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Railroads are struggling, and shippers–as well as Washington–want to know why

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The chief executives of the nation’s railroads have all received letters from the acting chair and the vice chair of the Surface Transportation Board, requesting information on the current status of their respective beleaguered operations and how they are planning to improve them.

Reports are increasing that the surge in freight traffic over the last six months has overwhelmed railroads, and service has particularly deteriorated since November. Canadian National officials, in particular, spent much of a presentation last week at an investor’s conference speaking about how it plans to clean up its current problems.

But the issues are not restricted to Canadian National. The STB is an independent agency that regulates rail rates, reviews mergers for approval, and in general seeks to clear up problems.

The letter from acting chair Ann Begeman and vice chair Deb Miller, dated March 16, went to the CEOs or Presidents of BNSF, Canadian Pacific, CSX, Kansas City Southern, Norfolk Southern and Union Pacific. The letter specifically cited recent letters the STB received from the National Grain and Feed Association and the Alliance of Automobile Manufacturers, expressing “serious similar concerns about the reliability of the nation’s freight railroad network,” according to the STB letter. “Both letters described significant degradation in rail service in recent months.” 

The information requested by the STB included information on:

–Locomotive availability: number of existing locomotives, whether the number is adequate to meet demand, and purchase plans for 2018.

–Employee resources, including current headcount and hiring plans.

–Local service performance, “including specific yards or locations where where performance is trending below historical norms.””

–Expectations for demand in 2018.

–“(I)nitiatives to proactively communicate with shippers regarding service issues.”

–Capacity constraints: the request is to identify particular points on the railroads’ respective networks where there is “sustained congestion,” and what steps are being taken to fix that.

No deadline for the information is given.

The March 12 letter sent by the Alliance of Automobile Manufacturers was unsparing in its criticism of railroad performance. In the letter sent by Alliance executive VP Dave Schwietert to a long list of people, including several members of Congress with key committee oversight over railroads, Alliance had found recent meetings held with the railroads over the delays “largely unsatisfactory.” “The responses have varied widely, including IT issues, network changes, weather, and Positive Train Control implementation,” Schwietert wrote. “Alliance members have not perceived even the semblance of a concerted plan or time frame to restore effective car service for transporting finished vehicles.”

The letter by the National Grain & Feed Association sent March 10 is even harsher, all but stating that greed is at the heart of the railroads’ issues. “(T)here is a fundamental concern among rail customers that the underlying root cause of these service and accessorial charge-related issues is Class I railroads’ aggressive effort to reduce their operating ratios to impress Wall Street investors and shareholders,” the letter, signed by Randall Gordon, President and CEO of the Grain Association, said. 

That letter rips each of the railroads individually, with specific complaints. Among them:

  • BNSF: The industry is experiencing significant transit delays and increased dwell time on BNSF trains destined to the Pacific Northwest, leading to significant deterioration in cycle times on shuttles.
  • Canadian National: A long list, which includes misrouted cars, switching problems that have led to “costly plant shutdowns and production declines in processing plants subject to manifest and local service.”
  • Canadian Pacific: “Significant” delays of 8-10 days in the last 45 days of last year, “leading to increased dwell time.” (Canadian Pacific got off fairly easy in the letter; that was the only complaint).
  • CSX: A lengthy list of concerns, including “the service impacts resulting from slashed resources as CSX continues to implement the ‘precision scheduled railroad’ concept. (A recent CSX presentation was greeted positively by analysts.)
  • Norfolk Southern: “NS service began declining precipitously across all types of traffic, including grain unit trains, manifest trains and intermodal starting in late November and early December. Manifest trains were sitting for multiple days, at times for up to two weeks, in various locations…waiting for locomotive power.”
  • Union Pacific: A lengthy list. “Reports of empty trains sitting idle and waiting to be pulled for up to a week or longer at some origins and destinations.”

A Norfolk Southern spokeswoman had responded to FreightWaves’ request for comment. She said any response would be submitted to the STB. A spokesman for Canadian National released this statement: “We have acted aggressively to address service issues on CN’s network that have developed in the face of significant volume increases across our business, particularly this winter in our busy Chicago to Winnipeg corridor. We continue to hire hundreds of new conductors across our system – including in places such as Wisconsin – to run trains, added approximately 130 leased locomotives to our network in recent weeks to quickly boost capacity, and have increased our capital investments by C$500 million to a record C$3.2 billion for 2018 to build network resiliency. These actions and other steps we’ve taken working with our customers to manage rail traffic have begun to ease congestion and increase productivity.”

The March 16 letter by Begeman and Miller came one day after a more benign statement by the STB that it would be holding a series of meetings in the second quarter to discuss the agency’s regulations regarding emergency service steps it can take, and the current “service inadquacies.”

“The Board’s existing directed service regulations are rarely used, even in times of rail service deterioration,” the STB said in a prepared statement. “Therefore, the Board is interested in exploring through informal discussions whether and how the agency’s current directed service regulations need to be modified to offer a more meaningful path of relief in times of serious rail service challenges.” An STB spokesman said the agency had no additional comment on those meetings beyond what was in the statement.

The rule permitting STB emergency steps reads as follows: ‘Alternative rail service will be prescribed under 49 U.S.C. 11123(a) if the Board determines that, over an identified period of time, there has been a substantial, measurable deterioration or other demonstrated inadequacy in rail service provided by the incumbent carrier.”

(Editor’s note: The CN spokesman’s statement was added after the original publication. We will continue to add railroad responses as they are submitted).

 

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.

One Comment

  1. As an employee.. It’s simple. Quit laying people off. We have trains parked everywhere. No one to run them. They let them sit there and for away and yet they keep laying more off. The NTSB needs to step the hell up and put a stop to this. Not only is it hurting our company which is now controlled by a hedge fund company but it’s hurting every business that we work with by delaying their shipments and not having any work for their own employees. Walstreet having control of our railroads needs to come to a complete end. It’s killing the Trump train!

    1. Agreed. The all mighty shareholders run the railroads now. Lawyers and Accountants are the new CEO’s and have no real RR experience. Take a look at NS. Moving all dispatchers to Atlanta, you know because it has worked so well for the CSX um the second time. They care less then ever about employees and safety because that just gets in the way of profits. Stacking more work on dispatchers and crew members while cutting those same people down to save a few bucks..

  2. I would suggest that STB take a long look at the incentive programs negotiated between CEO’s and the board of directors on the various railroads. My experience through observing the contract cycles between 1974 to date has been predictable. The performance bonuses (which usually exceed their salaries) are tied to the value of the stock at the end of contract cycle. typically as the evaluation date draws near management begins making massive cuts in the labor force i.e. conductors, engineers, maintenance of way personnel etc. All but he most vital maintenance of the infrastructure is put on hold. This artificially increases profits in the short term (profits will fall shortly after spike) this causes the stock to appear to be a value and the price of a share increases. Bingo. Bonus goals are achieved bonus. Monies are distributed.

    I cannot for the life of me understand why this continues. You hire a person to lead a company at a fair salary. You tell him what you expect from him. If he agrees to the parameters set forth as a condition of his employment he becomes an employee of the company. If he fails to fulfill you release him and replace him with someone who can. I watch Dick Davidson and Art Schoner come up through the ranks at UP. He certainly is no magi. In my humble opinion He was totally disingenuous. The truth was not in him. His style was copied onto other railroads. He served no other purpose but to siphon money off the UP into hid pocket with no value gained.

  3. Try treating railroad employees better and go back to railroading and stop all this nonsense that is taking place.

  4. As a former employee of Texas Pacific Missouri Pacific and Finally the last merger with Union Pacific starting in 1967 ending in 2009 I witnessed the good and bad times over the last 10 years of service the Railroad company became more and more profit at all cost Its OK to make a profit but to throw the carrier into monetary stress to pay a shareholder of which I am one is destructive Over the last 20 years people have been put in charge of making critical decisions regarding freight movements Employee Trust and day to day operating procedures in all aspects of Railroading The people running the show are not transportation people they are fresh out of college or another company with no RR experience But they will do as they are told and not make any waves to keep there under salaried jobs Just my opinion after 43 years of Railroading Things will improve when people with experience are put in position to apply there knowledge of what will work and what will not

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