Oberman Says RRs Need to Pay Crews More

U.S. Surface Transportation Board Chairman Martin J. Oberman appears to be putting his thumb on the scales in favor of labor unions in their negotiations for a new contract with the nation’s major railroads.

In an interview with Trains magazine, Oberman said rail freight service is suffering because BNSF, CSX, Norfolk Southern, and Union Pacific are not paying enough to retain and recruit train crews.

“There is a price that will get you enough workers,” Oberman told Trains during the interview, which was conducted before a congressional hearing. “I don’t know what that price is. But everything has a price.”

Oberman said during the interview that federal regulators have no plans to mandate crew levels even though he linked those to the quality of service that railroads provide.

However, he made it clear his belief that paying crews more money would alleviate the crew shortages that the carriers say are the root cause of their service issues.

“If you need another 400 crews to move those trains that are sitting out there, pay whatever price you need to get them,” Oberman told Trains. “Don’t come in and tell me it’s hard to hire. And it’s not like they can’t afford it. They’re paying out billions and billions every year in stock buybacks. You could use some of that to get the workforce you need.”

During hearings held by the STB last spring to investigate the ongoing rail freight service issues, Class 1 railroad executives argued the crew shortages are due to factors that are largely out of their control.

Specifically, the executives said, workers who were furloughed during a recession triggered by the COVID-19 pandemic didn’t return to work once recalled. The railroad executives also cited higher than normal attrition rates among its work force and a tight labor market.

Some executives even talked about it being tough to hire conductors due to the nature of the job involving working outdoors at all hours in all kinds of weather, and being away from home a lot.

Wages and benefits have been a major sticking point in labor negotiations over the past three years with unions reportedly seeking more money than the carriers are willing to pay.

By some reports, the unions are seeking a 31 percent wage increase while the railroads have offered 17 percent over a five-year period.

The dispute is now being reviewed by a presidential emergency board that will make non-binding recommendations for a settlement.

If either side rejects those recommendations, they would be free to engage in a strike or lockout a month after the PEB issues its findings.

Although railroads have raised the wages of their new conductors and offered signing bonuses to new hires and retention bonuses to existing train operating personnel, Oberman told Trains those financial incentives are falling short and that railroad employment has yet to reach pre-pandemic levels.

“The railroads are not offering sufficient rewards – a combination of quality of life and compensation – to keep people there,” he said. “There’s a price at which people will stay.”

The story can be read at https://www.trains.com/trn/news-reviews/news-wire/stb-chairman-says-higher-pay-would-help-solve-railroad-crew-shortages/

STB Asks NS to Address Service Issues

Norfolk Southern has been asked to address service issues that a key federal regulator described as a “poor performance.”

Martin Oberman, chairman of the U.S. Surface Transportation Board, wrote to NS CEO James Squires to ask him to provide regulators with “a review of the current state of NSR’s network, and your assessment of what factors are affecting NSR’s ability to achieve past levels of fluidity and consistent service, and in particular the impact on customer service of previous headcount reductions for train, yard and maintenance employees.”

Oberman’s letter recounted how several key service metrics at NS have deteriorated and are hovering far below comparable numbers for 2019.

This has included a decline in average train speed of manifest freights, an increase in the average system dwell time and a rise in the number of manifest freight trains being held per day.

At the same time, the number of operating employees at NS has declined by about 8,200 each month during the past three months, suggesting the carrier lacks enough workers to avoid the service problems it has experienced.

The letter also cited an increase in complaints to the STB about NS service, including missed switches, cars stranded in yards, longer transit times, operating plan changes without notice, and a lack of communications from customer service.

Oberman wrote that this has increased costs for these shippers without any corresponding compensation from NS.

The letter can be read at https://www.stb.gov/wp-content/uploads/Letter-to-J.-Squires-re-Service-Issues.pdf

Foote Responds to Service Complaints Assertion

In a letter to the U.S. Surface Transportation Board, CSX CEO James Foote sought to refute assertions that the Class 1 carrier is having service issues.

Foote said there has not been a surge in shipper complaints and that the carrier has increased the number of staff in customer service office by 40 percent.

He was responding in part to a letter written by STB Chairman Martin J. Oberman last month seeking information about such service issues as missed switches, delayed shipments and unfulfilled car orders.

Oberman said in the letter that regulators have been receiving a steady stream of complaints about CSX service.

Foote countered that if those informal complaints are coming into regulators that CSX wants to hear about them because the company cannot address issues it doesn’t know exist.

He also contended that although CSX service is not where it should be, that the carrier moving toward returning to 2019 performance levels as it continue to hire new operating personnel and such metrics as terminal dwell time, average train speed and the number or cars sitting for more than 48 hours without moving are among the best in the industry.

Foote’s letter has been posted at https://www.stb.gov/wp-content/uploads/JMF-CSX-service-update-to-STB-11-02-21.pdf

Citing Shipper Complaints, STB Chair Seeks CSX Info

U.S. Surface Transportation Board Chairman Martin J. Oberman wants CSX to explain its service issues.

In letter dated Oct. 18, Oberman told CSX CEO James Foote that the agency continued to receive complaints about CSX service issues, including missed switches, unfilled car orders, delayed shipments and an inability to reach customer service representatives at the railroad.

The letter cited a “steady stream of complaints” over the past several months.

 “These complaints are not limited to any particular region on CSX’s network, nor are they confined to shippers of specific commodity groups. Customers have also reported that service problems are sometimes resolved, only to recur weeks or months later,” Oberman wrote.

Oberman’s letter also cited slower train speeds, longer terminal dwell times and a smaller workforce.

The letter can be viewed at https://www.stb.gov/wp-content/uploads/Letter-to-J.-Foote-re-Service-Issues.pdf

AAR Responds to Oberman Criticism

The Association of American Railroads is seeking to refute comments made by U.S. Surface Transportation Board Chairman Martin J. Oberman that suggested that Class 1 railroads are more interested in profits than market share lost to trucking companies.

A letter written by AAR CEO Ian Jefferies and posted on the STB website said railroads have sought to maintain and grow traffic volumes and continue to invest in their networks.

Jefferies says AAR data shows that rail ton-miles were up 9 percent from 2006 to 2019 when coal is excluded from the tally.

“Making up for the loss of coal volume will take time, but to imply that railroads have not worked to grow volumes, especially in the face of steep coal declines, is simply not the case,” he wrote.

Jefferies also said rail volumes should not be measured against the U.S. gross domestic product, but rather the goods-related GDP. The goods-related share of the overall economy has declined over the past 15 years.

“That’s important because rail traffic growth is correlated quite closely with goods-related GDP,” Jefferies said. “Thus, one cannot draw the conclusion that railroads have not sought to grow their volumes from overall GDP data.”

Obeman in speaking to the North American Rail Shippers convention said railroads have lost market share to trucks over the past 15 years and have put shareholder interests above those of other key railroad stakeholders such as customers, employees, and the public.

Using STB waybill data Oberman said excluding coal rail freight traffic has declined since 2006.

Jefferies said railroads have devoted on average nearly 19 percent of revenue over the past decade toward capital spending, which he said was six times higher than the manufacturing industry’s average.

 “It is an unavoidable fact that shareholders and lenders will seek the highest return possible commensurate with the risk involved,” Jeffries said. “No law or regulation can force investors to provide resources to a firm whose returns are lower than what the investors can obtain elsewhere.”

Rail Traffic Picture is More Complex Than it Often is Made Out to be by Pundits

A common refrain in discussions of U.S. rail freight traffic in recent years has been how railroads are losing market share to trucking companies.

“It is clear that rail carriers have lost market share to trucks over the last five years and the ongoing service issues threaten to increase that shift,” said Todd Tranausky, vice president of rail and intermodal at freight forecasting firm FTR Transportation Intelligence.

Consulting firm Oliver Wyman found that rail is losing share in the fastest-growing freight segments, which includes such traffic as autos, which can move by truck or rail.

The consulting firm concluded that if current trends hold, the truck versus rail gap will widen and railroads will lose $177 billion in revenue by 2030.

Class 1 railroads that adopted the precision scheduled railroading operating model have come under fire from some quarters for reducing their work forces and, some critics have said, seeking greater profits by ceding market share of some shipments to trucks.

Among the critics has been U.S. Surface Transportation Board Chairman Martin J. Oberman.

Oberman cited STB waybill data that shows that between 2006 and 2019, “adjusted carloads” fell 1.3 percent.

Yet some in the railroad industry say that’s not a complete view. They point to traffic data from the Association of American Railroads showing that rail ton-miles grew 10 percent between 2006 and 2019.

The AAR data also shows that since 2006 terminating carloads and intermodal units rose nearly 8 percent through 2018 and 4 percent through 2019.

Looking at terminations and not just originations captures traffic generated on short lines as well as the significant shift of U.S. West Coast international container volume to ports in British Columbia.

Whether you use the figures Oberman is using or the AAR data, the figures exclude coal traffic. Railroad supporters also argue that some rail traffic was lost due to trade wars instigated during the Trump administration.

Yet Oberman said during an interview with Trains magazine that no matter what data you examine, the larger point is that railroad freight traffic has shown no meaningful growth.

As Oberman sees it, the influence of Wall Street is at work pressuring railroads to focus on their operating ratio, which measures the percent of revenue that is devoted to paying operating expenses.

“The railroads’ emphasis has not been on growth,” Oberman said in a speech to a shipper group. “Rather the emphasis has been on cutting in pursuit of the almighty O.R. down to below 60 percent.”

During the interview with Trains, Oberman acknowledged that many factors and not just pressure from Wall Street investors, has led to railroads losing market share to trucks.

Some of those factors involve economic changes unrelated to railroads, such as a dramatic drop in the shipment of crude oil by rail and declining shipments of frac sand used to extract oil.

Some industry observers also note that railroads have hurt themselves by failing to deliver shipments on time and by failing to be as easy to do business with as trucking companies are.

Jason Miller, associate professor of logistics at Michigan State University’s Eli Broad College of Business, told Trains that slower rail traffic growth has more to do with changes in the economy than anything railroads have done.

He said studying data from the Bureau of Economic Analysis shows that railroads and trucking companies alike have had ebbs and flows to traffic growth.

Between 1997 through 2003 truck traffic was rising while rail traffic was flat.

Yet in the mid 2000s rail traffic had a boost that corresponds with an increase of industrial production.

Rail and truck alike also lost business during the Great Recession that began in 2008. Rail traffic began growing again until falling in 2015 due to a loss of traffic from coal mining and hydraulic fracking.

“As such, the slower growth seems more a function of the changing nature of economic activity,” Miller said.

He said similar patterns can be seen in data of intermodal traffic versus trucks that haul consumer goods.

Intermodal grew faster immediately after the Great Recession, and then grew in tandem with trucking until 2015 when trucks began to dominate.

Miller said the gains by trucking companies were rooted in low truck rates between 2016 and 2017.

Then in 2019 railroads began allowing some intermodal loads to move to the highway while at the same time West Coast ports lost market share to East Coast ports, where international containers are far more likely to travel by road than rail.

The Trains analysis of traffic data also shows that rail traffic excluding coal, intermodal and automotive, reveals a gap between eastern railroads and western railroads.

Between 2006 and 2019, carload volume was down 16 percent in the East and up 5 percent in the West.

Most U.S. manufacturing is located in the East, but that region of the country has had truck competition inflict a bigger hit because of the shorter hauls involved, which favor trucking companies.

The analysis also suggested that policy decisions made by individual railroads play a role, citing how BNSF has long sought traffic growth while Union Pacific has long favored profit margins.

Consequently, between 2006 and 2019 BNSF carload traffic grew by 12 percent while at UP carload volume was down 1 percent.

The Oliver Wyman study concluded that to retain traffic  railroads need to be more reliable, provide shipment visibility, and become easy to work with while becoming supply chain partners.

Nick Little, director of railway education at Michigan State’s Center for Railway Research & Education, agrees.

“The sooner the Class Is change their culture to think and behave like a key part of their customers’ supply chains, the better chance they will have of helping the nation, and the world, by enabling the switch to rail that Marty Oberman really wants to see as his legacy in his STB role.”

AAR Seeks to Forestall Intermodal Regulation

The Association of American Railroads warned federal regulators on Thursday that any attempts they might make to regulate intermodal traffic would have unintended consequences and run afoul of congressional intent to keep the railroad industry deregulated.

The railroad trade group acted after U.S. Surface Transportation Board Chairman Martin J. Oberman expressed concerns about how intermodal traffic has slowed due to terminal congestion.

Containers are stacking up at busy terminals on the West Coast and in Chicago and ships are waiting outside harbors to unload containers coming from overseas.

Oberman also discussed how shippers have had to pay railroads large storage and demurrage fees for containers sitting in intermodal terminals.

The latter has led some shippers to ask the STB to intervene.

In its statement, the AAR said regulation of intermodal traffic would not resolve the current congestion issues.

Individual Class 1 carriers have said in letters to the STB that the issues causing the congestion in the supply chain are not the fault of the railroads

Instead, the railroads have pointed to shippers being slow to pick up containers due to labor shortages at warehouses.

“The global supply chain faces unprecedented challenges in its recovery from the global pandemic, caused by factors beyond the Board’s regulatory regime,” AAR Counsel Timothy Strafford wrote in a letter to Oberman.

Strafford’s letter noted that the former Interstate Commerce Commission and the STB itself have broadly exempted from regulation trailer-on-flatcar/container-on-flatcar services “due to the fiercely competitive nature of intermodal traffic.”

He said railroads lack market domination over intermodal shipments and therefore the STB should refrain from regulating storage charges.

AAR said that if regulators were to limit demurrage fees through regulation, shippers would have no incentive to promptly remove containers from intermodal terminals and that would force railroads to further meter inbound container shipments or halt them altogether until the backlog of stored containers can be cleared out.

In recent weeks some Class 1 carriers have restricted the flow of containers to certain terminals in an effort to reduce the number of containers being stored there while awaiting pickup from shippers.

Strafford said in his letter to Oberman that Class I carriers have been working with shippers to keep intermodal terminals and rail networks fluid.

Oberman Continues to Assert Himself

Martin Oberman was at it again last week. This time he was prodding Class 1 railroads to provide more information about congestion at intermodal terminals.

The chairman of the U.S. Surface Transportation Board was acting after some railroads embargoed containers in an effort to clear out backlogs in intermodal terminals on the West Coast and in the nation’s heartland.

The temporary embargoes in particular were affecting international shipments. Containers are stacking up faster at terminals than railroads can move them and customers can receive them.

“I am particularly concerned about significant increases in container congestion at key U.S. terminals, and substantial charges being levied by the railroads for container storage at these terminals,” Oberman wrote in letter to the CEOs of North American Class 1 carriers.

Industry observers have said the supply chain congestion has been triggered by strong consumer demand that has led retailers to seek to restock their warehouses and store shelves.

Other factors are labor shortages and COVID 19-related protocols

Shippers have been slow to return containers to intermodal terminals, which resulted in a chassis supply shortage and diminished drayage capacity.

For their part, the Class 1 railroads contend that the intermodal congestion is not their fault because it has been caused by matters that are largely been beyond their control.

Railroads argue they are working with ports, steamship lines, shippers, and drayage companies to ease congestion.

Yet shippers point fingers back at railroads, saying they are charging excessive demurrage fees for containers stuck in intermodal terminals.

Oberman cited the latter charge in his letter to the railroad chiefs.

“The Board has received numerous reports related to the length of time that containers are being held in rail yards, and the sizeable storage fees (“demurrage”) some customers have been required to pay in order to obtain release of containers bearing their shipments,” he wrote. “These reports have come from shippers, both large and small, in addition to third-party logistics providers. I am particularly troubled about reports that Class I railroads are continuing to impose these charges even in circumstances when the receivers, as a practical matter, have no means to facilitate the release of their containers. Under these circumstances, demurrage fails to provide any constructive incentives, and perversely results in massive charges that can exceed the commercial value of the shipment.”

The STB head wants railroads to provide information on their demurrage policies, whether receivers are permitted to use their own chassis to retrieve their boxes, a description of any efforts made to reduce storage charges when the delay is beyond a shipper’s control, and the average daily volume of stored containers.

The STB’s authority over intermodal is limited due to exemptions that prevent regulators from seeking to apply its  demurrage policies and rules would apply to containers and trailers.

Some shippers are pressuring the STB to lift those exemptions, although Oberman underscored in his letter that the STB is not seeking at this time to do that. Nor did Oberman threaten to do that, at least not just yet.

“Because I recognize the significance of any such potential Board action, I am requesting the above information to facilitate careful consideration of this difficult situation and to assist the Board in determining whether any action may be warranted.”

In response the Association of American Railroads issued its own letter warning Oberman and regulators to stay out of the matter.

“​​Railroads are engaging with their customers, supply chain partners, and other stakeholders to do their part to meet demand to support the recovery of the national economy,” AAR attorney Timothy Stafford wrote.

“Particularly at this critical time in the nation’s recovery, regulatory action by the STB that interfered with that effort or that hindered railroads’ ability to serve their customers could be very damaging.”

Earlier this month, Oberman spoke out about what he termed questions about whether railroads are shirking their common carrier obligations under pressure from Wall Street investors seeking higher railroad industry profits and stock prices.

Oberman has also said regulators will take a look at such matters as reciprocal switching, lifting exemptions on the regulation of certain commodities, and ways to more easily settle rate disputes.

None of those probes is likely to please the AAR and its members. Yet an analysis published on the website of Trains magazine last week suggested that the STB interest in taking a more hands-on approach to regulation may be a consequence of what railroads have been doing in the past several years in the wake of their adoption of the precision scheduled railroading operating model.

After switching to PSR, carriers have reduced service, ceased pursuing or carrying certain types of traffic, and emphasized traffic that provides higher profits.

The Trains analysis cited a warning cited in January 2019 by former BNSF Executive Chairman Matt Rose warned that Class I railroads were courting regulatory risk.

“We have this common-carrier obligation to provide freight service to all customers in all markets,” Rose said. “And what we’re doing in PSR is we’re redefining what we’re willing to accept in the freight railroad industry on certain lanes. And I really do believe we’re going to get in a lot of trouble by doing that.”

“When you start redefining markets I think then the federal policymakers will look at this, and quite frankly, they will not be happy with us,” he said.

Oberman has signaled on multiple occasions that he intends to do just that. He recognizes that doing so will invite railroad industry resistance.

“I am frequently reminded by my friends in the railroad industry that we should butt out and the market should regulate rates and service. And I agree. I think the market should regulate rates and service,” Oberman said. “But . . . for that to happen there has to be a market. And so to me, it is far better if we have more competition in the shipping and freight industry so we don’t have to get involved.”

Aside from such issues as reciprocal switching, which allows captive shippers to seek access to another nearby railroad via interchange, the more activist approach espoused by Oberman may affect how regulators view the CSX acquisition of Pan Am Railways and the efforts of Canadian National to acquire Kansas City Southern.

Some of the increased attention being paid to railroad operations can be tied to a change of administrations in Washington, but even before that the STB had begun giving transactions more scrutiny.

An example of that were the conditions regulators imposed on the sale by CSX to CN of the former’s line from Syracuse, New York, to Montreal.

The STB approved the sale, but imposed conditions that both class 1 carriers found unacceptable. The sale has yet to be consummated.

In that case, the STB sought to require short line railroad connections with CN that CSX opposed.

It remains to be seen how far Oberman and his fellow regulators will go with their renewed interest in being more active.

Regulators may approve the CN-KCS merger and the CSX acquisition of Pan Am, but with strings attached that the parties might not like.

Looming in the background is the political balance of power at the federal level. It currently favors a more activist approach to regulation but that could change if control of Congress changes hands in the 2022 elections.

The Trains analysis concluded by saying that Oberman’s comments should serve as a wakeup call that there’s a new sheriff in town.

For now that sheriff is more interested in asking questions and raising concerns about issues that railroads would prefer regulators stay away from. But the carriers ultimately have little choice for now but to endure what Oberman and others are dishing out and work with it.

STB Head Wants More Rail Competition

Class 1 Railroads got an ear full on Tuesday from U.S. Surface Transportation Board Chairman Martin J. Oberman who suggested the carriers are shirking their obligations as common carriers due to pressure from Wall Street investors.

Speaking to the Midwest Association of Rail Shippers, Oberman called for more competition in the industry and is in agreement with an executive order issued last week by President Joseph Biden directing federal agencies to limit the dominance of large corporations.

 “There are just many, many parts of the country . . . where there’s just not real effective competition among rail carriers,” Oberman said.

In regards to railroads, the STB head said he sees a less robust freight rail system due to job cuts related to the implementation of Precision Scheduled Railroading.

Oberman also said that some commodities moved by rail have suffered due to Wall Street pressure for ever-lower operating ratios.

“While everybody applauds efficiency — and I do — I am concerned that we may well have stripped our resources down too far to keep our national rail network as healthy as it needs to be to rebuild the economy,” Oberman said.

He acknowledged that railroad did well in moving traffic as the economy rebounded from a recession last spring triggered by the COVID-19 pandemic.

Oberman and other STB members will be weighing these and other concerns in upcoming merger cases involving Canadian National acquiring Kansas City Southern, CSX buying Pan Am Railways, and a bid by Watco to buy CN’s former Wisconsin Central branch lines in Wisconsin and Michigan.

Amtrak’s relationships with its host railroads also are on the docket in a pair of cases, including involving Federal Railroad Administration mandated on-time performance standards.

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

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.