STB Chairman Oberman examines key freight railroad issues at NEARS

In a wide-ranging speech at the Northeast Association of Railroad Shippers (NEARS) Fall Conference in Portland Maine, Martin Oberman, Chairman of the Washington, D.C.-based 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, addressed various pertinent freight railroad trends and themes, including service, rates, and the importance of the industry for the United States economy, among others.

Notably, Oberman explained that the very existence of the U.S. economy heavily relies and depends on the on the freight railroad network, observing that at least 40% of the U.S. economy, including almost all heavy industry and suppliers and material could not even exist, much less function, without the railroads. And whether railroads like it or not, he said that the railroads are indeed partners with their customers.

“For that reason, and because the railroads offer a substantial majority of customers a monopoly, Congress long ago declared that railroads are the subject of a common carrier obligation and directed the STB to protect the public interest in our rulemakings and adjudications,” he said, “And I want to underscore that in carrying out that mandate, for decades, both the STB and our predecessor, the ICC (Interstate Commerce Commission) have adhered to the central principle of ‘railroads are held to a higher standard of responsibility than most private enterprises.’”

CPKC: Oberman took a look at the STB’s consideration and approval of the Canadian Pacific-Kansas City Southern merger, which he described as one of the most important decisions it has made going back to 2000.

“At the time we issued the decision, we discussed, as did many rail observers, the impact of the merger on the state of competition,” he said. “Since I joined the board in 2019, I focused my attention on the lack of competition on railroads and the need for the Board to use its authority to promote competition wherever possible. In fact, regardless of whether the following can be determined to be a direct result of the merger, there have been a number of very positive developments in recent months, particularly in furthering the goal of better competition, in intermodal traffic and moving more freight from truck to rail.”

And he added that the CPKC merger has created the first single-line railway connecting Canada, the U.S., and Mexico, focused on growing rail traffic, while committing to shifting approximately 64,000 truckloads annually from road to rail. The service will also enhance the movement of intermodal traffic to and from both Canadian and Mexican ports and hopefully stimulate the U.S. ports to “up their game,” he said.    

He also highlighted other examples of freight railroad collaboration, including

• CPKC and CSX striking a deal to create a new CPKC-CSX interchange connection in Alabama, which will establish a new freight corridor for shippers, connecting Mexico, Texas, and the U.S. Southeast;
• Canadian National and Norfolk Southern rolling out a new domestic intermodal service, linking CN-served Canadian markets with NS and serve Kansas City and Atlanta, using interchanges in Detroit and Chicago and essentially offer a single-line intermodal product, with the intent to covert truck traffic to long-haul rail; and
• Union Pacific teaming up with Grupo Mexico on a new intermodal service, Falcon Premium, connecting CN origin points in Canada and Detroit to Grupo Mexico’s terminals in Mexico; and CN and maritime and logistics services provider Crowley collaborating on a new service between Mexico and the U.S. Midwest and into Canada

Other positive developments cited by Oberman were: BNSF’s planned investment of $1.5 billion to construct a new intermodal terminal at its Barstow, Calif. facility; CSX and the state of Alabama’s expansion of the CSX intermodal facility in Montgomery to move more containers coming into Port of Mobile; and the Port of Savannah working with NS and CSX to build new inland ports, replacing the pop-up yards used at the Port of Savannah during the height of the pandemic to relieve port congestion.

“These are all positive signs of increased competition available to rail customers,” said Oberman.

Focus on service: Looking back at the STB’s railroad service hearings held in 2022, Oberman noted that every stakeholder who testified, including shippers, labor, and most importantly, the Class I railroad executives, all attributed service meltdowns, during the pandemic and after, to a significant shortage of crews.

“That crew shortage was entirely self-inflicted by the Class I’s choices to slash their workforce by approximately 30% over the previous six-to-eight years,” he said. “What's happened since then, in my view, the progress has been mixed. There are some meaningful good signs. Railroads and shippers say service is improved. And if you look only at average velocities and dwell times across the network, you will see improvement but from a very, very low bar.”

And he noted that dwell time and velocity are not the metrics indicating a railroad customer has received their car on-time, adding that current service levels are hardly as robust as they should be and what the economy needs them to be.

Crew sizes: Looking the intersection of railroad service and crew sizes, Oberman pointed to statistics showing that prior to the pandemic, at the end of 2019, Class I railroads had reduced their workforce by 17,000 workers from the levels prior to the time when PSR (Precision Scheduled Railroading) became fully instituted eight-to-ten years prior.

“With the onset of the pandemic in 2020, the railroads began an even more dramatic slashing of their workforce, to the point that in the first quarter of 2022, the railroads had let go of another 24,000 workers,” he said. “So, by the time of our hearings last year, the Class Is had 41,000 fewer workers than they had pre-PSR. Since our April 2022 hearings, the railroads have begun hiring. And today there are 9,000 more employees across the Class I’s than there were a year-and-a-half ago. That's progress. But that means there are still 15,000 fewer workers than at the end of 2019 and 32,000, fewer than pre-PSR.

It is this reduced workforce that currently is producing improved velocity and dwell numbers, he said, adding that much of that reason is there have been far fewer carloads on the network, making it easier for the railroads to be fluid.

What’s more, when carload volumes eventually begin to trend up, Oberman said that presents various questions for the industry to ponder, including if there will be enough crews to move those carloads, and also mechanics and electricians to get locomotives up and running. And the same question also remains for sales and customer service personnel, too, he said.

“There are inevitable problems and hiccups to solve; that is the challenge the Board has levied at the railroads,” he said. “And I have not yet heard any Class I provide details on responses to that challenge. What are the railroads’ long-range plans to maintain sufficient workforce to both improve service better than whatever it was in 2019 and satisfy the need for growth in our economy. While some railroads are touting their commitment to growth, it is too early to tell whether those commitments will be realized. This is particularly important when you look at growth in railroad volume. It is so essential because over the last 20 years there has been virtually no growth in Class I carloads, excluding coal, which has its own issues.”

As an example, he observed that in 2004 there were just more than 17 million carloads, and in 2022, excluding coal, there were also just more than 17 million carloads, a period during which economic input has grown by 50% over the last ten years. This is a situation that Oberman said needs to change, and he provided a few reasons why Class I’s need to grow business.

Business growth drivers: One key reason is that in an industry dominated by monopolies and duopolies, railroads need to increase capacity just to compete with other railroads for the level of freight that exists today in order to provide their customers with competitive options.

Another reason he cited is that railroads are uniquely situated to remediate global warming by removing truck traffic from the highway.

“We know that for every 1% of freight lost by the railroads and trucks, an extra 5 million tons of CO2 is dumped into the atmosphere,” he said. “If railroads had just managed to keep the same share of the market they had in 2002, there would be nearly one million fewer trucks on the highways each year in just the lost growth. That means an extra 8.2 million tons of CO2 pumped into the atmosphere annually, because the railroads chose not to maintain their market share as compared to trucks. In light of this year's fires, floods, and hurricanes, it just could not be clearer that we in the railroad industry must step up and do our part to combat climate change. We can do it we have the resources to do it.”

In order to get those trucks off the highways, Oberman noted that the railroads, by their own admission, make it clear that they cannot attract freight from trucks unless they provide reliable service, which they cannot do without adding more workers to move trains, fix trains and keep trains safe and provide customer service.

Another area of great importance as an industry which Congress has regulated in order to protect the public interest, he said that the railroads need to grow their capacity so that the economy can grow at an optimum pace.

“I have yet to meet a shipper who tells me ‘Don't send me anymore rail cars. I'm selling all I can sell,” he said. “What kind of a business needs a government official to lean on it in order to relate to its own customers in order to increase its own sales and make more money? Apparently, only a railroad. And being able to handle this increased growth is essential with the expected growth in onshoring and reshoring.”