NEW YORK — The chairman of the federal Surface Transportation Board got up Wednesday in front of a room full of railroad executives, analysts and customers and ripped the industry to shreds.
At the RailTrends conference sponsored by Progressive Railroading, after hearing presentations on the first day and into the second day about the need for growth, Martin Oberman offered his verdict on why that growth isn’t there: The industry cut too many workers and now is desperately trying to hire more.
“I’ve heard from shippers that they have traffic to offer them and they can’t get a salesperson on the phone,” Oberman said during a post-speech question-and-answer period.
The STB is the chief regulator of business activity on the railroads. It is an independent agency, unlike the Federal Railway Administration, which is part of the Department of Transportation.
Right from the start of his address, Oberman referred to the “Class I service meltdown,” which he then referred to as a “service crisis.” The service issues led to STB hearings on them last spring.
He said it had been “brewing long before the pandemic, but it really came to a head” during the COVID crisis “and it is not close to being resolved.”
Oberman also got specific: The problems are coming out of “the big four” — Union Pacific (NYSE: UNP), BNSF (owned by Berkshire Hathaway (NYSE: BRK.A), Norfolk Southern (NYSE: NSC) and CSX (NYSE: CSX). The other Class I railroads in North America — CN (NYSE: CNI), Canadian Pacific (NYSE: CP) and Kansas City Southern, which is now part of CP but is awaiting final approval from the STB for the merger to be complete — “have not presented anywhere near these kinds of problems,” he said.
Oberman referred to estimates by the Association of American Railroads that a strike or lockout of railway workers, which remains a possibility as ratification of a September labor agreement continues, would cost the U.S. economy $2 billion per day. But he said the industry itself had implemented what amounts to a “partial lockout” by reducing their workforces more than 10% since the start of the pandemic.
And it didn’t just begin with the pandemic, Oberman said. Between January 2016 and February 2020, Class I railroads reduced their workforces by 29,000 workers, according to STB data cited by Oberman.
With that reduction, Oberman said, “the railroads have lost most if not all of their cushion and resilience to respond to the inevitable disruptions.”
After citing those numbers, Oberman came to the heart of his issue with the railroads’ business practices in recent years. “When railroads try to excuse their failures by pointing to labor shortages at other businesses, those other businesses did not enter the pandemic having stripped themselves of nearly 20% of the workforce in recent years,” he said.
Oberman also said that some major rail users, like grain producers, “made the very difficult decision to play the long game and keep their employees even if it meant a temporary hit to their profit.”
“Very profitable railroads made the opposite decision to the detriment of their network,” Oberman said.
He cited other numbers that measure declines in the size of the workforce, “and I have a hard time distinguishing this behavior from what is effectively locking out 10% of their employees,” Oberman added, coming back to the comparison of employee reductions and a partial industry lockout that he believes effectively already has occurred due to the drop in workforce size.
The result, Oberman said, is that by the middle of 2021, Class I railroads “were falling further behind in the quantity and quality of their service.” That service “really fell off the cliff” in the fourth quarter of 2021 and the first quarter of 2022, he said.
“It is beyond question that the service problems were the result of intentional drops in the workforce,” Oberman said.
Railroads now are facing “huge hurdles” in trying to find new workers. And the result of the cutback is “not abstract. It is felt by customers every day,” he said.
Oberman cited specific losses in economic productivity as a result of the embargoes. One customer needed to euthanize “millions” of chickens because it couldn’t get them to market, and ethanol plants reported to the STB numerous short-term shutdowns because there were no railcars to get product to market.
“How much has this country lost by the decision to implement a 10% work stoppage?” Oberman asked.
One result of the cutbacks, according to Oberman, is that embargoes are being used with more regularity. They are now “routine,” he said, citing Class I embargo totals of 140 in 2019, rising to 631 last year and already up to 1,115 embargoes this year.
“They’re usually tied to congestion but they really are a euphemism for ‘we don’t have enough crews,’” Oberman said.
The message at the overall RailTrends meeting this year was growth. It was the message last year too.
Oberman took notice. “Last year all we heard about was a pivot to growth,” he said. “Has there been any growth? It is not growth. It is continuing decline.”
He took a populist tone at times, referring to “highly paid CEOs” as one of them, Tracy Robinson of CN, sat near the front after having given her own address on the need for growth.
He said the cost cutting through employee dismissals saved less than $5 billion in payroll costs while Class I railroads were returning nearly 12 times that to shareholders in buybacks and dividends. Reducing those payouts by the roughly $5 billion in cost savings through the payroll paring “would have been a drop in the bucket,” Oberman said.
“Today the railroads tell us they are still having a hard time recruiting and retaining workers and try to blame this on the ‘Great Resignation,’” Oberman said. “The fact is the railroad’s personnel practices made these jobs much less desirable.”
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DD
@ Modernrail nothing could be further from the truth than the 36 hours a week. Most train crews, with less seniority, work in excess of 100 plus hours weekly on call for shifts after 10 hours of rest. That’s non-compensated on call by the way. So as a vetran railroader of 25 plus years I’m fortunate enough to work around 60 because the work’s there. Because of out of town expenses are deductible any longer the attraction of giving away 16 hours (without pay) in a motel every out of town trip isn’t attractive either. These things alongside PSR are what they are. Believe it or not it’s the truth.
ModernRail
How many hours does a rail worker work a week? I’ve heard it’s 36. That seems to me that the issue isn’t enough workers, it’s workers that don’t want to work. I never liked getting up at midnight for the night shift, but I did it or I didn’t get paid. Seems rail workers want to be paid like emergency room doctors, but have the 9-3 life of dermatologists. The boards used to be full of guys that only worked bare minimums, but drew full benefits. Go to a real hourly wage system like the rest of the working world and see if that doesn’t boost service. You couldn’t build a more convoluted pay system if you tried.
Dick trickle
What a joke. Oberman isn’t gonna do a damn thing. Talk, talk, talk… blah blah blah . As long as psr is their model and you have Canadians running the show… The railroads could care less. As soon as all the smoke settles, they’ll go right back to furloughs again. The government is in bed with the railroads, the unions, everyone. Case in point.. this contract that’s a joke. Democrats on both sides (a union dream) and still we get sold out and the can kicked down the road til after the mid-terms. With 17 yrs in, I’ve seen it all. These government officials are all bought and paid for, period. The fix for retaining workers is pretty simple.. give the crews rest days, let them be able to go to the doctor when they’re sick, stop with the management intimidation tactics with flying drones in the field watching your every move and watching us go to the bathroom with their in cab cameras while on the locomotive and most of all, leave our health insurance alone!!
Wontgetfooledagain
Everything Oberman said is true, but his field inspectors are still allowing all the class 1 shenanigans to continue. See it with my own eyes everyday. Everyone is trying to be optimistic that our new CEO will change things for the better but after he read all of the Great Hunter Harrison books and was so impressed and now a fan of his, not so much anymore. Haven’t seen or heard the first PSR instigator head roll yet. Until you gut these ex CN & CP personnel off the payroll you will continue to hear how great things are. I am a Frontline craft worker and I see exactly what is going on in real time. Customers and other connecting shortlines have my phone number, we talk and trust me, it ain’t all gumdrops and lollipops like the PSR promoters lead all to believe.
STAGGERWHACKER
Time to repeal the Staggers Act, shareholders be damned. The country can not return to the days of being held hostage by barons.
Gabe Ashor
Don’t talk about time claims to me, I’ve put in hundreds of “valid” DIFFERENT time claims and hardly any of them have EVER been paid! Now I know the story of when I’m 78 years old a check WILL come in the mail for a couple thousand dollars, but I highly DOUBT that’ll ever happen.
derek
The big 4 will just roll their eyes at Oberman, and say he doesn’t know what he is talking about and the information he is provided is all lies. Their stats are golden as they will claim, and the goal is to continue to line their own pockets and get huge bonuses at the expense of us rails.
still going with HUNTER’S PLAN OF DO MORE WITH LESS, creates better profits.
until there is some way to punish the top leaders financially, this will be the norm.
on the backs of the workers as it’s always been
Rail Roaded
Best part is on Tuesday at the railroad I work for (UP) they started cutting the boards to possibly furlough the new hires they’ve literally just hired on in the last week. Isn’t that how we got here in the first place? Cuts today on both Eng/Con boards saves them $ on upcoming holiday pay. Oberman would have a hay day if he knew this was actively going on RIGHT NOW!