Customers of the major U.S. railroads claim that many of the service headaches and added costs they’ve increasingly had to endure over the last three years could be avoided if they were to be made partners in the carriers’ move to overhaul rail operations.
This lack of collaboration with the railroads was a major discussion point among a group of rail customers and industry associations invited to a shipper roundtable hosted by a subcommittee of the U.S. House Transportation and Infrastructure Committee on July 25. The purpose of the roundtable was to highlight challenges faced by farmers, manufacturers and energy companies in the wake of precision scheduled railroading, or PSR.
“A lot of the problem is a complete lack of partnership with the shippers,” said Mike Lacey, president of Solvay [EURONEXT BB: SOLB.BB], a major international chemical company with 50 manufacturing sites around the U.S. “They don’t engage you in the process early, they don’t tell you what they’re trying to do and how they think you can help. We’re not going to oppose everything the railroads want to do, but there are some things that would work well for all of us if we knew about it.”
For shippers, PSR has been one of those things. While the redeployment of physical assets and the reduction in headcount has streamlined operations for the railroad, it has led to service delays and skyrocketing overcharges in storage and equipment fees for which shippers claim they’re not liable. Complaints about the overcharges were the subject of a two-day hearing at the U.S. Surface Transportation Board (STB) in May.
Mike Amick, senior vice president, Paper the Americas, for International Paper [NYSE: IP], the largest boxcar shipper in the U.S., pointed out that the service and overcharge issues stemming from PSR are difficult to push back against, particularly given the railroads’ market power. Approximately 90 percent of the country’s freight is handled by just four major railroads, he said.
“The journey that we’ve been on [with the railroads] during the last three years is one that has been full of surprises — and it’s been outright shocking at times in either the amount or size of those surprises,” he said.
Amick told the roundtable group, which was led by Daniel Lipinski (D-Illinois), that he came close to shutting down a major facility in Georgetown, South Carolina, due to a lack of rail capacity, which led to ballooning inventories and related safety problems. “We understand the magnitude involved with [implementing PSR], but I have to ask whether they’re focused on how this is impacting their customers. In our experience, their behavior so far is that [the effect on customers] is secondary to them at best.”
PSR has been working well for the railroads. Canadian National [NYSE: CNI], a leader in the PSR movement, saw higher earnings in the second quarter and expects PSR to continue to generate profits for the rest of the year. Norfolk Southern [NSYE: NSC], a more recent convert to PSR, also expects the operational changes that come with it to increase 2019 profits.
Some carriers are attempting to modify the way they impose demurrage and accessorial charges to address shipper concerns, but some shipper groups are craving more changes. The roundtable group didn’t propose legislative fixes to the problem, but lawmakers were asked to lend their support to the STB as it considers ways to improve its regulatory oversight.
“[The STB] will be urged by the rail industry to maintain the status quo, but to the degree you can support the agency in fulfilling its statutory function is greatly appreciated,” said Randy Gordon, president and CEO of the National Grain and Feed Association.
Gordon also asked lawmakers to “take a fresh look” at the national transportation policy within the Staggers Act, the legislation that deregulated the railroads in 1980.
“We’re not looking to reopen Staggers by any stretch,” but would like to see “better balance between the need for railroads to earn revenues, which we all need them to do, and the need for competition and commercial fairness in some of these practices,” Gordon said.