Railroad in US classification started the 1930's. The Interstate Commerce Commission was responsible for this classification. Railroad in US designed in three, based on the operating revenue, with Class I containing rail-roads with the maximum revenue, and Class III with the least. There are differing rules and regulations for the different Classes of rail-roads.
There are three classes in Railroads in US
At present, the Surface Transportation Board is responsible for setting the bounds for the various classes of railroads in US. Various political and industry influences have played a role in the establishment of the criteria that defined the three classes railroads in US. Over time, the bar has kept rising to factor in the inflation, increase in average revenue, and the influence of other industry related issues like the kind of service provided, and the area serviced.
On occasion, the classification bounds have been tweaked to the comfort of some company. Thus, the process of defining a railroad in US as Class I, II, or III seems more a subjective than objective classification.
At present, the Class II and Class III definitions mainly include transport railroads in US. These fall into one of three categories:
Neither Amtrak nor VIA Rail (providing intercity passenger rail service in Canada and the U.S.) is classified into any of the above classes, as they are not freight railroads. Also, they get government subsidies to offset losses.
Any rail-road company in the U.S. and in Mexico that has an annual operating revenue of over $319.3 million (USD) is classified as a Class I rail-road by the AAR. This is a steep increase from the initial amount of $1 million as decided in 1939.
After 1939, the next increase was in 1956, when the minimum revenue set became $3 million, and in 1965, it reached $5 million. 1976 saw it increase to $10 million, after which was a drastic rise to $50 million in 1978. The next major rise was seen in 1991 when the sum rose to $93.5 million. But the succeeding year, it rose sharply to $250 million. The last change that took the annual operating revenue to $319.3 million came into being in 2006.
As the bar for Class I railroads in US kept rising, the number of railroads that were graded as Class I kept falling. While the initial figure in 1939 was 132 railroads, the present figure is only nine (seven in the U.S.). In between, the number was 113 railroads in 1956 and 102 in 1963. In 1976 only 41 railroads in US fell in to Class I. Class I railroads have evolved over the years by merging and buying out other smaller railroads in a bid to increase their profits, or in order to escape becoming bankrupt.
The present seven Class I railroads in US that operate in the United States:
Any freight railroad with revenue more than $20.5 million and less than $277.7 million for at least three consecutive years is considered a Class II railroads in US. These, typically, are the regional railroads in US. All the major changes in the bounds between Class I and Class II railroads in US has been to retain some company in Class II. This has included Florida East Coast Railway, Montana RailLink and Wisconsin Central among others.
Terminal railroads in US and switching railroads in US are not included in Class II.
The American Association of Railroads in US defines a Class III railroad as one that has annual operating revenue that is less than $10 million for three years in a row. The Class III railroads in US are normally the short line ones that serve a limited area. Many are former branch lines of larger railroads that have now developed identities of their own.
The category of a Class III railroads in US was initially abandoned in 1956, but was resurrected in 1978. From 1979, all terminal and switching railroads were defined as Class III, regardless of their revenue. Thus membership this class is not simply dependent on the revenue of the railroad, but also on other factors.