December 27, 2022
Regulatory

STB Sets 1Q23 Rail Cost Adjustment Factor

Written by Marybeth Luczak, Executive Editor

The Surface Transportation Board (STB) has adopted for first-quarter 2023 the rail cost adjustment factor (RCAF), defined as “an index formulated to represent changes in railroad costs incurred by the nation’s largest railroads over a specified period of time.”

STB is required by law to publish the RCAF on a minimum quarterly basis. The Association of American Railroads (AAR) each quarter computes three types of RCAF figures and submits them for STB approval:

Unadjusted RCAF: “an index reflecting cost changes experienced by the railroad industry, without reference to changes in rail productivity.”
Adjusted RCAF: “an index that reflects national average productivity changes as originally developed and applied by the ICC [Interstate Commerce Commission], the calculation of which is currently based on a five-year moving average.”
RCAF-5: “an index that also reflects national average productivity changes; however, those productivity changes are calculated as if a five-year moving average had been applied consistently from the productivity adjustment’s inception in 1989.”

The STB on Dec. 20 reported that it has reviewed AAR’s submission and verified its proposed rebasing calculations; as required by statute, the denominator of the RCAF is to be rebased every five years (scroll down for the calculations, Table C). The STB adopted these figures for first-quarter 2023: unadjusted RCAF, 1.010 (up 1.0% from fourth-quarter 2022’s 1.000); adjusted RCAF, 0.408 (up 0.2% from fourth-quarter 2022’s 0.407); and RCAF-5, 0.390 (up 0.3% from fourth-quarter 2022’s 0.389).

Table A shows the index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for first-quarter 2023:

Table B shows the third-quarter 2022 index and the RCAF calculated on both an actual and a forecasted basis. The difference between the actual calculation and the forecasted calculation is the forecast error adjustment: