Let the Rail Service Blame Game Begin: Analysis

A crew member from Norfolk Southern boards a locomotive at Canadian Pacific’s Bensenville Yard. Crew shortages are at the center of ongoing rail service issues that prompted federal regulators to order the heads of the Big Four U.S. railroads to appear for hearings on April 26-27, 2022. (Trains: David Lassen)

Executives from the big four U.S. railroads — BNSF Railway, CSX Transportation, Norfolk Southern and Union Pacific — will take turns in the hot seat next week during two days of Surface Transportation Board hearings on widespread service issues.

Federal regulators, tired of continuous shipper complaints, will want to know how and when the railroads will pull their service out of the ditch. Average train speed has fallen by an average of 9% over the past four weeks compared to a year ago, while dwell time in terminals has increased by 12%. And the number of trains held up per day for lack of crews and power remains stubbornly high. This comes despite a 4% lower traffic volume than last year.

Nearly two dozen shipper associations and individual shippers are due to air their complaints at hearings on April 26 and 27 at STB headquarters. They will be joined by officials from the US Department of Agriculture and the Federal Maritime Commission, as well as representatives from five railroad unions.

Shippers will notify the STB of missed switches, cars delayed days or weeks, and loaded unit trains that had to wait two weeks or more for crews and locomotives. They will also show how the delays have caused factories to reduce production or close for lack of raw materials. And they will likely also take advantage of the crisis by advocating for things that have long been on their agenda, like reciprocal change and rate reforms.

Gray-haired man talking
Martin Oberman, Chairman of the Surface Transportation Board. (Trains: David Lassen)

STB Chairman Martin J. Oberman to Take on Railroads Regarding Precision Scheduled Railroading, Significant Associated Job Cuts Over the Past Years, and Wall Street Demands for Operating Ratios always lower.

While it is clear that PSR-related job cuts are a contributing factor to crew shortages, railways have a history of struggling to flex their resources when traffic increases. They also have a history of not having enough crews or locomotives to bounce back from disruptions caused by hurricanes, floods, fires, or a polar vortex. In other words, today’s funk is not a new phenomenon.

Casting the PSR as the sole culprit, as the president appears to be doing, ignores this history as well as current economic forces beyond the railroads’ control.

Railroads reduced their train and locomotive workforces at the start of the pandemic-related traffic decline in 2020, just as they have done each time volume drops. What’s different this time? Fewer engineers and conductors picked up the phone when the railroads sought to call them back to work. Train crews have left the railways in greater numbers than usual, in part because they are overworked and poorly treated. And the wave of quits during the tightest job market in decades – something that affects all businesses – has made it much harder for the railroads to hire new conductors.

It is therefore clear that some of the problems of the railways are self-inflicted. But it would be unfair to put the blame entirely on the railroads when everyone from airlines to warehouses is understaffed.

The railways find themselves in a delicate situation. There is no quick fix when crew shortages are the root of the problem. In fact, it typically takes railways between six months and a year or more to staff up and restore service to normal levels. You can expect railroad leaders to apologize for service outages while emphasizing their hiring efforts and other steps they are taking to fix service.

The great unknown: what will the STB do?

The STB has the power to impose emergency service orders, which it did in 1997 amid the collapse following the Union Pacific-Southern Pacific merger. Among the elements of this order: Prioritizing agricultural shipments after finding that BNSF Railway and UP were providing inadequate service.

Trains Columnist Bill Stephens

But the council has always been reluctant to issue emergency service orders. And it’s clear that the widespread service problems facing America’s railroads today pale in comparison to the paralysis that gripped UP in 1997.

The board generally prefers to shine a spotlight on the problem, rattle railroad executives at public hearings and demand additional reporting on various performance metrics.

More recently, this is how the STB handled CSX Transportation’s service issues after rapid operational changes at E. Hunter Harrison as part of the implementation of Precision Scheduled Railroading in 2017. The board took a similar approach after the brutal winter of 2013-14 – combined with increased traffic of crude oil, frac sand and of grain – stuck Chicago and the rest of the Midwest.

Today, it is unclear how the STB could impose service orders without worsening a fragile situation since all the railways are in the same traffic jam.

Loop Capital Markets analyst Rick Paterson sums it up nicely in a note to clients. “Every organization has their breaking point and it feels like the STB is at their wits end on this issue…. With the regulation light flashing red, it is therefore even more imperative that the railways pull themselves together,” he wrote. “They each need some positive data points to highlight on April 26 and 27, otherwise we’re going to be watching some really uncomfortable conversations. Take out the popcorn.

You can reach Bill Stephens at [email protected] and follow him on LinkedIn and Twitter @bybillstephens

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