STB says U.S. Class I railroads’ service recovery plans need more detail

The close eye being kept on service levels remains fully intact based on a directive by 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, to BNSF Railway Company (BNSF), CSX Transportation, Inc. (CSX), Norfolk Southern Railway (NSR), and Union Pacific Railroad (UP).

STB officials said that the objective of this directive is for these four railroads to correct deficiencies in their rail service recovery plans related to an STB order that was issued on May 6, when it said it would direct and require certain railroads to submit service recovery plans and also additional data and regular progress reports on rail service, operations, and employment. And it added that the objective of these measures is to “to inform the Board’s assessment of further actions that may be warranted to address the acute service issues facing the rail industry and to promote industry-wide transparency, accountability, and improvements in rail service.”

STB said that this initiative will require all Class I rail carriers to submit specific reports on rail service, performance, and employment, adding that BNSF, CSX, Norfolk Southern, and Union Pacific are required to submit service recovery plans, progress reports, historical data, and participate in bi-weekly calls with STB staff. And it added that the service recovery plans, coupled with the additional requested information, “are crucial components of the Board’s active monitoring of the Nation’s freight rail industry and particularly the Board’s focused efforts to ensure that the large carriers overcome the significant service challenges affecting many rail users and the public.”

What’s more, the STB held a hearing in late April focused on what it called the recent significant performance deterioration of the freight rail industry, addressing the causes, extent, and likely duration of service disruptions, and their remedial initiatives based on testimony from the four U.S.-based Class I railroads, as well as U.S. Secretary of Transportation Pete Buttigieg and U.S. Deputy Secretary of Agriculture Jewel H. Bronaugh and rail shippers. 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.”

As previously reported by LM, Rob Benedict, Vice President of Petrochemicals and Midstream at the American Fuel & Petrochemical Manufacturers (AFPM), said, in comments submitted to the STB, for the April hearing, 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.

An analysis of the April hearing in a Morgan Stanley research note highlighted how Class I railroad executives observed 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.

This week, the STB said that the service recovery plans submitted by BNSF, CSX, NSR, and UP, in which they were directed to “specifically describe their key remedial initiatives and promote a clearer vantage point into operating conditions on the rail network,” did not make the grade, calling them perfunctory and lacking the level of detail mandated by the STB order.

As for what their respective service reports were lacking, the STB explained that the plans did not include important information needed to assure the STB and industry stakeholders that the railroads are addressing their service deficiencies.

“Of particular concern was the fact that UP and NSR flatly refused to provide the six-month targets for achieving their performance goals explicitly required by the Board’s order,” said the STB. “Because of the plans’ shortcomings, the Board finds it necessary to require the railroads to supplement their plans and provides explicit further instruction on the critical information they must include.”

STB Chairman Martin Oberman did not hold back in a statement, saying that freight rail is critical to the U.S. economy.

“We are in the middle of a rail service crisis and the Board continues to receive reports about persistent, acute, and dramatic problems in rail transportation, disrupting critical supply chains and shutting down companies,” he said. “The freight rail industry is currently struggling to provide adequate rail service, yet the service recovery plans we received are woefully deficient and do not comport with the spirit or the letter of the Board’s order. The plans simply failed to instill confidence that the carriers have a serious approach to fixing a problem caused by their own lack of preparedness to respond to external shocks and fluctuations in demand, including especially short-sighted management of labor forces and other resources. While the railroads must always comply with Board orders, it is particularly disturbing that the railroads failed to comply with the order requiring them to file adequate service recovery plans. Under circumstances where service is not meeting customers’ needs, this is not too much to ask from highly sophisticated companies with important public responsibilities. I had expected a better response from the carriers to the Board’s previous order, and now with more explicit instructions, which should not have been needed, there will be no excuse for continued lack of compliance.”

In comments recently provided to LM, Association of American Railroads (AAR) President and CEO Ian Jefferies said that railroads speaking at the April 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.”

Anthony B. Hatch, principal of New York-based ABH Consulting, pointed out that it is a tough time to be a railroad if you want to defend your position and don’t want government involvement.

“Because of the supply chain crisis, most of which is global and labor-related, and things like railroads’ increased dwell times, it is currently difficult [for railroads] to defend their position,” he said. “Reciprocal switching would potentially add more railroad competition, and the problem I have with the STB is that it takes a look at rail competition, as if there were no other modes available. It is clear that the STB is an interventionist board and wants to do something, and it believes that the government can help solve supply chain issues.”