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Railroads’ endless pursuit of market share highlighted at key conference

Bailey avoids being ‘Dr. Doom’ and spells out plan for growth; trade association execs express frustration at public perception of railroads

From left to right: Chuck Baker, president of ASLRRA; Ian Jefferies, president and CEO of AAR; consultant Tony Hatch. Photo: FreightWaves

NEW YORK — At a key industry meeting that attracted a crowd that several veteran attendees all believe was the biggest in years, the size of the crowd didn’t alter the hand-wringing message prevalent in so much discussion about the U.S. rail industry: We should be a lot bigger and better.

It is a theme that is heard frequently, that the rail industry has not been able to make significant inroads into the market share of the trucking sector and that it’s time to change that. 

This year at Progressive Railroading’s RailTrends conference in New York, it was again Adriene Bailey, a partner with the consulting firm of Oliver Wyman, a division of Marsh McLennan (NYSE: MMC), who spelled out the shortcoming but also the opportunities facing the industry. 

Bailey said she did not want to be known as “Dr. Doom” in the industry, a moniker that was well-earned in her address to the RailTrends conference a year earlier. 

Her outlook this year was about what the rail industry needs to do to increase its freight market share, which various sources put at about 28%. That share hasn’t meaningfully improved for a lengthy period of time. Bailey tried to make her outlook more about opportunities and to help shake any reputation of being a doomsayer.

Bailey’s plan had four major planks. One was to “acknowledge the need for transformation” and also realize that it would take time. “Anybody who thinks the railroads can do this in less than three years, I would challenge that,” she said. “This is a long-range type of program. We need an operating transformation. We’re not bootstrapping ourselves back to earlier levels of service.” 


Adriene Bailey of Oliver Wyman. (Photo: FreightWaves)

Another part of the four-step plan would be to “use the downturn as a runway.” A slowdown in freight volume, which could provide relief from a market where the railroads are consumed primarily in maintaining the service levels they have, should not be seen as an opportunity to cut costs, Bailey said. Rather, it should be seen as a chance to “provide some breathing room” to make long-term improvements in service that will persevere when the market picks up.

Bailey made several mentions of equity analysts and suggested indirectly that their focus on the short term has been a problem in the rail industry. That was a key part of the plank to “prove the value of growth.” 

“We need to more clearly articulate the benefits of growth over the focus on operating ratio,” which Bailey said now can “distract management from value creation.”

The message needs to be that “providing better sustained service will take back market share,” Bailey said. If that message can be driven home, she added, analysts will more often ask questions about safety and servicing growth rather than focusing on OR.

The final plank was the need to “foster a constructive regulatory environment.” Action plans under that broad goal, Bailey said, include obtaining more waivers to use new technology and persuading governments to “credit rail for the public benefits” it provides.

Those benefits — higher fuel efficiency, greater safety levels than trucks and a variety of environmental benefits — were discussed in the RailTrends opening fireside chat featuring the heads of two key rail lobbying groups: Ian Jefferies, the president and CEO of the Association of American Railroads, and Chuck Baker, the president of the American Short Line and Regional Railroad Association. 

Baker said the “vibe” around railroads this year has been negative, indicative of a “bad year.” 

“Railroads are not the bad guy. Not only are we not the bad guys, but we have a huge range of good guy public policy benefits,” he said, citing the usual litany of positive energy and environmental aspects of rail.

“We think we have a good story to tell,” Baker said. “And it is a frustrating feeling when we feel that labor, some folks in Congress and communities are mad at us. We’d rather be talking about the win, win, win that we bring.”

Jefferies said his organization has tried to make the point to officials in the Biden administration that rail is an ally in some of its macro goals, such as jobs, infrastructure investment and environmental benefits. 

“We align with those perfectly,” he said. “But the challenge is when you get into the agencies and there is a disconnect with the top-line goals.”

In the background to the fireside chat is the reality of the slow slog to approval of a new national rail labor contract. Of the 12 unions that underwent contract negotiations with the freight railroad, seven unions have ratified their labor agreements. Three are back at the bargaining table after their members voted against ratifying their agreements. Members of the two largest unions — the ones representing train conductors and locomotive engineers — are voting now whether to ratify their agreements, and those voting results will be released next Monday.

Baker and Jefferies made no predictions on how the remaining negotiations will play out after the U.S. narrowly averted a national rail strike in September. But another walkout is a possibility depending on the outcome of the ongoing votes and negotiations.

Jefferies said he viewed the contract as a “massive win” for labor, ticking off what he said were some of its key features: maintaining health care coverage, “the largest wage increase in 50 years, and I am thrilled for the seven unions that have ratified. They are getting on average $16,000 checks,” a reference to the one-time bonus in the deal reached between unions and the railroads. 

But Baker said there is work to do after the contract is ratified and labor peace is achieved. “I will say as soon as this is concluded, it is imperative that we fix this relationship,” he said of the interaction between management and labor. “It is not sustainable to be in a relationship where we feel their hostility.”

The irony is that Baker’s member companies, the short line railroads, are not part of the negotiations with labor. But he said the short lines would need to largely match what is in the contract, though there are nonmonetary benefits at the short lines that can make employment there attractive. “You go to sleep at home every night,” Baker said to cite one example. 

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8 Comments

  1. Llawnmeister

    Well, Mr. Baker, I was actually shocked to hear that you greedy executives had any feelings…. You sure don’t show it when you cut off families only means to make a living so you can make more profits.. You exec types are too funny, you expect your employees to be dedicated and faithful to you, but you do not reciprocate…. Yes we’re mad at you and all like you, and you couldn’t possibly ever understand why, so just be frustrated…..

  2. Ch

    Really you think our anger is over money? Apparently you have not talked to any of us labor individuals about what the real cause is. How many sick days a year do you or our management get? We have ZERO how hard would it be for these multi billion dollar companies to give us even unpaid sick time? When was the last time any of them had to miss their families on ever holiday of the year?
    I’m sick of hearing about the biggest raise in decades when it doesn’t even cover the cost of living over the last 5 years. Upper management better wake up or they won’t have any labor.

  3. Chaz

    Really you think our anger is over money? Apparently you have not talked to any of us labor individuals about what the real cause is. How many sick days a year do you or our management get? We have ZERO how hard would it be for these multi billion dollar companies to give us even unpaid sick time? When was the last time any of them had to miss their families on ever holiday of the year?
    I’m sick of hearing about the biggest raise in decades when it doesn’t even cover the cost of living over the last 5 years. Upper management better wake up or they won’t have any labor.

  4. Kevin

    They could at least stop lying about the checks…it was $11,000, now it’s $16,000? And only about 1/4 of that is a bonus, as the bulk of the check is back pay from over 3½ years without a single dime in raises. Take 1/3 or more out for taxes and the average payout will be closer to $6,000 for pushing 4 years of frozen wages for the employees while the executive suite was seeing 10-20% annual hikes. My CEO got a 30% just last year off the backs of someone else’s labor so the disgruntled attitudes are well founded. Not to mention, they get 8 scheduled days off per month while the workers are still only permitted 1 per month. If these people think shoving an immensely unpopular and inadequate contract down the throats of their employees is going to lead to anything resembling labor harmony, they are even more clueless about the state of the industry than anyone thought. They destroyed the industry all on their own and they think we are going to help them fix it now? We actively root for failure every day now…just wait and see how “on board” the workforce is after this ultimate show of complete disrespect.

  5. Joe

    $16,000 is NOT a “one-time bonus”, it is retroactive wage increases that employees should have received over the past 2.5+ years while the rail carriers refused to acknowledge the contributions of their employees – which hasn’t changed.

  6. Natalie Miller

    May I just point out that the $16,000 checks they are referring to is actually EARNED BACK PAY FOR WORKING FOR THREE YEARS UNDER AN EXPIRED CONTRACT!!!!!!!! It is NOT A BONUS!!!!! It is the DIFFERENCE and BALANCE OWED TO US for a “cost of living wage increase” that we DID NOT GET because we were working without a contract!!! Get your facts straight and stop making “Labor” out to be the bad guy!!!

  7. Martin

    “RAIL LABOR DOES NOT CONTRIBUTE TO PROFITS” We will never forget what was said unless the Carriers make an effort to repair what “they” started. Treat your employees with respect and your workforce will reciprocate.

  8. Kreschendalyn Backus

    “And it is a frustrating feeling when we feel that labor, some folks in Congress and communities are mad at us. We’d rather be talking about the win, win, win that we bring.”

    You just feel that? If you feel that fix the problem . You shouldn’t feel that, it’s time that you realize and know that!
    Labor hates your guts. When you treat employees like dirt, this is what you get.

    Give your employees the time off they deserve, stop trying to fire them and you won’t have this problem.

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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.
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