In the United States, railroads are designated as Class I, II, or III, according to size criteria first established by the Interstate Commerce Commission in 1911. Since the ICC was abolished on January 1, 1996, railroads have been governed by the Surface Transportation Board. There are six US Class I freight railroad companies. Canada has two Class I freight railroads, both of which have trackage in the US. Mexico has two Class I freight railroads, one with trackage in the US. In addition, the national passenger railroads in the US and Canada—Amtrak and Via Rail—are both Class I.
Background
Initially, the ICC classed 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 per annum. All such corporations were subject to reporting requirements on a quarterly or annual schedule. If a railroad slipped below its class qualification threshold for a period, it was not necessarily demoted immediately. For instance, in 1925, the ICC reported 174 Class I railroads, 282 Class II railroads, and 348 Class III railroads. Since dissolution of the ICC in 1996, the Surface Transportation Board has become responsible for defining criteria for each railroad class. The bounds are typically redefined every several years to adjust for inflation and other factors.
Classification history
The initial $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, including those with Class I or Class II revenues. 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 make at least $40 million per year.
Local railroads: non-regional but engage in line-haul service.
Switching and terminal railroads: mainly switch cars between other railroads or provide service from other lines to a common terminal.
Classes
Class I
In the United States, the Surface Transportation Board defines a Class I railroad as "having annual carrier operating revenues of $250 million or more in 1991 dollars", which adjusted for inflation was $452,653,248 in 2012. According to the Association of American Railroads, Class I railroads had a minimum carrier operating revenue of $433.2 million in 2011. In early 1991, two Class II railroads, Montana Rail Link and Wisconsin Central, asked the Interstate Commerce Commission 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. Rail carriers with less than $20 million in revenue are designated as Class III. 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 railroads are more efficient than road transport, moving 10 pounds of freight almost 500 miles with each gallon of diesel fuel. In 2013, eleven railroads in North America were designated as Class I. In the United States, Amtrak and seven freight railroads are designated Class I based on 2011 measurements released in 2013.
Class II
A Class II railroad in the United States hauls freight and is mid-sized in terms of operating revenue., a railroad with revenues greater than $37.4 million but less than $433.2 million for at least three consecutive years is considered Class II. 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. An example of a Class II would be the Florida East Coast Railway.
Current Class II criteria
The last major change of the upper bound for a Class II railroad was in 1992, when the Florida East Coast Railway was changed from a Class I railroad to Class II. A previous change in 1991, which prevented two railroads—Montana Rail Link and Wisconsin Central—from becoming Class I, was made at the request of the two railroads, as they did not wish to take on the extra cost and paperwork associated with Class I status. Changes since then have been adjustments for inflation. is a typical example of a Class III shortline in Virginia
Class III
A Class III railroad has an annual operating revenue of less than $20 million. Class III railroads are typically local short-line railroads serving a small number of towns and industries or hauling cars for one or more railroads; many Class III railroads were once branch lines of larger railroads or abandoned portions of main lines. Many Class III railroads are owned by railroad holding companies such as Genesee & Wyoming, Watco Companies and Iowa Pacific Holdings.
In the United States, the Surface Transportation Board continues to use designations of Class II and Class III since there are different labor regulations for the two classes.
