Posts Tagged ‘class 1 railroads’

The Fault Lies Largely With Wall Street

June 22, 2022

Blame Wall Street. That is the major takeaway from an analysis published on the website of Trains magazine that explains why U.S. Class 1 railroads are having crew shortages, service problems, and paltry traffic growth.

The points made in the analysis are not new. Much has been written in various publications, including Trains, about how Class 1 railroads have reacted to relentless pressure from Wall Street investors demanding that railroads continue to lower their operating ratio, which is the percentage of revenue devoted to expenses.

But the Trains analysis explains it in easy-to-understand language.

The crux of the matter is that railroads are caught betwixt and between.

To achieve traffic growth, particularly by diverting traffic away from trucks, would require spending more money which in turn would drive up the operating ratio. But Wall Street investors are loath to accept that.

It has become a vicious cycle that has played out many times during the past decade and it shows no signs of relenting.

To be sure, there have been mitigating factors that have exacerbated the situation, including the COVID-19 pandemic triggering supply chain issues and heavy-handed attendance policies that have driven many operating employees into retirement or seeking employment elsewhere.

But in the end it comes down to the unbreakable thirst of Wall Street investors for cost cutting in order to drive up profits.

Railroads have also raised rates faster than costs have risen, which brought hearty applause from investors.

It led to a golden age for railroad investors, but that has reached the territory where the law of diminishing returns has kicked in.

“The party is over,” wrote Trains correspondent Bill Stephens. “Investors still push for lower operating ratios, but there’s not much juice left to squeeze.”

The article can be read at https://www.trains.com/trn/news-reviews/news-wire/how-wall-street-holds-railroads-hostage-analysis/

Data Shows Decline of Class 1 Freight Service

June 10, 2022

An analysis by Trains magazine of data recently submitted by four Class 1 rail systems to the U.S. Surface Transportation Board found that all of them have seen their on-time delivery performance plummet since May 2019.

Before the pandemic, CSX, Norfolk Southern, Union Pacific and BNSF averaged an 85 percent on-time delivery rate but during the last week of May that had fallen to 67 percent.

The STB considers a shipment to be on time if it arrives at its destination within 24 hours of the projected delivery time given the shipper.

However, the Trains report cautioned that railroads often create trip plans for individual shipments that are tighter than the STB standard.

It also said comparing the performance of railroads against each other can be misleading because of variance in how each carrier collects information and calculates on-time performance and such performance metrics as terminal dwell time and average train speed.

The railroad industry has largely blamed shortages of operating crews for the service issues they have experienced in the past year.

As the average speed of trains has fallen, that has created congestion, which in turn has led to the need for more crews and locomotives.

The problems intensify because new crews and motive power are out of place from where they are needed.

CSX reported its overall on-time performance since May 2019 has slid from 96 percent to 85 percent.

The carrier said the most current figures show carload traffic posted a 66 percent on time rate whereas intermodal shipments were 95 percent on time.

Norfolk Southern said that for the 12 months ending in April 2020, its overall on time figure was 87 percent. It has since fallen to 52 percent.

The report can be read at https://www.trains.com/trn/news-reviews/news-wire/data-reported-to-federal-regulators-reveal-extent-of-deterioration-in-rail-service/

STB to Requires Class 1s to Report More Data

May 7, 2022

The U.S. Surface Transportation Board this week issued a regulation with eight parts that will require Class 1 railroads to provide more comprehensive performance and employment information.

The Board voted unanimously in favor of the rule, which largely is targeted at BNSF, CSX, Norfolk Southern and Union Pacific.

The carriers will be required to create by May 20 service recovery plans that are to be followed up with biweekly conference calls with STB staff.

The rule will be in effect for the next six months.

In its decision, the Board cited problems with rail freight service brought out in hearings it held in late April. It also said the rule is aimed at providing “industry-wide transparency, accountability, and improvements in rail service.”

All Class I railroads are being directed to submit weekly performance data and monthly employment data.

The information being sought by the STB included weekly average terminal dwell times, measured in hours, for each carrier’s 11th through 20th largest terminals.

Railroads are also directed to provide the weekly average number of train starts per day.

There are requirements to report on rail cars in storage, the number of cars in service with no mileage, the number of rail cars in service with the weekly average number of car-miles per day, and the aggregate number of car-miles per week.

Other information to be reported includes information on re-crews, the percentage of scheduled spots and pulls that were fulfilled, the weekly average number of local trains cancelled per day, the aggregate number of local trains cancelled per week, and the percentage of cars constructively or actually placed at destination within 24 hours of the original estimated time of arrival.

Railway Age columnist Frank Wilner described the reporting requirements as an effort to prompt carriers to solve their service problems on their own, beginning with transparency.

In a statement the Association of American Railroads said it was studying the STB’s rule but said its members will continue to work through the service problems they acknowledged having.

They’re ‘Mad as Hell’ But Are Going to Have to Take it a Little Bit Longer

May 1, 2022

As I read the various accounts of the two days of hearings conducted by the U.S. Surface Transportation Board last week about the shoddy service that Class 1 railroads have been giving their customers, I thought about Howard Beale, the fictional television evening news anchor in the 1976 black comedy drama Network.

One of the most iconic moments in Network occurs when Beale tells his viewers, “I’m as mad as hell and I’m not going to take it anymore.”

That prompts thousands of them to go to a window of their home and shout the phrase to no one in particular. It might have made them feel better in the moment, but did little, if anything, to address the underlying causes of their frustration and anger.

A lot of shippers and railroad workers channeled their inner Howard Beale during the STB hearings.

Although none of them used the “mad as hell” phrasing while addressing the STB, many were just that although more in control of their emotions than was Beale.

Another Beale rant perhaps best summarized the likely outcome of the hearings.

Beale, whose rants had led to his being given his own TV show in front of a live audience, tells viewers that television is an illusion that promotes fantasies that can never be realized.

Many, if not most, of those who testified before the STB have their own fantasies that are unlikely to be realized. That is not to say that bits of pieces of them won’t come to fruition.

The STB hearings served two primary purposes. They were a forum for shippers and others to vent about how Class 1 railroads are behaving these days.

Shippers told tales of woe about how poor and unreliable service has adversely affected their own businesses. Some warned of severe effects to the U.S. economy if things don’t improve.

The STB hearings provided validation for those concerns even as there was widespread agreement that there are no easy and quick fixes to railroad service problems.

The second purpose of the hearings was an opportunity for those who testified to push their pet agendas.

Shippers want more regulation of the railroad industry, particularly in the realm of rate regulation.

Unions want to preserve jobs, which have vanished at a precipitous rate as Class 1 railroads have furloughed thousands in the name of operating more efficiently. Railroad workers also want relief from increasingly restrictive attendance policies such as the controversial Hi Viz scheme implemented by BNSF earlier this year.

The railroads want to preserve the status quo, which has enabled them to make handsome profits, but they also want one-person crews.

CSX CEO James Foote implored regulators to allow railroads to operate with one person crews.

The Class 1 railroads want to remove most conductors from aboard trains in favor of roving ground-based conductors who would be responsible for multiple trains within a defined territory.

“Let us run trains with one employee and this problem is solved,” Foote said in reference to operating crew shortages.

Staffing aboard trains is one of many points of conflict between unions and management in the current round of contract talks that have drug on since early 2020.

Aside from a handful of tense exchanges with STB members, the railroad executives who testified during the two days of hearings were the antithesis of Howard Beale.

They spoke in a measured and calm manner, acknowledging their service is lacking in quality, but did so only because they could not easily deny that.

The railroad executives took responsibility for the service woes but refused to blame them on their own behavior.

Repeatedly, the Class 1 executives said the service problems are occurring because of crew shortages that they insisted they are doing everything they can to address.

That is a standard strategy that companies under attack for poor performance rely upon. Concede nothing and blame external forces that you seek to frame as being largely beyond your control.

Examples of the latter include fallout from the COVID-19 pandemic and a tight labor market.

It is not as though these things haven’t played a role. It is just that they are not the only forces at work causing service issues.

None of the railroad executives acknowledged having given in to the pressure of Wall Street investors who have pushed railroads to cut costs in order to drive up profits.

The executives argued that the precision scheduled railroading model makes them more efficient and showed no inclination to jettison the practice of operating fewer and longer trains.

Another tactic the Class 1 railroads used during the hearings was to deny the severity of the problems identified by their adversaries. In some instances, the executives suggested some of what witnesses were saying was simply not true.

A lot of what witnesses said during the STB hearings should not be taken at face value. It is not as though the speakers were telling falsehoods, but they were not always giving a complete picture either.

It is true that some witnesses were more credible than others in giving a reasonably complete overview of the root causes of the service problems.

To get that complete picture you have to consider the totality of the testimony while taking into account that all speakers were promoting their self interests which at times are in conflict with the self interests of Class 1 railroad management.

Promulgating self interests often leads speakers to exaggerate threats to their well being and to understate the consequence of their own behavior.

Nothing that Class 1 railroads have done in adopting PSR makes them unique among North American corporations.

Chances are that all or nearly every shipper who complained about poor rail service also has engaged in the type of cost cutting and business decision making that Class 1 railroads have practiced.

Many, if not most, railroad shippers are publicly-held companies that also are subject to pressures from Wall Street investors.

One underlying problem is with shippers who can’t easily switch to other forms of transportation because they are moving bulk commodities that are most efficiently and/or less costly to move by rail than truck, water or air. Gettig good rail transportation can be a dilemma for shippers even in the best of circumstances.

Railroads know that even if you’ll never hear a Class 1 executive say it.

In an analysis published in advance of the STB hearings, Trains magazine columnist Bill Stephens argued that the service problems of recent months by Class 1 railroads are nothing new. He cited a litany of past service meltdowns caused by weather and other calamities that unfolded long before PSR became a thing.

A similar point was made by a Wall Street analyst who researches railroad performance. He told regulators that every so often good service deteriorates into poor service, particularly when the operating climate becomes less than ideal.

Could railroads be better prepared for service downturns? Yes. Will they be? Probably not if the cost of doing so is more than they want to spend on operations.

There is little the STB can do in the short term in response to what it heard during the two-day hearings other than offer sympathy and empathy to shippers and workers while taking railroad executives to task for some of the meaningless and vague promises they’ve made in the past year about improving their service.

There is a long list of actions the STB lacks the authority to take and/or is reluctant to take for legal, practical and philosophical reasons.

The STB is not going to order railroads to stop practicing PSR. It is not going to order railroads to stop furloughing workers, and it won’t be telling them how many workers to keep on their payrolls.

What the STB can and might do is issue emergency orders to railroads to move certain types of freight by whatever means possible.

Regulators can and might promulgate or change existing rules on such things as reciprocal switching. This is where the underlying pet agendas of the various parties come into play.

The witnesses were laying groundwork for what they hope are future regulatory changes. As the old adage says, don’t let a crisis go to waste.

STB member also can keep the spotlight shining directly on railroad executives and their actions.

Class 1 railroad executives are aware of these potential moves and oppose all of them. Railroad executives may not like all facets of the status quo, but for the most part it serves them well.

Presumably the service woes will eventually ease although some underlying problems are likely to linger. The carriers might make some changes in an effort to show they are doing something other than trying to hire and train additional workers.

In the short run, shippers and unionized railroad workers may be mad as hell, but they have little recourse but to continue taking it while seeking to achieve fantasies that are unlikely to come to pass, at least in the manner that they envision them. Howard Beale, it seems, was on to something.

Commentary by Craig Sanders

Shippers, Workers Vent at STB Hearings

April 27, 2022

Years of frustration spilled out in the opening day of U.S. Surface Transportation Board hearings on Tuesday regarding the state of freight railroad service.

Witnesses representing rail shippers and railroad labor unions took turns blasting Class 1 railroads for their obsession with cost cutting, which they claim has brought the nation’s railroad network to a crawl.

One frequent target of the ire of the witnesses was the adoption in recent years of the precision scheduled railroading operating model that has resulted in fewer and longer trains, the closing of some classification yards, and the furloughing of thousands of rail operating workers.

Some of the witnesses argued that Class 1 railroads are more interested in pleasing shareholders who seek deeper spending cuts and higher profits.

The STB is holding the two-day hearings after receiving a deluge of complaints about poor rail freight service.

Statistics kept by the agency based upon reports provided by the railroads show that the average train speed is down and dwell time of cars in terminals has risen.

Shipper witnesses spoke of railroads missing scheduled switching, not picking up carloads in a timely manner, and non-responsive customer service departments.

For their part the railroads have blamed service issues on crew shortages and the effects of the CVOID-19 pandemic including congestion in the global supply chain. The railroads have said PSR is a more efficient way to operate.

The shipper witnesses cited a litany of adverse effects from poor rail service including ranchers facing decisions about thinning their livestock herds because they can’t get the feed they need to feed them.

“This is not a pandemic-related issue. We’re dealing with years of cuts that have gutted the rail network that’s making these service issues inevitable,” said Chris John, President and CEO of the American Chemistry Council. “Precision Scheduled Railroading is just doing less with less.”

In response to STB member questions, some shipper witnesses said some rail customers have avoided speaking out publicly about their problems for fear of retaliation from the railroads.

That led STB Chairman Martin Oberman to say such responses by railroads would be “completely unacceptable” and if proven should be dealt with in the “harshest way.”

Labor representatives said Class 1 railroads practicing PSR have reduced their workforce by 29 percent, or 45,000 workers.

They contended railroads have pared their workforces in an effort to lower their operating ratios, which is the percentage of revenue devoted to paying expenses.

Union witnesses who are also operating railroad employees said another cost-cutting move has been to limit the speeds of trains in an effort to save on fuel costs. However, the witnesses said, this means trains are unable to make track speed which results in congestion.

Chris Bond, a BNSF engineer and union official in Texas, said his employer recently eliminated some throttle restrictions ahead of the STB hearing in what was perhaps an effort to show progress in advance of the STB hearings.

More about the first day of the hearings can be read at  https://railfan.com/absolute-gridlock-shippers-labor-blame-precision-scheduled-railroading-for-service-woes/

Another Union Blasts Railroads, Professor Says PSR Not the Only Cause of Rail Service Issues

April 13, 2022

Another railroad labor organization has weighed in on the service issues afflicting U.S. Class 1 railroads by saying in a letter to the U.S. Surface Transportation Board that the carriers need more regulatory oversight.

“It is clear that a lack of oversight has allowed Class I railroads to operate in a manner that is harmful to shippers, employees, and the American public, and these issues will not resolve out of self-regulation by the carriers,” wrote Greg Ragan, president of The Transportation Trades Department of the AFL-CIO.

The letter noted that in the previous five years before the COVID-19 pandemic surfaced that Norfolk Southern reduced its operating personnel by 24 percent.

The letter was in support of a similar plea made to the Board by the National Grain and Feed Association, which blamed the adoption of the precision scheduled railroading operating model for a deterioration of rail freight service.

“It is completely unsurprising that this would result in crew shortages and rigid inflexibility in the network,” Regan wrote. “These cuts have occurred with complete impunity for the railroads, and we continue to urge the Board to consider the impacts of these ill-considered mass layoffs on service quality.”

The Transportation Trades Department includes unions representing locomotive engineers, conductors, train dispatchers, and maintenance-of-way employees.

In a related development, a professor who studies railroad operations told a shippers conference last week that the service woes besetting Class 1 railroads are the result of a combination of forces and not just due to the widespread adoption of the precision scheduled railroading operating model.

Trains magazine reported on its website that Peter Swan, associate professor of logistics and operations management at Penn State Harrisburg, said that although PSR has played a role in causing service woes other forces affecting freight service include the COVID-19 pandemic, rising demand for freight transportation, and labor shortages.

Speaking to the North East Association of Rail Shippers conference, Swan said a system that is designed for maximum efficiency doesn’t do well when disruptions occur as has happened with the global supply chain.

Congestion in the supply chain results in longer shipper times which in turn require more resources, which transportation companies may not be able to provide on short notice.

Swan noted that it is not just labor shortages at railroads that have hamstrung transportation. Also playing a role are worker and equipment shortages at warehouses, ports and intermodal terminals

“If it takes eight days instead of six days, that means you need another 30 percent of chassis, which we don’t have,” Swan said. “As a result, we get congestion because containers are sitting at ports, they’re sitting at rail terminals. That lowers driver productivity. So, now we need more drivers than we had before.”

The Trains report said Swan has long been critical of PSR, but said he doesn’t see the operating model as the primary cause of service failures.

He indicated during his remarks that he is not sure if the failure of railroads to maintain their work force is entirely their fault.

Reducing capacity by changing the way railroad yards operate, making operational changes and maintaining a smaller locomotive fleet have all played a role, Swan said.

At the same time he said some PSR practices are good management and have had positive effects. It is just that management’s actions have had negative consequences when traffic is disrupted or demand surges above normal.

More of Swan’s remarks can be found on the Trains website at https://www.trains.com/trn/news-reviews/news-wire/logistics-expert-psr-shouldnt-shoulder-all-the-blame-for-rail-service-problems/

STB Summons Class 1 CEOs to Talk Service Issues

April 8, 2022

The U.S. Surface Transportation Board will conduct public hearings on April 26-27 to discuss what it termed “urgent” service issues facing the nation’s freight rail network.

Regulators ordered high-ranking executives from BNSF, CSX, Norfolk Southern and Union Pacific to appear at the hearings.

Executives of Canadian Pacific, Canadian National and Kansas City Southern were also invited to address regulators.

Also expected to appear are representatives of other railroads, shippers, railroad labor unions, and other interested parties.

In a statement the STB said it has received numerous complaints in recent weeks from shippers and others about “inconsistent and unreliable” freight service.

The STB statement quoted STB Chair Martin Oberman as blaming the service issues on the precision scheduled railroading operating model, an obsessive desire to lower operating ratios and drastic workforce reductions.

“During my time on the Board, I have raised concerns about the primacy Class I railroads have placed on lowering their operating ratios and satisfying their shareholders even at the cost of their customers,” Oberman said. “Part of that strategy has involved cutting their workforce to the bare bones in order to reduce costs.”

Oberman’s statement noted that Class I railroads have collectively reduced their workforce by 29 percent or 45,000 employees.

The statement also said that such key performance metrics as terminal dwell time and average train speed have declined in the past few months.

For their part, the Class 1 railroads have attributed the service issues to crew shortages, which they say are rooted in difficulties they are having in retaining employees in a tight job market.

The railroads have said those issues are also affecting numerous other industries.

In his statement, Oberman said regulators will explore not just how the situation got to where it is but also what can be done to resolve it.

This will include exploring how regulators can use their authority to implement measures to address emergencies, increase transparency, and promote reliable service.

The hearings will be open to the public in person and through the STB’s website.

Those wishing to speak should notify the STB by April 14. Written testimony is optional but should be submitted by April 22.

Rail Unions Want Attendance Policies Probe

February 8, 2022

Two railroad labor unions are seeking a federal inquiry into the attendance policies of Class 1 railroads, Trains magazine reported on its website.

The action stems from a new policy being implemented by BNSF that unions say threatens safety because it could lead to workers having to be on the job when they are tired.

The Brotherhood of Locomotive Engineers and Trainmen, and the Transportation Division of SMART have threatened to strike over the work rule changes at BNSF but the carrier went to court in Texas to obtain an injunction against a strike.

The two unions are now taking their case to Labor Secretary Martin Walsh and Transportation Secretary Pete Buttigieg by seeking a federal review of the policies. 

The BNSF plan, known as Hi-Viz, assigns points to workers that they can be lose if they miss work for non-approved reasons.

Workers could be subjected to discipline or dismissal if they lose too many points over a given time period.

The unions contend the policy will force railroaders to accept job assignments even if they are tired.

Class 1 Pandemic Absences Set Record

February 1, 2022

Citing Federal Railroad Administration data, Trains magazine reported Monday on its website that COVID-19 infections and quarantines among Class I railroad employees set a record in late January.

For the week ending Jan. 22, 2,275 workers had contracted the virus and 1,908 were in quarantine.

That total of 4,183 eclipsed the record of 4,100 set in the week ending Jan. 9, 2021.

The Trains report indicated that the number of Class I employees idled due to COVID-19 was up 92 percent since the week ending Dec. 25, 2021.

The report said Class 1 railroads have had to hold some trains due to lack of crews. The Trains report can be read at https://www.trains.com/trn/news-reviews/news-wire/class-i-railroad-employee-covid-19-infections-and-quarantines-hit-pandemic-high/

CSX Reports 4th Quarter 2021 Financial Results

January 21, 2022

CSX said on Thursday that its net earnings in the fourth quarter of 2021 were $934 million, which works out to 42 cents per share.

This was a 22 percent rise over the same quarter in 2020 of $760 million or 33 cents per share.

Revenue for the fourth quarter of 2021 was $3.427 billion, up 21 percent from $2.825 billion in fourth-quarter 2020.

Operating income was $1.366 billion, a gain of 12 percent over the $1.215 billion posted in the same period in 2020. The operating ratio was 60.1 percent, a 310 bps increase over the 2020 period’s 57.0 percent.

In a statement, CSX officials said growth occurred across all major lines of business. increases in other revenue, and the inclusion of financial results for the Quality Carriers program.

Leading traffic growth during the quarter were coal, up 39 percent, and intermodal, up 16 percent.

CSX expects continued traffic volume growth this year that’s “driven by economic expansion and supply chain recovery.”

The company expects to spend $2 billion this year on capital projects. That is an increase of $200 million over last year.

Much of the capital will be spent on adding siding capacity to former Louisville & Nashville lines, where CSX has experienced strong traffic growth.

During the quarterly earnings call, CSX CEO James Foote acknowledged that although profits and revenue rose, crew shortages kept CSX from moving even more freight.

A presentation for investors noted that CSX doubled the number of conductor trainees in the fourth quarter and moved 150 trainees into active service.

Jamie Boychuk, CSX’s executive vice president of operations, said the railroad expects to have 350 new conductors on the job by the end of the third month of this year.

The railroad continues to seek to hire additional operating personnel, he said.

The crew shortage issue has been exacerbated by high levels of workers who have had to quarantine after exposure to or contraction of the COVID-19 virus.

Compliance with trip plans in the fourth quarter dipped to 71 percent for carload traffic but intermodal trip plan compliance improved to 88 percent.

On time train departures fell 13 percent to 72 percent and on-time train arrivals slipped to 65 percent.

For more information visit https://www.csx.com/index.cfm/about-us/media/press-releases/csx-corp-announces-fourth-quarter-2021-financial-results/

Further financial information  can be found at the CSX investor’s pages at https://investors.csx.com/overview/default.aspx