight rail activity will double over the next thirty years. 

Freight rail itself is also a major U.S. industry. A 2018 study commissioned by the Association of American Railroads found that the seven largest railroad operators contributed over 1 percent of total U.S. economic output and created over one million jobs [PDF]. Experts and federal government officials say a robust passenger rail system can also bolster economic growth. For example, the American Public Transportation Association estimates that every $1 invested in high-speed rail generates quadruple the return in economic benefits.

How did U.S. rail develop?

The mid-to-late nineteenth century saw thousands of miles of track laid across the United States, spawning an era of economic integration that connected the East and West Coasts for the first time. By the turn of the twentieth century, rail companies—which offered both passenger and freight rail services at the time—provided one of the cheapest and most efficient modes of transport. But in the first half of the 20th century, demand shifted to new forms of transportation, especially cars and planes. Meanwhile, a suite of laws that expanded the federal government’s power to set freight prices and enforce other stringent rail regulations increasingly challenged the system. 

The second half of the century saw a rail revival. Congress established Amtrak in 1971, ushering in the present era of publicly owned and subsidized passenger rail; the modern freight rail industry evolved out of the Staggers Rail Act of 1980, which partially deregulated the industry and contributed to its consolidation. The law allowed freight carriers to exit the passenger business in exchange for donating equipment to Amtrak and investing $200 million into the new system. It also granted railroads the freedom to change prices and negotiate private contracts with shipping companies. By 2023, the number of large railroad carriers had shrunk from twenty-six to seven—with another major merger underway, the first since a federal regulator adopted strict consolidation rules in 2001. 

Who pays for rail infrastructure?

Freight and passenger rail have distinct financing streams.

Freight. Unlike rival transportation modes such as trucking, freight rail is largely paid for without taxpayer money. Freight railroad companies own the majority of the tracks and are responsible for the upkeep and maintenance. Since the passage of the Staggers Act, private railroads have spent over $700 billion to develop the rail network. The seven largest railroad companies account for 94 percent of the industry’s revenue [PDF]. 

Passenger. Amtrak, on the other hand, is a federally chartered corporation whose primary stockholder is the U.S. government. It is operated as a quasi-public for-profit company that earns revenue from ticket sales. It has not earned a profit in its fifty-two-year history, though it estimated a breakeven in FY2020 prior to the COVID-19 pandemic. Analysts emphasize that Amtrak is mandated to provide service throughout the United States, even in unprofitable corridors. It also shares some of its infrastructure with commuter rail systems, including the Long Island Rail Road of New York’s Metropolitan Transportation Authority (MTA) and New Jersey’s NJ Transit Rail.

Amtrak makes up for its operating losses using taxpayer-funded federal grants, most recently through the $1 trillion Infrastructure Investment and Jobs Act (IIJA), passed in November 2021. In FY2022, Amtrak’s $6.7 billion budget [PDF] included $4.4 billion in investment from the IIJA; the operator projected an operating revenue of $2.7 billion. By comparison, passenger rail spending is just a fraction of the over $200 billion that the United States spends annually on highway and road infrastructure.  

How does U.S. rail compare internationally?

Many European and Asian governments spend far more than the United States on their passenger rail systems. In turn, U.S. passenger rail ridership is half that of many European countries (which have much smaller populations), and barely 5 percent of Japanese ridership. China spends more than any other country on rail infrastructure, and over five times more than Japan, the second-largest investor in rail. China, India, Russia, and many European Union (EU) member countries run their railroads through state-owned corporations; Japan’s railroads, widely cited as a global standard, are run by more than one hundred private companies.

Many countries nationalized their private railroads in the first half of the twentieth century even as U.S. freight rail remained private. That could help explain why freight rail plays a bigger role in U.S. supply chains than it does elsewhere; in the EU, just 5 percent of freight moves by rail. The nationalization experiment has been far from perfect: some countries have returned to privatized rail as part of an effort to improve service by spurring competition. Yet, privatization hasn’t fixed rail’s woes; critics in the United Kingdom (UK), which privatized the industry in the 1990s, say the government still heavily subsidizes railroads even though service has not improved and fares have risen significantly. They point out that the UK’s privatization fragmented the ownership of track, rail cars, and operators, while major Japanese regional rail companies maintain unified control of their systems.

Why does the U.S. fall behind on high-speed rail?

Experts say the reasons are cultural, economic, and regulatory. High-speed rail requires a significant upfront investment, and the United States already has a robust highway system and a culture of commuting by car. Meanwhile, China, Japan, and many west European countries developed heavily subsidized high-speed rail networks over the course of decades. Analysts say U.S. policymakers have simply chosen not to make such investments. 

In the United States, high-speed rail is a particularly contentious component of the infrastructure debate. Supporters cite the potential economic benefits of faster trains, including energy savings, faster travel times than cars, and potential booms in related industries. Some proponents envision a network that connects all major U.S. cities via high-speed rail corridors. In 2009, President Barack Obama proposed a national high-speed rail network; that plan called for ten interconnected high-speed rail corridors, with Chicago as a major rail hub. As vice president in 2011, Biden announced a six-year plan to build a high-speed rail network that would cover 80 percent of the country within twenty-five years. As of 2023, Congress has not funded any of these proposals. 

Opponents argue that high-speed trains are a bad deal. They point out that most rely heavily on government subsidies and charge expensive fares while remaining slower than air travel and less convenient than cars. Some estimates put the cost of U.S. high-speed rail implementation as high as $3 trillion, plus ongoing maintenance costs. Other critics say that most of the United States is ill-suited for such a network given how spread out major population centers are. They note that the Acela Express, the country’s only high-speed line, has achieved its profitability by operating on the densely populated Northeast Corridor between Boston and Washington, DC. 

“It is no coincidence that Amtrak also owns that track,” says Adie Tomer, a senior fellow at the Brookings Institution and an expert on rail infrastructure.

In the absence of a national plan, some states have gone ahead with their own. Brightline, a privately owned intercity passenger rail line in Florida, plans to introduce high-speed rail service between Miami and Orlando in 2023 and expand to western states by the end of the decade. Other plans have run into bureaucratic tape and massive cost overruns. The state-run California High-Speed Rail Authority’s planned high-speed line connecting Los Angeles and San Francisco quickly turned into an imbroglio of local politics. When the project was first approved by voters in 2008, it carried a price tag of $33 billion and a completion target of 2020. As of 2023, the authority estimates that the project will cost up to $128 billion [PDF], and it is targeting 2033 for the launch of a short leg of its high-speed service. 

California’s infrastructure troubles mirror a widespread dynamic: it costs much more to build and maintain infrastructure of all kinds in the United States than in other countries. Experts attribute this to a host of reasons, including local opposition, labor and environmental regulations, and outsourcing construction to private firms. 

Are there other challenges?

Getting rail regulation right is an ongoing challenge. The incidence of more than one thousand yearly train derailments in the United States, the vast majority of which involve freight rail, have refocused attention on the industry’s safety record. These accidents can release hazardous materials that threaten populated areas. However, toxic spills remain rare, and experts note that derailments are at an all-time low after declining for decades. Meanwhile, a 45 percent reduction in railroad-related deaths in the 1990s and 2000s has since reversed: between 2012 and 2019, the number of such deaths increased 31 percent; most of the deceased were pedestrians struck by trains. Critics partly blame the industry’s regression in safety on the 2015 introduction of a shipping schedule known as precision-scheduled railroading, which they say has boosted profits at the expense of worker safety and proper inspections. 

Another concern is that consolidation made possible by the Staggers Act has gone too far, with antitrust advocates arguing that it has reduced competition and accelerated job losses. Proponents of consolidation, on the other hand, argue that it has made the freight industry more efficient and lowered prices. In March 2023, a proposed merger of Canadian Pacific Railway and Kansas City Southern, two of North America’s seven biggest railroads, received federal approval, paving the way for the largest major rail consolidation in twenty-five years.  

Many analysts agree that passenger rail needs more funding to improve its service, but they differ on how to achieve it. Some advocate for full privatization, while others pitch full nationalization; meanwhile, a handful of lawmakers have backed the creation of a national infrastructure bank to make needed investments.

What has Biden done?

Long a proponent of rail, President Biden has prioritized infrastructure spending. The IIJA includes $102 billion in total rail funding, the largest such investment since the 1980s. It earmarks $66 billion for Amtrak, the most since the railroad’s 1971 founding. (The IIJA also sets aside $350 billion for federal highway programs over five years.)  

He has also faced a smattering of rail-related crises. In December 2022, Biden signed legislation blocking railroad unions from striking over a lack of paid sick leave, a disruption experts said could have ground much of the U.S. economy to a halt. Critics say the move will maintain the dangerously low levels of staffing on freight railroads. 

In the wake of the disaster in East Palestine, Ohio, bipartisan rail safety bills emerged in both chambers of Congress, and Secretary of Transportation Pete Buttigieg proposed his own slew of measures. These include advancing worker protections, speeding up the transition to safer railroad cars, and increasing fines against railroads that violate safety regulations. Many rail workers say these proposals do not go far enough, arguing that additional requirements, such as training standards and paid sick leave, are necessary to create a safer industry.

Recommended Resources

This Backgrounder examines the state of U.S. infrastructure.

The American Society of Civil Engineers explores the challenges facing rail infrastructure in its 2021 infrastructure report card.

Randal O’Toole, a public policy analyst at the Cato Institute, makes the case against U.S. high-speed rail.

The New York Times investigates how California’s high-speed rail plan went off track.

Experts at the Brookings Institute provide a guide to the Infrastructure Investment and Jobs Act.

A report by experts at the Eno Center for Transportation recommends policies for a safer railroad industry [PDF]. 

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Will Merrow and Michael Bricknell created the graphics for this Backgrounder.

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