The privatization of the rail network, which started in 1996, is the main motivation for this analysis of the recent performance of and prospects for the sector. The paper starts with a brief description of the evolution of the Brazilian transport sector and its relationship with the country's economic development. The second section presents an overview of the size and relative importance of the transport sector by mode, and the characteristics of intermodal competition. The operational and cost structure of the rail sector is then analyzed in detail and compared to its tariffs. The limited cash flow generation of the rail concessionaires is set against the investment needs of the sector for service expansion. The conclusions drawn from the financial performance analysis prompt a discussion of the prospects for the Brazilian rail sector.