STB seeks ways to quickly ease railroad service problems

WASHINGTON — There were more questions than answers on Tuesday as federal regulators sought ways to remedy railroad service problems that defy a quick fix because they are rooted in a shortage of train crews.

Shippers told the Surface Transportation Board that rail service has deteriorated, with delays mounting as transit times have in some cases doubled from normal levels. The slowdown in rail network velocity has forced shippers to curtail or suspend production due to late empty or loaded freight cars, and even prompted farmers to consider culling their herds and flocks for lack of feed.

Railroad performance metrics need to improve soon, STB Chairman Martin J. Oberman told the railroads. “The country is going to have a lot of trouble if 30 days and 60 days from now these numbers aren’t much different,” he says. “If we’re relying only on hiring, I don’t see you being able to get there in 30, or 60 or 90 days. We’re going to miss the planting season, we’ve got fuel problems. That’s what I’m concerned about.”

A range of shipper associations, joined by the U.S. Department of Agriculture, asked the STB to take several steps that they say will improve service and spotlight problems in the rail network.

The board should clarify railroads’ common carrier obligations, impose penalties for poor service and inefficient use of privately owned freight cars, and expand reciprocal switching. They also sought a simpler way to challenge rates, urged the board to require railroads to provide first- and last-mile service data, and said railroads should have to file annual service assurance plans. And they applauded the board’s proposal to adopt a new rule that would expand its emergency service powers.

Oberman, during the first day of a planned two-day hearing, asked shippers if there were any steps the board could take in the next 30 to 90 days that would improve service.

Shippers were at a loss as to what remedies the board could adopt immediately. “If we had a silver bullet we would have brought it to you,” says Chris Jahn, CEO of the American Chemistry Council, the trade group representing chemical manufacturers.

Transportation Secretary Pete Buttigieg acknowledged that there wasn’t much the board could do in the face of crew shortages. “These are complex issues,” he says. “There’s no single step available to deliver ideal freight rail service overnight.”

But Buttigieg raised concerns about train crew layoffs during the pandemic that began in the spring of 2020. Since then, traffic has rebounded but railroads have struggled to retain and hire conductors in a tight job market.

“First and foremost, we must invest in rail workers, who keep our economy running. Turnover is still far above normal levels, which presents both safety and workforce concerns,” he says. “We need a full and robust workforce to keep people and goods moving across the country.”

Jewel H. Bronaugh, deputy secretary of the Agriculture Department, told the board that when railroads charge unreasonable rates and provide poor service, farmers struggle to make ends meet, consumers spend more at the grocery store, and U.S. agricultural products can’t compete in the global market.

She also was critical of Union Pacific’s plan to meter traffic as a way to ease congestion. “USDA understands that with limited capacity, some traffic must be prioritized, and reductions in the number of cars online may help the system move,” Bronaugh says. “However, fertilizer and agriculture commodities are not the commodities to deprioritize, especially as we now enter the growing season.”

PSR Looms Large

Shippers and rail labor blamed service issues on Precision Scheduled Railroading and related job cuts over the past five years. The loss of 45,000 rail jobs, combined with the idling of locomotives, freight cars, and yards, has gutted the rail system and made service problems inevitable, they claimed.

They also said Wall Street’s focus on ever-lower operating ratios has led to relentless cost-cutting at the big railroads, with profits put ahead of safety and service. “Today’s freight rail network is not working for anyone other than railroad investors,” says Greg Regan, president of the Transportation Trades Division of the AFL-CIO.

Jeremy Ferguson, president of the SMART-TD union, told the board that six years ago — prior to implementation of PSR — railroads had a robust workforce, an ample supply of locomotives and freight cars, and a put a priority on safety. That’s all gone now, he says.

Now railroads are hemorrhaging workers at record rates due to what he called an abusive work environment, including restrictive attendance policies for train crews. And most newly hired conductors quit during training or shortly after entering service, Ferguson says.

Railroads need to change the culture of their operating departments in order to attract and retain new conductors who want more work-life balance, Regan says. He credited CSX Transportation for taking steps to improve its culture.

Labor leaders were critical of PSR operating practices. Long trains that run over siding length slow service, create congestion in yards and on the line of road, and require more recrews because they can’t make it to the next terminal within the allotted hours of service law.

They also called out railroads for slowing trains to save fuel through the use of energy management systems such as Trip Optimizer. Restricting trains to 40 mph and limiting the number of active locomotives in the consist leads to extended travel times and sometimes requires the use of multiple crews, they say. And they questioned the safety of operating trains as long as 17,000 feet.

Oberman asked labor leaders whether running shorter trains, eliminating speed restrictions, permitting engineers to use all locomotives in their consist, and shutting off energy-management systems like Trip Optimizer and LEADER would help reduce congestion. Their reply: It would improve velocity, reduce recrews, and eliminate bottlenecks almost overnight.

But CSX CEO Jim Foote said running shorter trains would only exacerbate crew shortages. “If you want to … run shorter trains that double the number of trains, you’re going to need twice as many employees. Simple as that,” he says.

Jamie Boychuk, CSX’s executive vice president of operations, says Trip Optimizer offers safety and service benefits by improving train handling and reducing train pull-aparts.

He also disputed labor assertions that railroads operate trains over siding length in both directions simultaneously in single-track territory. “You don’t send two oversiding trains out onto a network and then scratch your head and go, ‘Where are they going to meet?’ Or you don’t shut your network down to run a bunch of trains in one direction,” Boychuk says. “You go oversiding one way and you go siding length the other. So the siding length trains can go into the siding, while the overlength is king of the road.”

Norfolk Southern doesn’t have a 40-mph speed restriction to save fuel, Chief Operating Officer Cindy Sanborn says. She noted that Trip Optimizer and LEADER are integrated with the dispatching system in positive train control territory so that trains keep moving.

“It’s integrated with PTC in such a manner that trains may go slower because beyond the locomotive engineer’s range of vision – 10, 15 miles down the railroad – there is something that is going to cause that train to stop,” she says. “And so there’s no reason for the train to operate at 60 mph and come to a stop.”

Sanborn noted that at another railroad – she also worked at CSX and Union Pacific – energy management systems were turned off temporarily to see if they reduced average train velocity. It had no impact, she says.

Congestion is focused on yards and terminals, not on the main line, Boychuck says, and most service problems are from a lack of crews that provide local service.

Investor Influence

Rick Paterson, a railroader turned analyst at Loop Capital Markets who closely tracks rail performance metrics, told the STB that a shortage of train crews is the root cause of today’s service problems. A lack of crews inevitably leads to a motive power shortage, as well, because it slows the network and requires more power and freight cars to handle the same amount of volume.

Most companies — including railroads — are struggling to find enough workers. But what makes railroads different is the time it takes to hire, train, and deploy conductors and then six to 12 months to fully restore service, Paterson says.

Performance data show that PSR railroads bounce back more quickly from service disruptions caused by weather or other events, Paterson says.

Railroads don’t keep an adequate cushion of crews, Paterson says, which makes operations fragile and results in a roller coaster of service that rises to good only to fall back to poor every few years. The blame for this, he says, lies with Wall Street’s insistence that railroads continuously reduce their operating ratios. And the easiest way to reduce the operating ratio is to cut costs such as carrying extra crews, he says.

Railroads are trapped in the Cult of the Operating Ratio because if their operating ratio goes up, activist investors may come in and demand change, Paterson said, citing TCI Fund Management’s battle with Canadian National last year.

Railroads are hesitant to grow because new traffic may raise the operating ratio and draw scorn from investors, Paterson says. He encouraged the board to find ways to shift railroads’ focus away from the operating ratio and toward something that would benefit shippers.

NS: Problems all stem from crew shortages

Norfolk Southern executives apologized for service that doesn’t meet the expectations of the railroad or its customers. “There is no greater priority at Norfolk Southern than restoring service,” Sanborn says.

Chief Marketing Officer Ed Elkins says restoring service is critical to the railroad’s plans to gain volume by converting freight from highway to rail.

Annie Adams, executive vice president and chief transformation officer, says NS furloughed train crews as volume fell at the onset of the pandemic. Employees were called back to work as traffic rebounded and NS started hiring, she says. But the tight labor market made it more difficult to hire crews, particularly in the dozen areas on the system that were most affected by higher than usual attrition, she says.

Oberman criticized NS for deep reductions in train and engine crew employment levels, noted crew levels are currently just 62 people above the count from June 2020, and suggested the railroad continued to operate with the “bare minimum.” He pressed NS executives to detail their hiring plans and target train and engine crew headcount.

NS has stepped up its hiring, has 850 conductors in training, and will continue to hire for the remainder of the year and likely into 2023, Adams says. But she declined to provide a target train and engine crew number, citing uncertainty around how the pending rollout of a new operating plan would change crew requirements.

The lack of a precise number frustrated board members.

And board member Robert Primus said NS’s recent announcement that it would buy back $10 billion worth of its own shares was “tone deaf.” Some of the money spent on the stock purchases, he suggested, should go to customers in the form of rebates that would help offset the costs they had to bear from diverting rail shipments to truck amid service problems.

Sanborn said crew shortages were the sole culprit of the railroad’s service problems, not PSR, as shippers and workers claimed. “To varying degrees they are asking you to turn back the clock and return to operating models of the past – operating models that are more resource intensive and less efficient. I think that would be a grave mistake,” she said. “Our competitors in the trucking industry aren’t moving backward. They’re not even standing still. They wake up every day thinking of new ways to leverage technology to implement operational innovations that would improve the customer experience and improve efficiency. And railroads must also think this way.”

Railroads must be able to maintain their efficiency advantages if they are to compete with trucks and the looming threat of autonomous rigs, she added. A simplified, efficient railroad network promotes reliable service that’s good for customers. And she said NS was operating at record on-time performance after implementing PSR in July 2019.

CSX: Service should improve

CSX is pursuing every option to pursue train and engine crew hiring and retain the crews it has, Boychuk told the STB. After a bumpy PSR implementation in 2017, CSX by 2019 had improved service to the best it’s been in the company’s history, he says. And that operating performance came with 2,000 fewer engineers and conductors. “Clearly our performance wasn’t driven by how many resources we had, but rather how effectively we leveraged those resources,” he says.

Crew levels have been rising in recent months and are now higher than they were prior to the pandemic, Boychuk says. CSX expects service to improve in the second half of the year, once conductors in training are deployed in large numbers, says Diana Sorfleet, chief administrative officer.

Foote was not scheduled to testify at the hearing. But Primus called him to join the other executives at the presentation table. “The buck stops with you. It’s important you’re here,” Primus said, noting he was disappointed that NS CEO Jim Squires and President Alan Shaw did not attend.

Foote said the railroad has struggled amid crew shortages but has done the best job it could. “We are finally making the turn and we are coming out of this,” he says, emphasizing that the only reason for service problems is a lack of crews.

Primus was critical of the railroad for furloughing too many crews and not being resilient once traffic rebounded from pandemic lows – all because of a focus on operating ratio. That led to a testy exchange between Primus and Foote, with the two often speaking over each other.

Primus wanted to know how many engineers and conductors CSX needs to restore service and whether it would keep a cushion of train crews.

Foote said CSX plans to operate through hurricanes, floods, and winter weather. “Did we have a pandemic plan on how to run the railroad without people? No,” he says.

Primus accused CSX of not having a recovery plan, but Foote said he had just explained the railroad was hiring crews as quickly as possible.

The hearing, which ran 10 hours on Tuesday, continues today beginning at 9 a.m. EDT, with executives from BNSF Railway, Union Pacific, Canadian National, and Canadian Pacific scheduled to appear.