In a time of rising transportation costs brought on by the conflict between the United States and Iran, one part of America’s transportation network has kept its rates remarkably stable: the nation’s freight railroads.

Even as the railroads confirm their value to the economy, they face an uncertain future due to a challenging regulatory environment built on labor, safety and competition rules imposed more than 100 years ago, when railroads were arguably the nation’s most profitable and powerful industry.

Because railroads can move a ton of freight almost 500 miles on a single gallon of diesel fuel — three to four times the fuel efficiency of trucking — they have largely avoided the Iran-related cost spikes experienced by trucking companies. That efficiency has enabled retailers and manufacturers to shift freight to rail to control their transportation costs. For the week that ended June 16, U.S. intermodal spot rates averaged $1.16 per mile, compared with $3.05 per mile for over-the-road truckload shipping.

Those comparatively low rates are endangered, say freight rail executives, by the recent expansion of federal oversight, changes to railroad competition rules, new crew-size mandates and rising labor costs, which threaten the profitability that has enabled railroads to invest billions of dollars in privately owned infrastructure.

Despite the industry’s long-term revenue stability, rail unions continue to pursue larger wage increases, expanded paid leave, more predictable schedules and restrictions on workforce reductions. While many of those concerns stem from understandable quality-of-life concerns, railroad executives argue that increased wages and reduced staffing flexibility increase shipping costs.

“Policies are political solutions to political problems,” said Peter Van Doren, who studies transportation regulation at the libertarian Cato Institute. “In the 1920s railroads were generating tremendous (profits) and Congress created a system to allow labor to share in those (profits). But we are in an era of declining railroad use. The attempt by unions to claim more of that shrinking pie is a problem.”

Another labor concern is the federal government’s effort to establish minimum train crew requirements. In 2024, following a derailment in East Palestine, Ohio, that released toxic chemicals, the Federal Railroad Administration issued a rule requiring two-person crews on most freight trains.

The Railway Safety Act of 2026, which is pending in Congress, would codify the two-person crew rule and impose other safety rules. Labor unions, many local officials and rail-safety advocates think two-person crews provide critical redundancy during emergencies, hazardous-material incidents, equipment failures and grade-crossing accidents. The industry, noting that freight train accidents are at an all-time low, contends that technological advancements make it possible to operate some trains safely with smaller crews.

“Railroads support rail policies that are targeted, justified by data, and tied to clearly demonstrated operational or safety needs,” said Emily Pasi, senior director of public affairs at the Association of American Railroads. “Unfortunately, the Railway Safety Act fails that test. Rather than focusing on the actual causes of recent rail incidents, the bill would only increase costs across the freight network and the broader supply chain with no proven safety benefit.”

Another labor cost unique to the freight rail industry is the Railroad Retirement system, a federally administered pension program that operates separately from Social Security. Established under the Railroad Retirement Act, the system provides retirement, disability, survivor and unemployment benefits to railroad employees and is financed through payroll taxes paid by railroads and their workers. Employer payroll tax rates under Railroad Retirement are substantially higher than the Social Security taxes paid by most other private-sector employers because the system offers retirement benefits that are generally more generous than Social Security.

Railroad industry officials argue that these higher payroll obligations are a significant long-term labor expense that must be paid alongside wages, health insurance and other benefits. Labor organizations respond that the separate retirement system reflects the unique nature of railroad employment and helps attract and retain skilled employees in a demanding and sometimes dangerous occupation.

The freight rail industry’s challenges go beyond labor issues. Recent activity at the Surface Transportation Board over reciprocal switching — which can require one railroad to give competitors greater access to its tracks in certain circumstances — is of great concern to the industry. The board adopted a rule in 2024 expanding shippers’ ability to seek such access, but a federal appeals court vacated it in 2025.

Earlier this year, the board proposed repealing longstanding regulations that had limited its authority to require reciprocal switching, through routes and through rates, a step that would let it intervene case by case in disputes between railroads and their customers.

Supporters say reciprocal switching increases competition, promotes better service by railroads and provides more shipping options. Railroad companies counter that mandatory switching reduces efficiency, discourages investment and complicates rail operations.

Unlike trucking companies, which operate on publicly funded highways, freight railroads own and maintain nearly all of the infrastructure they use. Money spent complying with additional regulations is unavailable for track improvements, bridge replacements, signaling systems and terminal expansion.

Strategic consolidations like the proposed Union Pacific-Norfolk Southern merger that seeks to remove the rail interchanges in the middle of the country that can add up to two days of shipping delays between eastern and western railroads will further enhance network efficiency and operational synergies that make the privately financed rail network more attractive to shippers nationwide.

The Iran crisis has demonstrated why those investments are important to the economy. The industry’s message to policymakers is straightforward: a business model that has helped shield American supply chains from the latest geopolitical crisis depends on maintaining the financial flexibility to continue investing in the privately owned network that enables those efficiencies.

Randall Bloomquist is the head of Bloomquist Media. He wrote this for Insidesources.com.