Posts Tagged ‘class 1 railroads’

Class I Employment Up 0.37% in June

August 4, 2021

Employment at Class 1 railroads ticket up 0.37 percent in June over that of May.

U.S. Surface Transportation Board figures showed the carriers employed 115,931 people. That was a 0.17 percent decrease compared with June 2020’s count.

Four of six workforce categories posted gains in June compared with May.

These included executives, officials and staff assistants, up 0.88 percent to 7,342 employees; transportation (train and engine), up 0.85 percent to 47,444;  transportation (other than train and engine), up 0.64 percent to 4,751; and professional and administrative, up 0.48 percent to 10,090.

Declining were maintenance of equipment and stores, down 0.42 percent to 17,659 people; and maintenance of way and structures, down 0.16 percent to 28,645.

On a year-over-year comparison, five of the six categories posted percentage declines.

They included maintenance of equipment and stores, 11.64 percent; transportation (other than train and engine), 7.48 percent; maintenance of way and structures, 5.68 percent; professional and administrative, 4.01 percent; and executives, officials and staff assistants, 3.28 percent.

The transportation (train and engine) workforce saw a 11.54 percent year-over-year increase.

Panel Rules Unions Must Bargain Over Crew Size

July 31, 2021

Railroad labor unions suffered a setback this week when an arbitration panel ruled that crew size is an issue that is subject to collective bargaining.

Unions have long resisted bargaining over crew size on the national level, saying it should be a local issue.

But a federal arbitration panel decided this week that crew size is a national issue.

The decision found that standard moratorium language in decades-old labor agreements do not prohibit negotiations over crew size on freight trains.

Railroad management wants to change train crew staffing practices so that there would be one locomotive engineer per train but the job of the conductor would become more of a ground-based position with conductors having responsibility for multiple trains.

The 2-1 arbitration decision is binding and grew out of a lawsuit launched by the National Railway Labor Conference, which represents Class 1 railroads, to force unions to bargain over crew size in the current negotiations for a new contract.

The arbitration panel was made up of one member approved by labor, one approved by management and a neutral member who in this case is a California law professor and veteran arbitrator.

Contract talks have been ongoing for more than a year and in the meantime federal law requires the previous contract remain in effect until a new pact is reached and ratified by union members.

The Sheet Metal, Air, Rail, and Transportation Union’s Transportation Division (SMART-TD) saw a silver lining in the ruling that the arbitration panel did not mandate any particular outcome in negotiations.

The arbitration ruling also did not mandate that bargaining over crew size be done globally, meaning crew size talks with be done on a railroad-by-railroad basis.

The railroad industry and its unions began contract talks in November 2019 on wages, benefits and work rules.

Unions can be expected to continue seeking to get state legislatures to approve laws mandating two-per crews. Some Democrat members of Congress have introduced similar legislation that would apply nationwide.

The arbitration panel’s ruling requires SMART-TD to bargain with Class 1 railroads and some smaller carriers over crew size matters.

Railway Age reported the arbitration ruling affects more than 60 percent of the conductors at Class 1 railroads, including all conductors employed by BNSF and Norfolk Southern and half the conductors at Union Pacific.

Conductors employed by Canadian National, Canadian Pacific and CSX are not unaffected by the arbitration ruling because their unions were not parties to legal action resulting in the arbitration.

Kansas City Southern recently voluntarily withdrew its arbitration demand and was dismissed from the award by the arbitration panel majority. 

The Railway Age report indicated that railroads was pushing for more efficient operations because of an increasing reliance by carriers on intermodal traffic that is subject to diversion to trucking company, many of which have non-union operators who work for lower wages and benefits than those paid to unionized railroaders.

Intermodal traffic provides lower profit margins that some carload traffic – coal being a notable example – that railroad once relied upon for their financial well being.

Industry observers have noted that the development of positive train control has given railroads an opening to seek to reduce crew sizes by arguing that it will provide for safer operations and thus a second set of eyes in the cab are not needed.

Frank Wilner, who writes for Railway Age, has long argued that “no labor union ever has done better than slow the introduction of new technology.”

Industry Observers Adjusting Rail Outlooks

July 7, 2021

North American Class 1 railroads will be issuing their second quarter financial reports later this month and ahead of that Wall Street analysts are issuing their expectations about what the carriers will report.

Cowen and Company, whose insights appear often in the trade publication Railway Age, said it has adjusted its rail models to reflect a number of factors that influence railroad performance in the second quarter, including carloads, fuel, foreign exchange, and cost implications as the supply chain remains tight.

It expects carloads trends to exceed previous expectations, noting total carloads are up approximately 23 percent.

Because the second quarter of 2020 was the height of the COVID-19 pandemic, Cowan has been comparing this year’s performances against 2019 to get a more accurate reading on 2021.

In that comparison, carload traffic last week was down 2 percent compared with 2019, the second consecutive week that 2021 has underperformed 2019.

“Unlike the first quarter, there were no material weather impacts for the railroads that affected volumes,” Cowan wrote.

Cowan expect supply chain tightness to persist for the remainder of 2021 and it also expects intermodal to continue to be robust as well.

The report said big box retailers have yet to see a slowing of orders. Thus far this year, intermodal traffic is up 18 percent.

The elevated demand has enabled railroads to choose their business, but increased intermodal traffic volume also has meant a decline in rail service.

This has included embargoes at terminals that are unable to take in more cargo.

Costs associated with these developments are expected to increase costs.

Diesel fuel prices are rising, although these tend to have a two-month lag in how they affect railroads because the carriers contract for fuel in advance to lock in prices.

Some See TOFC Fading Away

July 5, 2021

For decades, trailers on flatcars have been a staple of U.S. freight trains. But over time TOFC has lost ground to doubled-stacker containers in well cars.

now some industry observers believe the endgame for TOFC will soon be at hand.

In an analysis published on the website of Trains magazine, intermodal analyst Larry Gross predicted TOFC will vanish within the next four years.

The long range implication for intermodal service is that railroads will no longer be able to serve as a plan B for shippers when trucking companies encounter driver shortages or when parcel shippers need extra capacity for peak volumes during holiday shipping seasons.

Intermodal traffic will become even more of a niche product for railroads than it already is.

Already, Gross noted, TOFC is gone in Mexico and Canada. In the United States TOFC accounts for just 8.5 percent of intermodal traffic.

As recently as 1988 TOFC was 60 percent of U.S. intermodal traffic.

TOFC has ebbed and flowed over the years and in the first quarter of 2021 TOFC traffic grew 26 percent, driven in part by an increase in parcel traffic triggered by explosive growth of e-commerce.

Gross, though, said traditional TOFC users are expanding their container fleets. For their part, railroads have encouraged the switch to containers by ending TOFC service on specific routes and terminals.

Railroads have also widened the rate differential between trailers and containers in another move to encourage the use of containers over trailers.

Not surprisingly, the move to precision scheduled railroading by most Class 1 railroads also has played a role.

Carriers prefer double-stacked containers because stack trains can carry twice the volume of a TOFC train of the same length.

Paring the number of trains on the road has been a major objective of U.S. railroads that have made the change to PSR.

Other reasons that railroads give for wanting to be rid of TOFC include the facts that trailers take up capacity in terminals, require separate lifting equipment, and must be placed on the few remaining TOFC cars maintained by TTX Corporation.

Yet from a shipper standpoint, containers are not always ideal.

Containers must ride on a chassis and shortages of those is a perennial problem for shippers.

Shippers also say that in some instances a container is not the best tool to move goods.

Gross projects that about half of current rail TOFC traffic will be converted to containers and the rest will move via highway rather than rail.

Shippers most likely to switch to containers are long-haul movers using 53-foot trailers, Gross said.

Business that is likely to be lost to the highway includes that which moves in 28-foot trailers favored by parcel shippers, such as UPS and FedEx, and shippers sending small lots of goods from origin to destination without a sorting move en route.

Gross said a few trailer-oriented services will continue to survive awhile longer, including Norfolk Southern’s Triple Crown RoadRailer service between Detroit and Kansas City.

The RoadRailers are likely to continue operating until the equipment wear out, Gross said.

TOFC has a long history dating to the former Chicago Great Western starting the service by loading trailers on flatcars in 1936.

At various times, railroads have sought to encourage the growth of intermodal business through innovation. RoadRailers are one such example.

There will continue to be intermodal trains and some of those trains will continue to receive expedited handling by dispatchers because shippers are paying extra for premium service.

But those trains will feature solid containers rather than the string of UPS trailers that have come to symbolize a railroad’s hottest trains.

NS Doing Targeted Hiring

June 24, 2021

Norfolk Southern told the U.S. Surface Transportation Board this week that it is hiring conductors due to rising freight volumes.

NS noted in its letter it has been able to operate with a smaller labor force because it is handling freight with fewer but longer trains.

However, it cited employee attrition, business growth, and changes in business patterns that have created the need for hiring in some locations.

NS is engaging in what it termed targeted hiring and as of June 11 had 114 conductors in training, with plans to start between 72 and 96 trainees each month through the end of the year.

The Class 1 carrier is also assigning workers on a temporary basis to areas where it is having crew shortages.

NS currently has 2,533 active locomotives in its fleet, and 585 in storage.

Last March, NS removed 50 locomotives from storage to help move freight during severe winter weather.

NS told the STB that its local carload service is rising and its unit train cycle times remain strong.

However, some intermodal terminal operations have become congested because ports, container supply, dray capacity, and warehouses and distribution centers have been disrupted by the COVID-19 pandemic.

Canadian National told the STB that its U.S. operations are performing well, with carload trip plan performance at 90 percent in late May and intermodal trip plan compliance at 98.5 percent.

CN has hired 532 employees in the past few months, and plans to hire 287 new conductors by the end of June, 250 by the end of September, and 170 by the end of December.

In its letter, CN said it furloughed 433 conductors and 150 maintenance of way employees due to changing traffic patterns that have created a “surplus” of employees in some locations.

However, CN expects to recall most of those workers before the end of 2021 as freight traffic volumes continue to grow.

CN has removed 124 locomotives from storage but still had 46 locomotives in long-term storage in the U.S. as of May 23, compared to 38 at the same point last year.

It had 155 units in short-term storage compared with versus 127 a year ago.

In 2021 and 2022 CN expects to take delivery of 75 new locomotives with 25 of those arriving in in the second half of 2021 and the other 50 in the first half of 2022.

Class 1 Railroads Told to Report on Preparedness for post-pandemic Demands

May 28, 2021

Class 1 railroads have been instructed by U.S. Surface Transportation Board Chairman Martin Oberman to provide information about their preparedness to meet service demand as the nation continues to recovery economically from the COVID-19 pandemic.

In a letter to the railroad CEOs, Oberman said he was concerned about service problems reported by some shippers and expressed fear those issues might be related to a broader trend of rail labor reductions over the past several years, in addition to the furloughs and quarantines brought about by the pandemic.

The railroads were asked to provide information about the sufficiency of operating personnel and railroad equipment availability going forward, as well as longer-term expectations for hiring.

“The freight-rail industry has performed admirably during the COVID-19 pandemic and, as the nation’s economy recovers, I want to be fully informed as to the Class I railroads’ preparedness to meet forecasted demand, including the railroads having the necessary labor and equipment resources in place to provide safe, reliable and efficient service to customers,” Oberman wrote.

He acknowledged that the pandemic disrupted rail operations and lauded the carriers for their communication with the board and stakeholders during the past year.

On another matter, the STB also has asked Class I railroads to continue reporting revenues from demurrage and accessorial charges.

Regulators say that information has allowed them to monitor trends in such revenues.

“In light of the Board’s close oversight of Class I railroad rules and practices related to demurrage and accessorial charges, including our policy statement and final rules related to warehouseman liability and minimum requirements for demurrage bills, it is important for us to continue to receive quarterly updates on these revenue streams,” the STB said in a news release.

Oberman Fears Wall Street Pressure Harming Class 1 Railroads

May 28, 2021

A top federal regulator express concern this week during a webcast that Wall Street investors are pressuring railroads, which has thus led to a deterioration of freight service.

U.S. Surface Transportation Board Chairman Martin Oberman also raised questions about the need for major railroad mergers.

“Our mandate as an agency . . . is to ensure and protect a strong national rail network. That’s why we exist. And everything we do should be aimed at that outcome,” Oberman told investors.

He said the pressure from Wall Street includes pushing for ever-lower operating ratios and aggressive share buyback programs.

“There’s been a huge decrease in the level of the workforce over the last few years, I think something like 25 percent,” he said.

“I am concerned it has left the Class I’s with too little cushion to respond to a major crisis like the pandemic or the [polar] vortex, which is more likely to keep coming around. So we are keeping a close watch on the situation.”

In the past decade, the North American Class 1 railroads have adopted the precision scheduled operating model.

Typically, aggressive cost cutting, including reducing the size of the labor force and the number of trains being operated, has followed in the wake of PSR adoption.

The railroad have sought to reduce their operating ratios in a bid to boost profitability.

From February 2017, the month before CSX adopted PSR, through December 2020, U.S. Class I rail employment fell 21 percent overall.

“We’re seeing, I believe, some impact from that on the service side,” Oberman said citing missed switches and crew shortages.

“A lot of this stems from furloughs and quarantines from COVID, but I think it’s also related to the fact that the whole workforce has been greatly reduced over the last few years, I think largely in response to pressures from Wall Street. And I am beginning to get concerned that this could start impacting capital expenditures as well.”

As for stock buybacks, Oberman said in some cases those have been funded with borrowed money.

Stock buybacks are efforts by railroads to boost earnings per share and stock prices.

“Those forces are of concern to me in terms of what they mean for the long-term health of the freight industry and whether we’re going to have an industry staffed enough to fully serve and with enough incentive . . . to keep spending money on greatly needed capital improvements,” Oberman said.

“It’s not our job to come in and micromanage and tell them how to run their companies, but it is our job to keep an eye on the ball so things don’t get too far out of whack,” he said.

Independent rail analyst Anthony B. Hatch told Trains magazine that for all of the talk about railroads cutting capital expenditures, the industry spends far more of their revenue on capital expenditures than most other industries.

He said financial strength is what enables railroads to keep their physical plants in good condition.

The STB chairman also questioned the rationale for railroad mergers as well as the substantial premiums Canadian Pacific and Canadian National were willing to pay to acquire Kansas City Southern.

As for railroad mergers, Oberman expressed skepticism that consolidation will lead to railroads being able to siphon more freight business away from trucking companies.

“I am all for promoting much more competition in the freight world, particularly among railroads and particularly with railroads getting more freight off the highways and onto the rails,” Oberman said, adding that what is needed is more rail competition, not less.

“The thing that’s impressed me most since I’ve come to the board is the lack of competition for most shippers in most parts of the country,” Oberman said.

Many of these shippers are captive simply because they are located on a single rail line with no opportunity for service from a distant second railroad.

CN, CP Jockey to Gain Advantage in Buying KCS

April 21, 2021

Canadian National and Canadian Pacific submitted dueling filings to the U.S. Surface Transportation Board on Wednesday as they jockey for advantage in their respective efforts to by Kansas City Southern.

The KCS board of directors has already agreed to a $29 billion bid from CP, but CN this week countered with a $33.7 billion offer in a cash and stock transaction.

CN notified the STB of its bid for KCS while CP asked regulators to expedite their review and approval of its purchase of the smallest Class 1 rail system in North America.

In its filing, CN said it plans to file an application seeking authority to combine with KCS.

The filing indicate that CN would seek to have the merger reviewed under the STB’s current merger rules whereas CP is seeking to have its acquisition of KCS reviewed under an exemption regulators granted KCS more than 20 years ago were it to seek a merger with another Class 1 system.

The CN filing cited “seamless service and enhanced competition” from its acquisition of KCS.

It further asserted that its proposed acquisition of KCS would be in the public interest and CN would welcome the opportunity to provide a full forum for stakeholders to comment on the proposed transaction.

CN said it is confident it will be able to effectively address any reasonable remediation concerns and ensure rail customers and other stakeholders benefit from the proposed combination with KCS.

If CN and KCS were to merger, it would create the fifth largest Class 1 North American system. Currently there are seven such systems.

“Our proposal to KCS is simple,” said CN President and CEO Jean-Jacques Ruest. “We are providing greater and more certain value, and a clear path to closing. We have a better bid. We are a better railroad. We will be a better partner for KCS and the communities it serves. And we believe the STB and our customers will recognize that CN presents the best solution for the continued growth, development and prosperity of the North American economy.”

For its part, CP claimed that CN’s acquisition of KCS would reduce competition.

It called CN’s stated benefit to acquiring KCS “illusory and inferior to the proposed CP/KCS transaction.”

CP said the STB should promptly confirm uniquely what it termed straightforward and beneficial transaction proceeding under the pre-2001 rules with no further voting trust approval required.

In a letter to regulators, CP said it “respectfully suggests that the Board should see things the same way: the only combination involving KCS that is in the public interest is the one that Canadian Pacific has proposed, and which has already garnered support from more than 400 shippers and other stakeholders.”

A CN-KCS merger, CP asserted, would “destabilize” the North American rail network balance “that has prevented further consolidation of the six largest railroads for two decades.”

If CP were to lose its friendly connection at Kansas City with KCS, it would weaken if not destroy the viability of CP’s lines through southeastern Iowa and northern Missouri and leave CP an asymmetrically disadvantaged “odd-man-out” in a six-railroad North America.

That would put pressure on CP to find a way to expand its market reach through further consolidation.

CN has argued that its combination with KCS would offer shorter, faster, and more efficient routes than tying together the CP and KCS networks.

The war of words in the dueling filing with the STB is likely to result in CP having to pony up more money for KCS, some industry analysts believe.

“We can’t rule out a full-scale bidding war,” Wolfe Research analyst Scott Group wrote in a note to clients.

Another analyst, Anthony Hatch, told Trains magazine, CP has room to increase its bid although CN is seen as the wealthier Canadian Class 1 system.

The last time Class 1 railroads got into a bidding war was in 1996 when CSX and Norfolk Southern fought over Conrail.

That battle ended with NS and CSX dividing Conrail and the railroads paying 27 percent more to buy their respective shares.

Although industry observers predict the STB would likely approve acquisition of KCS by either CN or CP, some believe a CN-KCS combination would create more regulatory challenges  because the two systems have more overlap than CP and KCS.

 “While financially superior and strategically compelling, CN’s proposal may entail a more complicated regulatory review given the larger pro forma rail network,” Baird Equity Research analyst Garrett Holland wrote in a note to clients.

Holland believes CP will submit a higher bid for CP and rely heavily on the argument that it provides better strategic value and a potentially more feasible regulatory review process.

Credit Suisse analyst Allison Landry said, though, that the ovetlap between CN and KCS is relatively small and largely confined to a handful of shippers in Louisiana.

At the same time Landry said in a note to clients that a CN-KCS deal that create a railroad larger than CSX or NS would make those carriers merger targets.

STB Adopts Demurrage Rule

April 8, 2021

The U.S. Surface Transportation Board said this week it has adopted a final rail to establish certain minimum information requirements for demurrage bills from Class I railroads.

The  rule regulates billing cycle, shipment, car replacement and credit and debit information.

The minimum-information requirement represents what regulators determined will have the greatest effect on the ability of rail users to review and verify the accuracy of demurrage charges and help to resolve disputes between railroads and their customers.

In a news release the STB said  the rule establishes a machine-readable data requirement to ensure that rail users have the option to access machine-readable data containing the minimum information.

In its decision, the STB reiterated its expectation that all carriers take reasonable action to ensure the accuracy of their invoicing processes and that their demurrage charges are warranted.

The rule will become effective on Oct. 6.

STB Changes Railroad Classification Thresholds

April 6, 2021

The Surface Transportation Board will change how it classifies railroads based on their operating revenue.

The new rule increases the Class I revenue threshold to $900 million and the Class II/Class III threshold to $40.4 million.

The STB will use 2019 dollars as its baseline for revenue calculations.

The changes were made in response to a petition by Montana Rail Link seeking changes in the the revenue threshold for Class I carriers.

MRL said it was likely in the near-term to be re-classified as a Class I railroad under the existing threshold of operating revenues of $504,803,294 or more.

However, MRL said that historically it has been designated as a regional railroad with a comparatively smaller footprint and revenue base than the seven Class I systems.

“As a Class I railroad, MRL would have been subject to additional regulatory requirements, in particular, extensive reporting of financial and economic information,” the STB noted in its recent decision.

STB Chairman Martin J. Oberman described the new rule as “a common-sense modification of our regulations to reflect the real-world distinction between the largest railroads in the freight rail network and the comparatively smaller regional and short line carriers, and the balance the agency needs to set with respect to reporting requirements that differ based on this distinction.”

The STB said its new rule preserves an appropriate balance between the Board’s need for financial and economic information and the imposition of additional requirements on regional railroads.