Railroads are considered a natural monopoly. Because of the extremely high start-up costs, it is not profitable to start a railway if there is already a railway line serving the same route.
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Railroads are, like utilities, “natural monopolies.” The consolidation of the Class 1 railroads in the U.S. into five massive companies over the past several decades has made it clear that there is no “free market” in rail transportation.
Ongoing capital expenditure needs also are a major consideration with railroads. It takes a lot of money to maintain thousands of miles of rail, as well as the freight-handling infrastructure and locomotives. As a result, railroads do not often stack up well in terms of their conversion of revenue into free cash flow.
The largest rail company in the world is Deutsche Bahn, with a revenue of $47.72 billion. As of 2021, the global rail industry has a market size of $295.80 billion.