AAR and ASLRRA leadership examine key freight railroad trends and themes at RailTrends

Top leadership at two prominent Washington, D.C.-based railroad organizations offered up their respective thoughts on myriad issues within the freight railroad sector in the opening session at this week’s RailTrends conference in New York, which was hosted by Progressive Railroading and independent railroad analyst Tony Hatch.

The session addressed the current freight railroad environment, which has received a fair amount of shipper attention, due to the ongoing rail labor negotiations and service-related issues, among other topics.

Ian Jefferies, President and CEO of the Association of American Railroads (AAR), said that today’s current challenges are different than when compared to the 2008-2009 period, when freight rail re-regulation was a major theme in industry circles.

“Back then, it was more of a significant legislative push,” he said. “I always feel like there is a significantly greater opportunity to shape a legislative push, given that typically there are two sides to each coin in Capitol Hill. And we have done a pretty good job—whether it is Democrat or Republican— over the years to identify areas of mutual agreement. But when it is a legislative push, barring some sort of massive majority with each party, you have the ability to navigate and build coalitions and influence outcomes significantly more so than potentially on the regulatory side, where it is much more of a legal play…and things are in the hands of the courts. They are different animals, and there are different wats to navigate each.”

Chuck Baker, President of the American Short Line and Regional Railroad Association (ASLRRA), said that there is a feeling around railroads, from a legislative perspective, that there has been a sense, or a vibe, over the last one-to-two years, that railroads have been viewed as “bad guys,” something he described as very frustrating to hear.

“We know that not only is the railroad industry not ‘bad guys’ but railroads have a huge range of ‘good guy’ policy benefits, in the form of environmental benefits and keeping congestion off of the road, safety, private infrastructure, and saving taxpayers money,” he said. “We think we have a [good] story to tell…and it is frustrating when shippers, labor, some folks in Congress, communities are mad at us. We would rather be playing the win-win-win than playing defense.”

Jefferies echoed that sentiment, explaining that the AAR has explained to the White House that in looking at their mutual macrolevel goals, for things like addressing climate change, reducing emissions and overall environmental impact, good labor jobs, investing in infrastructure, safety, they align perfectly, but that comes with a caveat.

“The challenge comes when you go down deeper into various agencies there is a disconnect between the top-line goals and some of the things the individual agencies might be pursuing that are inconsistent with those top-line goals,” he said. “We have work to do as an industry to make clear the value proposition we provide to the public, our customers, and our employees.”

Labor outlook: Looking at the ongoing rail labor negotiations between 12 U.S.-based railroad labor unions and the four U.S.-based Class I railroads, with seven unions, to date, having ratified a tentative agreement based on recommendations from a Presidential Emergency Board (PEB) appointed by the White House late this summer, AAR’s Jefferies described the current landscape as especially interesting.

And he added that the pandemic played a major role, in that it slowed down the pace of negotiations, coupled with what he viewed as a major dose of social media activity focusing on the situation.

“This offers the largest wage increase in 50 years, maintains first-in-class healthcare, and it offers major opportunities on the local negotiations, for things like work-life balance and more predictable schedules,” he noted. “It is a massive win for our employees, when you look at the agreement itself, that we are pursuing. I, for one, am thrilled for the seven unions that have ratified. I am hopeful that the remaining employees get it done to get the compensation they deserve.”

From the short lines’ perspective, Baker called the current labor impasse very frustrating for his carrier members.

“If there was a strike, short lines would be effectively shut down,” he said. “I do think that by most any objective measure, it is a win for labor. As soon as this is concluded and done, it is really imperative that the industry needs to fix this relationship. It is just not sustainable or acceptable or pleasant for anyone to be in a relationship where there is hostility between employees and employers. They are tough jobs, but they are also good jobs and they pay well. We need to get back to a more positive relationship.”

STB input: The current state of the regulatory aspects of the freight railroad sector received a fair amount of attention from Jefferies and Baker, given the spotlight the Surface Transportation Board has shined on it, in terms of things like service and industry consolidation (relating to the pending Canadian Pacific-Kansas City Southern transaction), and reciprocal switching, among others. As defined by the STB, reciprocal switching is a situation in which a railroad that has physical access to a specific shipper facility switches rail traffic to the facility for another railroad that does not have physical access. And the second railroad compensates that railroad that has physical access in the form of a per car switching charge, with the shipper facility gaining access to an additional railroad.

“I think we can undeniably say that the STB has never had more on its plate than it does right now,” observed Jefferies. “I will give the STB Chairman [Martin Oberman] a lot of credit for his desire to take exhaustive steps to try to get consensus. It shows a commitment to making sure everyone’s voices are heard.”

He explained that there are some issues that need to be navigated, including reciprocal switching and trying to create more fluidity in the freight railroad network, and how it delayed action on that until next year, which he said is probably a reflection of the many things going on at the moment and also trying to get a sense of where all the stakeholders are on that front. Conversely, he stated that the STB’s Final Offer Rate Review (FORR) proposed rule, a rate review process for smaller cases, is indefensible and has no standard upon for which it is based.  

Baker added that the STB remains highly focused on the CP-KC situation, adding that he thinks action on reciprocal switching is coming, while ASLRRA has maintained it is a bad idea, in that it is going to add complexity to the network.

“I don’t think it is going to be a huge improvement, he said. “There will be a few shippers who benefit from it at the expense of the diffuse many shippers. If it was limited to certain areas where there is already switching and perhaps limited to some sort of performance trigger, where it is only allowed in certain circumstances, I think there is a world where it is not catastrophic to the network.”