Railroad service issues are examined at STB hearing

Railroad service was front and center at last week’s hearing hosted by the Surface Transportation Board (STB), an independent adjudicatory and economic-regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers.

The hearing, entitled “Urgent Issues in Freight Rail Service,” was comprised of feedback from executive-level officials, including operating and human resources officials, of BNSF Railway Company, CSX Transportation, Inc., Norfolk Southern Railway Company, and Union Pacific Railroad Company. Also invited were executive-level officials from Canadian National Railway Company, Kansas City Southern Railway Company, and Canadian Pacific Railway Company, with other carriers, rail customers, labor organizations, and other interested parties were invited to report on recent service issues.

What’s more, prior to the hearing, STB issued a notice of proposed rulemaking (NPRM) that “amend emergency service rules to provide relief for shippers in situations that require immediate relief.”

STB added that a key part of this proposal is to clarify it may act on its own initiative to direct emergency rail service and to also establish what it called an accelerate process for acute service emergencies.

STB officials explained that going back over the last year, it has heard from industry stakeholders regarding inconsistent and unreliable rail service, explaining that “in recent weeks, rail service has become more unreliable, with most stakeholder concerns focusing on crew shortages and inability to move trains. What’s more, they added that it has received reports of other challenges, including: tight car supply and unfilled car orders; delays in transportation for carload and bulk traffic; increased origin dwell time for released unit trains; missed switches; and ineffective customer service. STB noted that these recent service issues have highlighted its need to provide shippers with the opportunity to receive swift action in order to ensure the nation’s freight rail traffic continues to move.

Comments from all sides, at the hearing, were direct, with feelings made very clear, from different perspectives, based on an analysis of the hearing in a Morgan Stanley research note.

Rob Benedict, Vice President of Petrochemicals and Midstream at the American Fuel & Petrochemical Manufacturers (AFPM), said, in comments submitted to the STB, that the railroads’ Precision Scheduled Railroading (PSR) practices, which require cargo to be ready when rail cars arrive for loading or risk being left behind, are largely responsible for the current chorus relating to railroad service issues.

“When Precision Scheduled Railroading (“PSR”) was first introduced in the United States in 2017, I clearly remember discussions I had with our membership on the potential benefits and pitfalls of the operating mode,” said Benedict. “At the time, there was some optimism, but mostly fears and concerns of how significant cuts in railroad operations and staffing would impact rail service, especially when faced with adverse situations. Unfortunately, our members’ worst fears have become the current reality. PSR has become ubiquitous in our already competition-constrained rail network, and we are faced with compounding adversity.”

Benedict added that while Covid-19 plays a part in the global supply chain crisis it is only part of the reason the freight rail industry is experiencing widespread service disruptions, explaining that the spread of the PSR operating model across the major American railroads is a key contributing factor to the current service issues.

As you are aware PSR has driven operating ratios to levels once thought impossible,” noted Benedict. “To achieve these sub-sixty percent operating ratios, Class I railroads have slashed their workforce, shuttered facilities, shelved equipment, and reduced service. It comes as no surprise that this has benefited investors but harmed rail shippers and ultimately consumers. All these service changes have been dictated to rail customers with short notice, sometimes just days, and with no negotiation. This take-it-or-leave-it mentality is not new for captive shippers served by a single railroad; however, PSR seems to embolden railroads’ strong- arm tactics. AFPM members have experienced increased rates, reductions in service days, the closure of hump yards, storage, and maintenance facilities vital to our operations, an increase in
missed switches, and many other detrimental service issues. Our members have gone as far as making critical capital investment decisions based on where they can secure competitive rail service. Poor service has also forced some AFPM members to buy or lease additional railcars to support the same level of business.”

Comments submitted by Justin Louchleim, Senior Director of Government Affairs, for The Fertilizer Institute (TFI), noted that rail carrier cycle times amongst all or most Class I carriers have been substantially slower in the first quarter of this year.

“TFI attributes the erosion of cycle times to implementation of [PSR], which has had several consequences, including eliminating too much rail carrier personnel, idling of locomotives, and closures of service yards, all of which has compromised rail carrier operational elasticity and the ability to handle unexpected issues such as sudden weather and the COVID pandemic.”

And he added that freight rail service reform is critical to U.S. manufacturers and farmers, especially following PSR, saying that too many locomotives have been idled and service yards closed while rail carriers no longer seem to have enough staff to consistently fulfill their obligations to shippers.

An analysis of the hearings in a Morgan Stanley research note highlighted how Class I railroad executives noted that efforts like running shorter trains would exacerbate current crew shortages, while DOT Secretary Pete Buttigieg said that while there was not a lot the STB could do about crew shortages, railroads need to invest in workers to keep the economy moving, while turnover remains above normal levels.

STB Chairman Martin Oberman made his case for how hiring alone won’t fix the current service issues.

“If we’re relying only on hiring, I don’t see you being able to get there in 30, or 60, or 90 days,” he said. “We’re going to miss the planting season, we’ve got fuel problems.”

In comments provided to LM, Association of American Railroads (AAR) President and CEO Ian Jefferies said that railroads speaking at the STB hearing have made it clear that service must be restored to a level their customers deserve and expect.

“This starts with addressing the labor shortage affecting the broad economy and railroads specifically,” said Jefferies.” Multiple railroads presented clear plans and goals for hiring new train and engine employees to get headcount levels in line with market demand for rail services – which remains strong. They are also adding power where appropriate and coordinating with customers. The industry has always understood its critical role in serving the U.S. economy. It is confident in its abilities to work alongside customers to remedy issues as the year progresses. While the AAR appreciates continued engagement with the policymakers, it must be said that both the Surface Transportation Board and Congress should proceed strategically and cautiously, particularly when considering structural policy shifts. Disruptions in service should not be used to justify long-sought measures such as forced switching, as such market intervention would only complicate network operations further at a time when the focus is resorting freight fluidity. While proponents may now argue new STB regulation will improve service, their longstanding justification for these policies has been to drive down rates to below-market rates. Policy should strike a balance and disregard the whims of opportunism.”