Surface Transportation Board Chairman Marty Oberman expressed doubt that the four major U.S. Class I railroads could ramp up rail service and reach the service targets they laid out by December.
In response to deteriorating service metrics, the STB in June required Union Pacific (NYSE: UNP), BNSF (NYSE: BRK.B), CSX (NASDAQ: CSX) and Norfolk Southern (NYSE: NSC) to resubmit plans detailing how they expect to improve rail service through the end of the year.
“I have to say that if you look at the regular reporting metrics we’re getting, they are a long way from their six-month targets and we’re about halfway through that six-month period. So I’m not optimistic about the pace at which rail service can recover,” Oberman said at a Friday virtual roundtable moderated by the head of Transportation Trades Department of the AFL-CIO.
Unions blame rail service on precision scheduled railroading
The unions have blamed rail service deterioration on precision scheduled railroading (PSR), saying that the railroading model designed to streamline operations has instead caused the railroads to cut their staffing ranks too deeply in order to save costs.
STB held a multiday hearing in April that included testimony from the railroads, rail shippers and railroad unions looking at the role that PSR might have had in creating or furthering service delays.
PSR “placed a much greater strain on the workloads for the people who have stuck around. And there’s just a crucial nexus between the supply chain and the workers who keep it functioning,” said Vince Verna, vice president and national legislative representative of the Brotherhood of Locomotive Engineers and Trainmen, during Friday’s roundtable. “So the railroads have cut way too deep. They cut too deep thinking they were trimming fat, but they’ve cut into the bone.”
Adding to this year’s service disruptions is the contract stalemate between the unions and the Class I railroads. A new labor contract has been in the works since January 2020, but the negotiations have failed to progress. A federal mediations board took up the negotiations but released the parties from those negotiations earlier this summer. A three-person emergency board appointed by President Joe Biden got involved in the process and held hearings over the past month.
The emergency board’s deadline to provide its recommendations to the White House is this Tuesday, and all parties will engage in a 30-day cooling-off period during which both sides will look at those recommendations, which are meant to serve as a foundation for a new labor contract.
Workforce reduction a concern in rail service
At the Friday roundtable, Oberman said the railroads also should consider the compensation they provide to railroad employees. Compensation has been one of key sticking points in the contract negotiations.
“I asked them all, ‘Have you learned anything from this? Are you committed … to having enough people on the workforce so you can handle all the ups and downs?’” Oberman said.
He continued, “I haven’t gotten a clear answer or any answer. Mostly what I hear is it’s a tight labor market and it’s hard to hire people. And I have said, ‘You know, when markets are tight, prices go up. Have you considered that?’”
While much of the focus in recent earnings calls of the Class I railroads has been on their efforts to hire more train and engine employees, union leaders at the roundtable said cuts in other divisions, such as for track or locomotive maintenance, also can slow down the rail network.
“The reduction in workforce — forcing people to work more hours, longer hours, cover more territory — it creates pressure on the employees. It creates pressure on the equipment. The supply chain can be negatively affected even more so when you begin to have an increase in train derailments or broken equipment,” said Mike Baldwin, president of the Brotherhood of Railroad Signalmen. “The safety issues that can arise from this [PSR] business model are just as detrimental to the supply chain as just about anything else.”
Kyle Loos, assistant president and directing general chairman of the International Association of Machinists’ District 19, said, “The PSR model is do less with less. Not only is there less equipment available to run, but the equipment is in much worse shape. The members are not allowed to do proper inspections to ensure the equipment is safe. So we’re sending out less equipment that’s breaking down more … which means rail customers are not receiving the service they need. When the equipment’s not available to run the service and the crews are not available, it causes disruptions in the whole supply chain.”
Poor communication also to blame for rail service decline, says union leaders
Union leaders also said the implementation of PSR led to other operational changes, such as longer trains, which they say makes communication among the crew working the train more challenging because of potentially farther distances to communicate. Recent efforts to hire more workers have resulted in rushed training, which can also slow down the supply chain as new hires go through the learning curve, they said.
“If I could make a point or a recommendation to the STB or whomever is listening, I highly believe that it would behoove this nation and the board and regulatory agencies that oversee the industry to allow the employees to report in a way that they’re protected,” said Jared Cassity, alternate national legislative director for the International Association of Sheet Metal, Air, Rail and Transportation Workers-Transportation Division, also known as SMART-TD.
“Currently, the railroads are self-policing or self-reporting incidents that relate to service. … And I’m a firm believer that our folks need to have an avenue or mechanism for our voice to be heard so that we can highlight the areas where the problems are,” he continued.
Frank Ponce De Leon, committee chairman with the longshore division of the International Longshore and Warehouse Union, said the ports were hampered by service disruptions due to a lack of communication among the ports’ workers and the railroads.
“ILWU was never notified that the railroads shut off the services to and from the West Coast at least six times last year because of congestion at their own facilities,” De Leon said, referring to metering efforts by the Class I railroads in 2021.
ILWU has asked the railroads for information on power equipment, gondola inventories and labor crew sizes, as well as a schedule that describes what times the trains would arrive at the ports, but it hasn’t received that information, De Leon said.
Meanwhile, shippers on the roundtable urged STB to continue to monitor the railroads’ performance over time.
“We need our Surface Transportation Board to continue to monitor their metrics, especially how many people we are hiring back, how many pieces of equipment are we putting back in,” said Herman Haksteen, president of the Private Railcar Food and Beverage Association.
“And basically we need the railroads to change their attitude towards do we serve Wall Street, do we serve shippers, do we serve our employees. Obviously, there has to be a balance and the C-level suites of our railroads today don’t understand that balance, and hopefully, with Mr. Oberman’s assistance and a few of us squeaky wheels, maybe they’ll start to think about how do we find a better balance than what we have today,” Haksteen said.
What’s next in the labor contract dispute
Biden’s presidential emergency board (PEB) needs to provide the White House with its recommendations on resolving the labor contract conflict on Tuesday. While the reports are nonbinding, they will be used to serve as a basis for a new labor contract. Both parties may voluntarily agree to the recommendations, which is what happened in 2011, or there might be a push by Congress to have the parties reach a conclusion in order to avoid a strike or a lockout, according to a Monday research note by Susquehanna Financial Group transportation analyst Bascome Majors.
“In short, this week’s PEB recommendations very likely reveal what U.S. rails will actually pay for union labor over the 2020-2025 period,” Majors said. He noted that the spread between the rails’ and labor’s proposed wage increases is wide and that the railroads dodged directly answering questions about wage increases in recent second-quarter 2022 earnings calls.
“Rails and labor will attempt to negotiate a voluntary settlement with help from the PEB’s recommendations, while antagonistic rhetoric and strike fears likely escalate as the end of this period approaches, and a strike (possible) or lockout (unlikely) becomes legal on Sept. 16,” Majors wrote.
Congress could get involved as the Sept. 16 date nears to encourage a settlement or end a brief strike, which is still unlikely at this time, he continued. Should the railroads and the unions agree to ratify a contract, then that process could take another 60 to 90 days. But if union leadership has difficulty selling the national agreement to union members, a strike in late 2022 or early 2023 is still possible.