WASHINGTON — Class I railroads say they’re looking forward to explaining their growth strategies to federal regulators during a two-day hearing set for September.
Independent rail analyst Anthony B. Hatch says the unprecedented Surface Transportation Board hearing will be political theater that will allow board members to use their bully pulpit.
The STB has jurisdiction over certain rail rates, practices, and service matters, as well as mergers, line sales, line construction, and abandonments. But the independent agency does not have the authority to order railroads to handle more traffic.
Former STB Chairman Martin J. Oberman, who retired in May, often criticized Class I railroads for their failure to grow relative to trucking and the overall economy. He also questioned whether railroads were meeting their common carrier obligations when they reduce local service frequency and focus on only the most profitable traffic.
The outspoken Oberman raised the profile of the STB by frequently speaking at rail conferences and with the media. The consensus in the industry was that Oberman was taking the STB in a more activist direction, partly in response to the job and service cutbacks that accompanied the spread of the low-cost Precision Scheduled Railroading operating model.
New Chairman Robert E. Primus, who has been on the board since January 2021 and was the only member to vote against the Canadian Pacific-Kansas City Southern merger, seems to be following Oberman’s example — and building on it.
The STB has typically written to Class I railroad CEOs and requested responses about service and capacity. In 2018, for example, STB Chair Ann Begeman wrote to the chief executives of all seven Class I railroads, asking them to provide updates on how they planned to address deteriorating service levels.
The board also wrote to the CEOs several times during the pandemic, seeking information on service and staffing levels. It ultimately held a two-day hearing in April 2022 on widespread service problems related to crew shortages. The board subsequently ordered the big four U.S. railroads to provide more detailed service, staffing, and operational data.
Oberman harshly criticized the railroads’ initial responses to the board’s requests for written service recovery plans, which in some cases fell far short of the detail that the board was seeking.
By jumping straight to a hearing on growth issues, the STB appears to want to put rail executives in the hot seat. Each railroad will be given the opportunity to outline its growth strategies. But unlike in written responses where the railroads get the last word, executives also will have to engage in a back-and-forth with STB members who may ask probing questions.
“While the Board recognizes that some shifts in volume may not be primarily within the control of rail carriers, the Board has observed that over the past 10 years carload volumes have not grown, and have in fact decreased,” the STB said in its hearing announcement. “The Board wishes to explore how industry participants are strategizing and innovating to reverse this recent trend and achieve freight rail growth.”
The STB pointed to Bureau of Transportation Statistics data that shows a decline in total rail traffic over the past decade.
But the Association of American Railroads counters that a more appropriate measure would be to compare its Freight Rail Index to the goods-related GDP index. The Freight Rail Index includes intermodal shipments and all carloads except coal and grain. The sharp decline in coal traffic has been a significant drag on overall rail volumes for more than a decade.
“The FRI has exhibited notable fluctuations in recent years, reflecting broader economic conditions. In 2022, the FRI faced significant challenges due to supply chain disruptions and reduced manufacturing activity,” the AAR noted in its most recent Rail Industry Overview.
The STB also wants to hear from shippers and how railroads can land more of their business.
Ann Warner, who represents several shipper groups including the Freight Rail Customer Alliance, National Industrial Transportation League, and Private Railcar Food and Beverage Association, says she’s looking forward to the hearing.
“It is important to delve into why freight rail volumes have declined and how the Board can foster or incentivize better railroad operating, marketing, pricing, and management practices resulting in competitive rates and reliable service,” she says. “We hope the Board focuses on the extent to which the railroads’ devotion to lowering their operating ratios has caused them to cast aside profitable traffic. While the Board has made some progress, more is needed to help shippers choose and stick with rail. Even when rail is the only option, the railroads have repeatedly taken actions that cause shippers to reduce volumes that would otherwise be available. And the railroads have often been unable or unwilling to handle volumes that shippers have available.”
The STB said the hearing will allow industry participants to discuss growth challenges as well as the effects that would flow from a failure to gain freight volume.
The AAR says that every railroad is seeking volume growth through new partnerships, new service offerings, and developing large rail-served industrial sites along their lines.
“We look forward to talking with the Surface Transportation Board about Union Pacific’s long-standing commitment to investing in safe, reliable operations and continued growth with our customers,” spokeswoman Kristen South says.
“CSX is committed to profitable growth by delivering service excellence for our customers through safe and reliable operations. We are focused on sustainable growth opportunities that meet the ongoing demand of moving goods across the country while minimizing emissions, fuel consumption, and transportation costs for our customers,” spokesman Austin Staton says. “We look forward to sharing our insights and expertise with Chairman Primus and the Surface Transportation Board on continued industry growth that provides greater operational efficiencies, better service, and a seamless customer experience for America’s industries.”
A Canadian National spokesman says the railway appreciates the STB’s focus on growth and looks forward to participating in the hearing.
BNSF Railway and Norfolk Southern said they would participate in the hearing but declined to comment further. Canadian Pacific Kansas City declined to comment.
Note: Updated at 3:15 p.m. Central Time with comment from Canadian National.
