Posts Tagged ‘Matt Rose’

Oberman Continues to Assert Himself

July 26, 2021

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.

BNSF Will Become a Player in Merger Game

December 14, 2015

BNSF has jumped into the fray over the proposed Canadian Pacific-Norfolk Southern merger with BNSF Executive Chairman Matt Rose saying that his company has spoken with NS and CSX about possible merger activity.

Rose also indicated that if the CP bid to acquire NS appears to be moving ahead, then BNSF will become a player in the merger game.

Rose has been making the rounds of late to speak about possible Class 1 railroad mergers, giving interviews with Bloomberg TV Canada and Trains magazine columnist Fred Frailey. Rose also has addressed Wall Street Analysts in a conference call.

Cowen & Company Managing Director Jason Seidl told Railway Age that he believes that “Norfolk Southern shares will outperform and that investors will start to look at eastern rival CSX.”

Siedl noted that Warren Buffet, whose Berkshire Hathaway owns BNSF, “is paying attention” and has long been enamored with the railroad sector.

“If CP’s overtures toward NS come to fruition, we believe that other railroads will be forced to scramble to match the scale and product offerings of their newly-formed transcontinental peer,” Seidl said. “This could push the industry from seven Class I’s (BNSF, CN, CP, CSX, Kansas City Southern, NS, Union Pacific) to four.

Some analysts believe that Rose has been speaking out as a way of giving notice to the Surface Transportation Board that the “end game scenario” may be at hand.

Seidl said that CP has more to offer NS to entice it into a merger and that other railroads may show interest in merging with NS. He said that merger talk comes as a time when railroads have been posting lackluster carload volumes.

In his conversation with Wall Street analysts, Rose said BNSF would seek to acquire another railroad if CP and NS file a merger application.

Earlier in the week, CP CEO E. Hunter Harrison downplayed the possibility that a CP-NS merger bid would trigger a round of railroad consolidation.

“I don’t see it as automatic that they’ve got to merge,” Harrison told Wall Street analysts. “I just think it’s a lot of rhetoric about nothing.”

Rose hasn’t ruled out BNSF making a bid to acquire NS and would have the ability to outbid CP in a bidding war because Berkshire Hathaway has a “war chest” of $66 billion in cash.

In his interview with Frailey, Rose hinted that if CP-NS consummated their merger then BNSF would seek to merge with CSX.

Rose said a CP-NS merger would result in NS’s profits being taxed at Canada’s lower corporate tax rate, thus putting CSX at a competitive disadvantage.

Yet Rose said he would prefer not to play the merger game. “I always put myself in the minds of my customers,” he said. “I just sense customers feel there has been too much consolidation and too much market power put in the hands of railroads.”

Analysts have noted that an application to the STB for a railroad merger would trigger a “downstream effects” review to discern how the industry might react. That provision was part of the merger rules that the STB promulgated in 2001.

The STB said the “downstream effects” rule gives the board, “the information needed to rule on what would likely be the first step in an end-game situation in which only two or three competing transcontinental railroads would remain in North America.”

NS has thus far rebuffed CP’s acquisition overtures and even trotted out a white paper by two former STB members that argues that the board is unlikely to approve a CP-NS combination.