Railway Route Rationalization: a Valuation Model

Abandonment of rail branches and secondary lines with low traffic density is an effective means of maintaining railway company profitability in many countries such as Britain, Canada, Australia, and Japan. In the United States, it was not until passage by Congress of the Stagger's Act in 1980, that the industry's abandonment vigor became fully manifested. This is because the Stagger's Act substantially reduced the time required for the Interstate Commerce Commission to act upon abandonment applications. An economic model is developed to predict losses in a railroad branch line without going through the cumbersome and lengthy calculations normally undertaken, thus reducing the time necessary for the decision‐making process. To this purpose, regression analysis has been performed between losses incurred in 50 railroad branch lines and independent variables extracted from the abandonment applications made for these lines to the Interstate Commerce Commission. The resulting statistically significant model indicates that losses can confidently be predicted by making use of cost and revenue data that are readily obtainable by railway companies freight revenues, maintenance costs for way and structures, rehabilitation costs and equipment maintenance costs.