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.
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 in the United States.

Background

Initially the former federal agency Interstate Commerce Commission 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 and 309 Class II railroads. 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 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 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 or have revenue of 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 2023, are:
  • Class I: A carrier earning revenue greater than $1,053,709,560
  • Class II: A carrier earning revenue between $47,299,851 and $1,053,709,560
  • Class III: A carrier earning revenue less than $47,299,851
In Canada, a Class I rail carrier is defined as a company that has earned gross revenues exceeding $250 million for each of the previous two years.

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 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 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.

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. The Florida East Coast Railway, the Iowa Interstate Railroad, and the Alabama and Gulf Coast Railway are some examples of Class II railroads.

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. The Maryland and Delaware Railroad, the Finger Lakes Railway the San Pedro Valley Railroad, and the Buckingham Branch Railroad are some examples of Class III railroads.