A deeper dive on railroad service issues

Going back to last month, the seemingly ubiquitous topic of railroad service issues were in the spotlight, with leadership at the Department of Transportation’s Surface Transportation Board (STB), with STB Chairman Ann Begeman and Vice Chairman Deb Miller penning letters to the top executives at the seven North American Class I railroads, requesting each carrier’s service outlook for both the near term and the rest of 2018.

And as previously reported by LM, the STB indicated it is “increasingly concerned about the overall state of rail service” based on weekly data it collects, stating that “most Class I railroads’ data indicate that service is deteriorating, while system average dwell time has climbed. For those same railroads, other key metrics-such as the average number of cars in revenue service that have not moved in 48 hours or more-are trending in an unfavorable direction.” And STB leadership subsequently requested that each Class I railroad carrier to provide a written response related to their respective outlooks for rail operations across their networks to address various issues related to rail service adequacy, including: locomotive availability; employee resources; local service performance; demand; communication; and capacity restraints.

Since then, some of the Class I railroads have followed up with the STB, explaining their current state of affairs as it relates to service issues and their plans to improve things going forward in the form of increasing head count and power, among other efforts. One common refrain for the service issues was harsh winter weather, as well as blocked main lines, and congestion in key corridors, too.

While these service issues clearly presented internal challenges for the Class I’s and external issues for rail shipper customers, it is the opinion of one industry observer that having the Class I’s offering up these written responses does not really do a whole lot in terms of the big (service) picture.

“I don’t really think the STB is in a position to accomplish much except for indicating to railroad management that this is an issue that is significant and they cannot treat it as business as usual,” said Larry Gross, president of Gross Transportation Consulting, in an interview.

Gross explained that the railroads have generally demonstrated that they are not really good at flexing upward quickly and they don’t have that capability anymore.

“So they were caught off guard and now they have been digging out,” he explained. “When they say ‘we had terrible weather,’ well, winter comes every year, especially in Canada, and I think one of the problems is that these massive trains they are running now i.e. these very long 12,000 foot monster trains have been very efficient, but in the winter that creates some issues and makes them perhaps a little more vulnerable to the cold weather operating conditions and then they have to shorten the trains up and flex up more resources…but that is all pretty predictable.”

That seems pretty straightforward, and it also carries considerable weight when taking into account Gross knows more than most about these types of things.

What’s more, Gross observed that one of the things that these railroad service service issues are illustrating is the interconnected of the North American network, where it is not possible for one railroad’s issues to remain isolated.

“That is certainly what is happening on the intermodal side, primarily in Chicago where one railroad gets behind mainly because of dray capacity issues,” he said. “The railroads are not running that well, and their intermodal train speeds are going down, particularly Norfolk Southern, which, I think, got the ‘benefit’  of volumes coming over from CSX. That slowed them down and then the terminals got clogged up because there was not enough dray capacity, particularly long-haul dray capacity due to things like ELD [Electronic Logging Devices for motor carriers].”

Gross cited how last month CSX closed its 59th Street terminal in Chicago for a few days to “flush out the yard” and get some space to work i.e. free up capacity. But what that did, he noted, was back up freight on Union Pacific and BNSF trains that would normally be moved via truck across town, which caused congestion for both carriers.

That type of situation, he said, speaks to an interconnected aspect that is difficult to control, which is the main reason there was an intermodal chassis shortage, as all the chassis were caught on the street and there was not enough drayage capacity to bring them all back.

“So all of a sudden freight comes in on the rail and there is no chassis,  so there are all about ten independent inputs that all have to be in balance for intermodal to work: locos and crews and rail cars and chassis and containers and terminal capacity and line haul capacity and track space on the railroad and you need a truck driver, a tractor on the drayage side,” he said.

Meanwhile, on the truck side, he pointed to three key required items, including: driver, tractor, and trailer, with a key difference being that when a trucker gets new capacity its efficiency actually goes up, because they are more selective then and will only pick the loads that turn the equipment.

“And if you are going to tie up the equipment you tie up the driver and they say ‘no thanks we are not interested in that load,’” he noted.  “When you look at intermodal, it is the opposite in that as the system begins to slow down, that sucks up more resources and then the system slows down further. It is the opposite of trucking, and it makes recovery more difficult because they cannot be so selective. The letters from the STB to the carriers are harsh, but it is a self-inflicted wound. If you look at the volumes, they are not up much if at all for carload while intermodal is up, so why are there all these problems?”

Honestly, it is a great question. With first quarter earnings calls on top, it will be worth paying close attention to what Class I leadership has to say about these types of things related to service issues. Stay tuned.