The Surface Transportation Board has asked Class I railroad chief executives to explain service problems, whether their railroads have the resources to meet current demand, and to outline their operational outlooks for the rest of the year.
The board’s request to the seven CEOs, made public on Monday, came in response to letters from grain shippers and automakers that painted a picture of slow and erratic service across North America.
Randall Gordon, president of the National Grain and Feed Association, blames the service problems on the industry’s cost-cutting in pursuit of lower operating ratios that please Wall Street and investors.
“This, in turn, has resulted in the systemic shedding of resources by Class I carriers, including locomotives and crews, that has degraded service to unacceptable levels, and resulted in virtually non-existent surge capacity to meet rail customers’ needs,” Gordon wrote to the STB.
The grain association’s letter detailed service problems on BNSF Railway, Canadian National, Canadian Pacific, CSX Transportation, Norfolk Southern, and Union Pacific. But the trade group said the problems on BNSF paled in comparison to those on the other big Class I systems.
The Alliance of Automobile Manufacturers said some assembly plants have run out of room to store new cars due to railroad delays in pulling loaded auto racks and delivering empties.
“Alliance members have met with each of the Class I railroads to discern the causes of these service declines and what remedial actions the railroads are taking. Those meetings have largely been unsatisfactory,” Dave Schwietert, the association’s executive vice president, wrote to the STB. “The responses have varied widely, including IT issues, network changes, weather, and positive train control implementation. Alliance members have not perceived even the semblance of a concerted plan or timeframe to restore effective car service for transporting finished vehicles.”
The STB noted that service appears to be deteriorating at most of the Class I systems, based on declines in average train speed and climbing average terminal dwell times. Other key metrics, such as the number of freight cars online and the number of cars that have not moved in 48 hours, are trending in the wrong direction, the STB wrote.
BNSF’s average train speed and terminal dwell are currently better than the average for the first quarter of 2017, while Kansas City Southern’s metrics are in line with the first-quarter average, according to data reported to the Association of American Railroads.
CN’s average train speed is down 15 percent, and dwell is up 28 percent, compared to the first-quarter average of 2017, as it struggles to handle a surge in traffic in western Canada.
Norfolk Southern’s average train speed is down 16 percent, while dwell is up 17 percent, compared to the first-quarter average from a year ago.
UP’s train speed down 5 percent, and dwell up 6 percent, over the same period.
Canadian Pacific and CSX both report their performance figures independently.
CP’s dwell was up 7 percent when comparing the latest figures reported to the STB with the same week a year ago, while train speed was down 5 percent.
Terminal dwell and average train speeds are both improved compared to last year at CSX, which experienced service problems in 2017 amid the rapid rollout of Precision Scheduled Railroading.
The board’s letters to the Class I chief executives are available online.
You can read the National Grain and Feed Association complaint online.
If the railroads can’t make money and attract business in today’s shipping environment, they never will (at least under current management). Complaints about inadequate service, if the Wall Street Journal is to be believed(and I believe it is credible and unexaggerated) suggest there is a major on-going service problem, especially in the east. Shippers of any goods by truck are paying premiums to get material moved and perishables command as much as a 300% premium. The combination of insufficient t numbers of drivers and deteriorated roads plus new DOT regs aren’t going away anytime soon. Railroads got badly burned investing in plant and equipment to service the shale oil trade but the overhang of that snafu shouldn’t compromise the current traffic surge. Organic growth is going to require re-thinking the business model . The Short Lines get it; theyn understand how to provide service that’s saleable. Somehow, the class I’s will have to be dragged kicking and screaming to realize reliable service sells.. And, they must be divorced from the Wall street predators and dreams of short term gaines. CSX stock has nearly doubled under the EHH regime, but at what cost, not only to it’s own future but also to the health of the industry. The peddler freight of yesteryear will be the instrument of growth today if it can be profitably employed.
P.S. Don’t blame my wife for what’s posted below. Must be an old subscription-based log-in that placed my words in her mouth.
Bruce Kelly
Alex, you hit the nail on the head when you said this:”They need to see what’s actually happening out there in the field.”
I submit Exhibit A:
https://www.youtube.com/watch?v=5rxEPmEsct0&feature=youtu.be
A large percentage of North American grain is hauled to export and domestic milling across the very conditions shown in that video, including up north on CN and CP and farther south on UP across Wyoming, southern Idaho, and the Blue Mtns of Oregon. Shippers and the STB indeed must look “out there in the field” before coming to the conclusion that the cost-cutting and profit-driven measures that brought disaster to CSX and made headline news over the past year were applied in equal measure at other railroads.
Contrary to what’s been described in other threads at this site regarding rail traffic, intermodal, etc., BNSF has been going gang-busters across its Northern Corridor lately. Traffic through the Spokane-Sandpoint “Funnel” is currently at or above traditional peak fall rush levels. The refueling facility at Hauser, ID, this month is handling 25% more trains than same time last year. MRL’s handling of BNSF overhead trains is up 20%. CSX and NS power are filling out consists up here.
BNSF added more 2MT to the Funnel last year, expanded track at Hauser, and of course spent billions more in capex throughout the system. For two specific shipper groups and a federal agency to complain that the rail industry as a whole is suffering from self-inflicted Harrison-style cut-backs is ludicrous.
AUSTIN – Good post. You seem to know Milwaukee. The “beer line” was an ex-MILW freight spur on Milwaukee’s near north side passed down to Wisconsin and Southern. Twenty to thirty years ago the “beer line” was still active for occasional lumber yard loads and an occasional grain hopper. It’s now a city bike path. The parallel CNW line (now a Milwaukee County bike path – for a while bikes and single-track trains ran alongside on the former double track route) was kept open single-track for a scrap paper collector until that one shipper was shut down by the Milwaukee fire marshall.This CNW spur was the remnant of the CNW main line from the Milwaukee passenger station (closed in 1965) to the Twin Cities. Though once a main line, CNW no longer needed it. As many of you know, CNW (now UP) had built a bypass around the city, long before highway bypasses were invented. Before we moved to Brookfield Township (home of TRAINS-MAG) we lived in Wauwatosa with the UP bypass outside our bedroom windows.
This is a beer (line) story, but everyone can draw the obvious parallels. Back in the day, Schlitz was the largest selling beer in the world, then Budweiser was. A front office guy sold management on the idea of speeding up the brewing process, thus making more beer at no additional cost. Very quickly Schlitz gained the reputation of being “wild” on tap, “green” or “skunky.” Market share plummeted; Bud’s soared. Too late Schlitz mounted a rearguard campaign: “Schlitz Is Back” trumpeting the original recipe and gold bottle caps. End of fable.
This recent crisis is not about needing costly capital to buy equipment for surge time services. There already are locomotives in storage everywhere on just about every railroad, How many does UP still have stored out there along I-10 around Mescal AZ? BNSF around Topeka and Alliance? CSX before selling a chunk to become leasers?
Rather these service issues are strictly about an unwillingness to pay to fuel engines they already have and staff them with train crews that they laid off. They are about automated systems like Auto-Router gumming up your mainline and blowing meets resulting in dead trains and re-crews when dispatching by artificial intelligence falls short of human intelligence. Who needs to worry about hurricanes hitting centralized dispatching offices when a simple server farm outage in Atlanta or Omaha can bring dispatching on half the railroad to a dead stop?
If you ask the shippers, you will probably hear that with all the rate increases they endured over the preceding decades, they consider themselves as already paying for bumper crop protection. But they aren’t receiving it, because that money has been confiscated and redirected to the RR shareholder in the latest round of precision railroading. Think of it like the Social Security Trust Fund. Promises were made at the time of tax collection, but there really are no funds there because its been looted and redirected.
And there should be no shortage of equipment for grain service, what with all the aluminum bethgons no longer hauling coal that are sitting in storage that could be easily topped with fiberglass.
For some time I have been following the discussion about the apparent obsession of Wall Street investors with lower operating ratios at the expense of everything else, and hence the attempt by railroads (except possibly BNSF) to achieve it. However, consider the following hypothetical example:
Suppose a company has income of 2 units (these units could be millions or billions of dollars), with expenses of 1 unit resulting in a profit of 1 unit, for an operating ratio of 50%.
Now suppose it could increase its income to 5 units by increasing expenses to 3 units, leaving a profit of 2 units for an operating ratio of 60%.
The operating ratio has increased from 50% to 60%, but the profit has doubled from 1 unit to 2 units. Wouldn’t any rational investor (whether small individual or big institution) prefer the second scenario, with twice the profits (and presumably larger dividends)? I realize the real-world situation probably is more complicated than this simplified example, but what is driving the apparent irrational push to lower the operating ratio even if it results in less profit?
So what are realistic expectations for shippers? For grain, enough cars, locomotives, track and crews to handle the biggest bumper crop? How much investment should grain elevator companies be expected to make for storage to cover bumper years? How many silos will be empty in a normal year? Who pays for equipment that isn’t needed in normal or poor crop years? Crews aside, the issue is capital investment not operating ratios.
In the pipeline business, lines are built when shippers make long term contracts to use the capacity. The infrastructure owner doesn’t take all the risk of traffic volume fluctuations. Do take or pay contracts exist in the railroad business for traffic like grain or automobiles? Shippers always seem to have something to complain about – rates when business is slow and capacity when they are busy.
So are railroads private businesses, free to operate however they like to make a profit for their owners or are they public infrastructure accountable to deliver transportation services as the first priority with profit as a secondary consideration?
Dear STB,
I’m sorry, but you don’t butter my CEO compensation bread like those Wall Street bagmen do.
Signed,
Highest paid guy on the staff
Is this just a ripple effect due to the other railroads catching up on the CSX meltdown?
I mean customers who left CSX went elsewhere, cars interchange with CSX will slow down the partners. Etc.
I would like to second Steve Thompson’s suggestion below. I wish that Trains mag would contact 5 to 10 fortune 500 companies that buy rail transportation and get their story. I would like to see a range of different companies in different businesses interviewed, i.e Archer Daniels Midland(for grain), Toyota (for automobiles) Dow (for chemicals), 84 Lumber (for lumber) etc. Enquiring minds want to know.
The main, #1 goal of a transportation company is to move material and people, from one place to another. The SECOND goal is for that company make money for the people who invested in that company. As soon as you reverse the
The quote from Mr.Randall Gordon is spot on for the slow down. CN is paying for it, same with CSX. Every time I hear about how great a leader the late Mr. Harrison was makes me want to puke. Hows “precision” railroading going for you CSX?
PLEASE Trains mag. interview a group of shippers to inform the readers as to what they perceive in today’s service
Some questions;
1. Let’s say the STB decides that they, meaning the STB, must “do something”. What can they actually do?
2. Can Congress pass laws as to what a railroad can, or cannot do, in pursuit of lower OR i.e. set minimum standards on the service metrics mentioned above ?
3. Can anything be done to limit the power of Wall Street in so far as making decisions about railroad capacity? Wall street seems to be the driver in the latest service issues.
4. Service slowdowns have been going on for at least a year now, why is the STB just now getting interested in it?
I just hope that when STB goes out there to try and gather facts, they go to both shippers and employees instead of relying solely on corporate BS spin. They need to see what’s actually happening out there in the field.
Gerald you are correct. I went to work on the good old omaha in 1947. We had what they called time freights and they were in the op erating timetable as second class trains. Train 490 was a hotshot that ran from west Minneapolis to proviso. It had a 3am cutoff to deliver perishables to the IHB and made it except for bad weather or derailment. I could go on and on but I want others to have their say.
EHH didn’t fool you guys (numerous good comments below). He didn’t fool the brilliant journalist Fred Frailey. What counts most, though, is that he fooled the CSX BoD. In fact, 84 million times over.
Warren Clark…all of the Class 1’s operate with some form of a scheduled railroad, perhaps not as intensive as Harrison’s PSR, but it is pervasive.
As for Wall Street, it’s not really about OR at all, but profits and dividends and stock growth, over the SHORT TERM…those last 3 are the biggest things Wall Street looks for, and the railroads think that the way to get there is with lower OR’s. IF Wall Street ever started to look at LONG TERM investment income then this whole obsession with lowering the OR to next to nothing could go away, as long as management could convince the investors that their investment would triple, quadruple or sextuple in 10 – 20 – 30 years no one would be worried about spending money now to handle future traffic growth.
Henry, did you ever say a mouthful with that last sentence.
Richard Ericson below asks the right questions and hypothesizes correctly. However the problem arises in the “vulture” capitalist, investment banker, and hedge fund managers want 80% of $100 and not even 50% of $200. The rate of return is more attractive than any whole number. The believe the number to reach for is the efficiency and the higher the percent of return the more efficient their money is working. And they are right. Right up to the day that rate drops an iota and they run for the hills of bankruptcy or just sell it away.
And while I believe this is a major problem of big corporate thinking and their business blueprint, it is not necessarily completely true with railroads, a matter they didn’t think about. A derailment can be more costly than a factory shut down in both whole dollars and percent of profit. And weather and operating conditions can erode efficiency unlike a factory. Sure Pan Am is saving a bundle by not improving track speeds above 10 or 25 miles per hour and applying that savings to their profit margin and taking it home with them. But when will their customers finally change to a different carrier or to trucks or move the factory or warehouse to a different location so they don’t have to play with the railroad. The letters to the STB causing regulators to ask the questions indicate shippers are getting ready to face the need of jumping ship.
I am sure the employees are working their butts off but when management doesn’t care, they soon don’t either.
I am wondering if UP tried precision railroading under some other name. Could be one reason for the
Slowdown.
Mike Price,
I sort of agree with you. Government regulation can get out off hand, as we saw in the sixties and seventies. I’m curious about what you think of the Wall Street investors who seem to be pushing the class 1’s to do their job, but with less and less resources, even when this means making less money over all. It seems to me, as an outsider, that Wall Street is interfering more than the government is. I would appreciate reading what your thoughts on this.
As a class 1 employee with 14 years experience i can say for a fact the government just needs to get out of the way and let the railroads do their job. PTC has been a huge problem. And the FRA and their medaling in our business sure hasn’t helped things. The logistics of running a class one is a donting challenge on the best of days and when you add in all the regulations the government throws in your face no wonder things are not as FLUID as we would like. So before you summon all the class 1s Ceo’s to Washington for a what’s the deal session let them concentrate on what we do best. Moving the freight that makes america great…..