PHOTO: AMERICAN JOURNAL OF TRANSPORTATION
IN THIS REPORT:
- Railroads’ Common Carrier Obligations
- Dividends & Stock Buybacks
- Oberman Says Railroads Have Legal Responsibilities
- Shifting Freight From Rail To Truck Has Generated Over 123 Million Tons of CO2
- Shippers’ Inability To Book Railcars
- UP Pledges to Reduce Rail Congestion
- Oberman Expresses Concerns About Intermodal Rail Congestion
- UP Responds
- BNSF’s Farmer Responds
- CSX’s Foote Responds
- Rail Dwell Times At Ports of Los Angeles & Long Beach Are Up in 2021
- Union Pacific Allocates $7 Billion for “Share Repurchases”
- Retired BNSF Executive Warns PSR May Be Going Too Far
- Challenges Booking Rail Cars
- Railroad Workers Warn About Impact From Cutbacks
- Railroads Need A Growth Strategy To Address Rising West Coast Port Volumes
- UP Employee Criticizes PSR & Cutbacks
- A National Freight Policy Needs To Support Railroads
BY STAS MARGARONIS, RBTUS
Martin Oberman, chair of the Surface Transportation Board (STB), said that some U.S. Cass I railroads may have evaded their legal ‘common carrier’ obligations and said such an evasion might trigger a possible STB investigation:
“The strategies pursued by the railroad industries as a whole, and it is not the same among all the Class 1s, have serious implications as to whether the ‘common carrier mandate’ is being carried out as intended and as required by statute. This is a subject that may warrant further exploration by the STB.”
Railroads’ Common Carrier Obligations
According to the Federal Register: “The ‘common carrier’ obligation refers to the statutory duty of railroads to provide “transportation or service on reasonable request.” 49 U.S.C. 11101(a). A railroad may not refuse to provide service merely because to do so would be inconvenient or unprofitable.”[1]
Oberman echoed the concerns of some shippers and railroad unions who have complained about cutbacks in rail service: “Smaller but profitable destinations are being ignored or actively demarketed.”
Some shippers, including agricultural exporters, have complained that cutbacks in rail service are forcing them to spend more money transporting freight to and from U.S ports utilizing more expensive long-haul trucking.
Oberman made these remarks while addressing the North American Rail Shippers Association (NARS) convention at Chicago.
Dividends & Stock Buybacks
In his remarks, Oberman also said major U.S. railroads are reducing service, raising freight rates, shifting more truckloads onto highways, contributing to global warming while deriving $191 billion in dividends and stock buybacks since 2010.
According to STB data, Oberman explained “Since 2010, the seven Class 1 railroads have spent $138 billion on capital. Most of this is spent on the regular upkeep of the railroads which is essential. Relatively little has been spent on infrastructure needed to expand service and improve service.
Since 2010, the five U.S.-based Class 1 railroads have paid out $114 billion in stock buybacks. On top of that, the U.S. railroads have paid out $77 billion in dividends during the same period. Thus, the railroad owners have taken back an astonishing $191 billion in stock buybacks and dividends … far more than the $138 billion spent on the railroads’ infrastructure.
Where would rail customers, rail workers and the public be if a meaningful portion of that $191 billion had been re-invested in expanding service and making service more predictable and reliable. Clearly, we would have more freight moved and at a lower rate. We would have more employment with better working conditions and the public would benefit with lower consumer prices, less highway congestion and less polluted air. And all of this could be achieved with the railroad owners continuing to receive a healthy return on their investments.”
Oberman Says Railroads Have Legal Responsibilities
Oberman argued that forty years of rail deregulation following enactment of the Staggers Act did not absolve U.S. railroads of legal responsibilities. The Staggers Rail Act of 1980 is a federal law that deregulated the American railroad industry.
Historically, he said, “Congress recognized … that the railroads … can restrict supply and raise prices. To avoid this outcome, the United States decided long ago the public interest requires some balance between the railroads operating as private profit-making companies … and the public’s interest. This is true because many railroads in various parts of the country have a natural concentration of market power.”
The trends of the past six years, which have coincided with accelerated cost cutting applied to rail operations through Precision Scheduled Railroading (PSR) practices, have raised concerns among shippers and railroad workers about whether railroads had cutback operations so drastically that rail operations have suffered.
This may have benefitted railroad owners but “have not boded well … for the customers, the railroad workers and the public.”
Oberman noted:” The railroads like to broadcast that freight rates have diminished by 44% since 1980…However, the (Surface Transportation) Board’s calculation have found that railroad rates have fallen only by 27% between 1985 and 2004… the improvements in productivity and inflation adjusted terms largely flowed to shippers in enhanced service and lower rates. But that happy combination came largely to an end in 2004.”
What happened next was “our studies since 2004 have shown that railroad rates have risen by 30% in inflation adjusted terms and traffic peaked on the railroad network in terms of cargo and tonnages in 2006.
To underscore the point: Since 2006, our economy has grown by 50%, nearly $8 trillion dollars of enhanced economic activity… and yet railroads are carrying less freight today than they were carrying in 2006 while rates have gone up. There just might be a connection.”
Not counting coal, the railroads’ market share “compared to trucks peaked in 2002 and total volumes peaked in 2006. Think about that? For the past fifteen years … railroads have lost market share both in absolute and relative terms.”
Shifting Freight From Rail To Truck Has Generated Over 123 Million Tons of CO2
Oberman said the railroads actions have resulted in more freight going by truck which increases traffic, congestion and has also increased the generation of carbon emissions when freight is moved from more fuel-efficient trains pulled by a few locomotives to trucks which are less fuel efficient and more polluting:
“We know that for every one percent of freight lost by the railroads to trucks it amounts to an extra 5 million tons of C02 dumped into the atmosphere. Yet since 2002, railroads have lost nearly 2% of freight market share to trucks. Again, this is not counting coal … If railroads had just kept the same share of market, they had in 2002 there would be one million fewer trucks on the highways each year…”
The result: “That means an extra 8.2 million tons of CO2 pumped into the atmosphere annually from this lost growth… Since 2002, over 123 million tons of global warming CO2 has been pumped into our atmosphere just because the railroads chose not to maintain their market share as compared to trucks.
Imagine how much better we would be as a country and as a planet if railroads had not only not lost ground to trucks, but had outgrown trucks in picking up more of the growth in our economy and there would have been a greater cut in CO2 emissions.
This pattern simply cannot be allowed to continue.”
He said many railroad executives would prefer to be more growth oriented and taking market share back from trucking, but the growing ownership of railroads by financiers and financial institutions has undermined fundamental railroading. Instead, cost cutting, PSR and the emphasis on Operating Ratios govern railroad management by the big Class I railroads:
“Much of what I have learned about railroad strategy has come from railroad executives many of whom would prefer the railroads focus on growth and on time performance. It is apparent that over the last 6-7 years through ever increasing pressure from Wall Street – the owners of the railroads – (that) the railroads emphasis has not been on growth. Rather the emphasis has been on cutting in pursuit of the almighty OR (Operating Ratio) down to below 60%. In order to meet these startlingly low OR’s the railroads have cut their workforce by about 25%, depending on how one counts. Between 40,000 and 50,000 people who worked on railroads have lost their jobs in recent years.”
As an example, in July, the Union Pacific (UP) railroad reported that its 55.1% Operating Ratio had improved over the same period compared to 2020. It is believed that the Operating Ratio shows the efficiency of a company’s management by comparing the total operating expense (OPEX) of a company to net sales. The operating ratio shows how efficient a company’s management is at keeping costs low while generating revenue or sales. The smaller the ratio, the more efficient the company is at generating revenue versus total expenses.
Shippers’ Inability To Book Railcars
Shippers at U.S. West Coast ports have complained about their inability to book rail cars to transport containers to and from Midwest destinations and STB data shows that this is due to a railroad focus on a limited number of profitable routes, forcing shippers to transport more container loads by truck:
“The statistics show the dramatic impact of this kind of business strategy, leaving aside intermodal and coal, nearly 85% of all tons and carloads are carried between the top 20% of origins and destinations. Smaller but profitable destinations are being ignored or actively demarketed. As a result, that freight is on the highways contributing to global warming and highway deterioration.”
Oberman concluded by stating “It’s time for the railroads, shippers, workers and the public to realize that we’re all in this together. I hope the railroads and the shippers will figure out how to move more freight on the railroads and less on the highways. The railroads need to work with the shippers, the unions and the STB to provide the level of service they are capable of providing and paying less attention to the OR’s.
Especially with the significant bottlenecks being generated from the international shipping world, the railroads need to work with the international supply chain to use technology that exists today to maximize transparency and enable better on time performance.”
Oberman urged the audience at the North American Rail Shippers Association (NARS) convention to support the STB initiative on “whether to measure first and last mile service which is of central importance if railroads are to compete with trucks to improve our rail network and service.”
UP Pledges to Reduce Rail Congestion
On August 5th Union Pacific (UP) Railroad ceo Lance Fritz wrote Oberman assuring him of UP’s efforts to address rail congestion issues that includes connecting West Coast ports to Midwest destinations: “I want to assure you that Union Pacific’s tireless efforts and continuous process improvements will yield improved fluidity within the network and clear congestion.”
Fritz noted that recent congestion on the railroads will require supply chain partners working together: “But clearing our network will take some time, and it will require the cooperation of all stakeholders in the supply chain. Critical to clearing the congestion and keeping the network work fluid will be vital non-rail road improvements to the inadequate take away capacity at our ramps that is the root cause of the congestion. We are working hard to help our customers understand the problem and improve their operations…. Though Union Pacific is an integral part of the international supply chain, we capture and execute a finite portion of the transportation pipeline.”
In identifying congestion at rail terminals Fritz cited back-ups occurring at warehouses and with harbor trucking operations:
“We discovered the uptick in the container congestion directly correlated to the lack of available space in the customers’ warehouses and our customers’ workforce challenges. The drayage and warehouse operations in major markets have been slow due to outbound drayage processing.”
STB’s Oberman Expresses Concerns About Intermodal Rail Congestion
Fritz and other railroad executives were responding to letters sent them on July 22nd by Oberman.
A that time, Oberman wrote to the chief executives of U.S. Class 1 railroads including the Union Pacific and Burlington Northern Santa Fe railroads, which serve U.S. West Coast ports, expressing “my concerns about significant disruptions within the aspects of the international intermodal supply chain that involve the Class I freight rail network.”
Oberman’s July 22nd letters to the Class 1 railroads summarized complaints to the STB received from shippers:
“I am particularly concerned about significant increases in container congestion at key U.S. terminals, and substantial charges being levied by the railroads for container storage at these terminals.
Specifically, in recent months, the Board has received numerous reports related to the length of time that containers are being held in rail yards, and the sizeable storage fees (“demurrage”) some customers have been required to pay in order to obtain release of containers bearing their shipments.”
Oberman wrote that complaints about Class 1 rail practices to the STB have come from big and small shippers:
“These reports have come from shippers, both large and small, in addition to third party logistics providers. I am particularly troubled about reports that Class I railroads are continuing to impose these charges even in circumstances when the receivers, as a practical matter, have no means to facilitate the release of their containers.”
Finally, Oberman requested information from the Class I railroads: “In order to better understand the magnitude of the current container congestion and the framework for the associated demurrage fees, I am seeking information from each of the Class I railroads regarding policies and practices with respect to the assessment of demurrage fees on intermodal containers.”[2]
UP Responds
In his response, the UP’s Fritz cited responsibilities for congestion of other supply chain partners:
“The intermodal transportation pipeline is driven by the decisions, actions, and capacity of all stakeholders in the pipeline, including steamship lines, shippers, receivers, ports, chassis owners, and drayage providers. All stakeholders must maintain a consistent flow of freight at every step of the process to avoid bottlenecks.”
He went on to cite mistakes made by shippers and receivers:
” Specifically, shippers and receivers are responsible for their decisions to over extend their capacity in shipping and receiving, which congests the supply chain. This over extension is beyond our control… Union Pacific has performed efficiently in out-gating containers from our intermodal ramps.”
Fritz said that the railroad has tried to ease the burden on truckers:
“Union Pacific recognizes the current difficulty for dray carriers to manage efficiently the outbound movement of containers once they are in a stacked location. To ease the stress on our ocean carrier partners, Union Pacific implemented a policy to cap fees at $2,450 in Global 4 (a Chicago UP intermodal facility) when the container is in-stack. Additionally, we have temporarily opened our Global 4 intermodal facility, near Chicago, to private chassis to allow more options for shippers to out-gate their containers. Lastly, Union Pacific has re-opened its Global 3 facility, also near Chicago, to reduce congestion at Global 4…”
Finally, Fritz said: “We also recognize the need for our demurrage and detention fees to be reasonable.”[3]
BNSF’s Farmer Responds
On August 4th BNSF ceo Katie Farmer responded to Oberman’s letter stating that congestion and demurrage charges assessed against rail shippers occur when these shippers do not pick up their containers “on a timely basis.”
She noted “at any given time we have around 30 trains (holding around 7500 containers) staged for prolonged periods outside our intermodal facilities because there simply is not space in our hub to get those containers unloaded for pickup until the appropriate party coordinates the pickup of the older containers for delivery to processing locations.”[4]
Farmer went on to say that more freight is coming into BNSF facilities than is being picked up and that delays of international containers dwelling in BNSF yards is on the rise:
“For example, while we are transporting and unloading volumes this year at a pace exceeding our peak year of 2018, international containers are dwelling in our yard after unloading nearly 30% longer. The reality is that significantly more freight is coming into BNSF facilities than is being picked up and that simply is not sustainable. “
She said that this has undermined BNSF’s efforts to increase rail fluidity:
“We have continued to take the aggressive measures I shared in July to increase capacity, improve rail performance, and get the most out of our assets. However, the measures we take to maximize efficiency in our handling of cars across our network and within our terminals are largely rendered meaningless if receivers are not ready to pick up those containers from our facility.”
Farmer’s reply to Oberman described equipment shortages of chassis, drivers and warehouse workers as part of the problem:
“As you know, the complexity of the supply chain relies on the performance of numerous entities operating across ports, roadways, railroads, waterways, and shipper and receiver facilities. The challenges being experienced across the entire supply chain that I raised in early July are now well documented and continuing. As even more freight is being put into the global intermodal pipeline, the shortage of chassis, drivers, and labor to support distribution center unloading is causing shipments to back up into rail facilities.”
As a railroad carrying containers between points, BNSF argues that it has relatively few options except to resort to demurrage charges on shippers who fail to pick up their containers:
“As a railroad carrying containers between points where we are not the origination or the final destination of a load, BNSF has relatively few options to maintain the fluidity of our intermodal terminals if containers are not picked up by customers on a timely basis. Unless BNSF can utilize the few tools we have available to incentivize timely pickup – including storage charges when containers are left in our yards beyond free time – rail operations will degrade and ultimately come to a halt. This (STB) Board has recognized the importance of demurrage and storage charges to incentivize the efficient use of rail assets (both equipment and track) by holding rail users accountable when they use those resources beyond a specified period of time.”[5]
CSX’s Foote Responds
In his August 2nd response to Oberman, CSX Corporation president and ceo James Foote wrote that the responsibility for delivering international containers primarily rests with the ocean carriers, described here as “steamship lines”, who bear the prime responsibility for the disposition of freight:
“The movement of an international container from a foreign country to a receiver in the U.S. starts with the fundamental decisions made by a shipper concerning whether to ship now, how much to ship, where to ship, how fast, and which steamship line to use. Each of these decisions have economic consequences that are reasonably foreseeable given the current state of the supply chain. Once these decisions are made, the shipper customarily relies on its selected steamship line to effectively serve as a logistics provider, putting in place all or most of the other segments of the chain. CSX, for example, has a contractual relationship with the steamship line – not with the shipper, receiver, port, chassis owner, or truck drayage provider.”[6]
Foote said some customers do a better job than others of moving containers, but again emphasizes the responsibility of the ocean carriers or “steamship lines”:
“At the Port of NY/NJ, the container is offloaded from the container ship and staged for further inland transport by rail. The steamship line will have already selected an inland rail carrier, in this case CSX, and a rail waybill will have been created with the steamship line as both the freight payer and the shipper. Further customs clearance, physical inspections, and port handling precede the container’s placement on a railcar. After CSX moves the container to the inland rail intermodal terminal chosen by the steamship line, the unit is lifted off the railcar and positioned for pickup, either on a chassis or in a stack easily accessible by lift equipment. Finally, CSX notifies the receiver identified on the waybill that the container is available and a drayage truck, arranged by the receiver or steamship line, removes the container from the rail terminal and delivers it to the receiver’s facility. Here, the receiver coordinates receiving capacity, including warehousing, dock space, and labor, in order to unload the container, so that the empty container and chassis can be used by the next international shipper. Some of our customers do a better job than others of managing a constant flow of containers into and out of our terminals.”
In part, BNSF’s Farmer blames the lack of 24/7 practices within the supply chain, including many container terminals located at U.S. ports, for not moving containers with sufficient speed to ensure fluidity within the supply chain and within railroad operations:
“We do believe that there is enough physical capacity present across the national supply chain to handle the current volumes. The amount of chassis, port and rail terminal capacity, rail equipment, and employee resources is sufficient to handle the current volumes, but only if all parts of the supply chain do their part. Operating 24/7 in all parts of the supply chain, not just rail, would generate substantial capacity immediately.”
Finally, BNSF believes that its imposition of storage fines and demurrage is “reasonable:”
“BNSF strives to ensure that our storage rules are reasonable and designed to incent the behavior needed to support rail terminal fluidity. … we believe our rules are clear and easy to apply, providing transparency around the triggering events for charges and where opportunities exist to avoid charges. It is our practice to ensure that we are only charging a storage fee when the box is actually available for pickup.”[7]
Rail Dwell Times At Ports of Los Angeles & Long Beach Are Up in 2021
A reflection of the problem comes from data about delays of trains leaving for their destination after container loads off of ships are ready to be loaded at the Ports of Los Angeles and Long Beach. Rail delays, known as the ‘rail dwell time,’ rose from 7.9 days in January of 2021 to 11.8 days in June, 2021, according to the Pacific Merchant Shipping Association’s July, 2021 report.[8]
The situation got even worse when the Union Pacific announced it was suspending service July 18 for seven days to clear the backlog of thousands of containers stacked in Chicago so as to reduce the backlog of intermodal trains arriving from West Coast ports.[9]
The suspension prompted one Northern California freight forwarder consultant to complain “it is simply a mess. I don’t even touch any rail booking with a ten-foot pole.”
Another forwarder said that a client got so desperate with a railroad delay loading containers out of one of the Southern California ports that the forwarder ended up trucking the containers from California to a Midwest customer at a cost of thousands of additional dollars and at the forwarder’s own expense.
Union Pacific Allocates $7 Billion for “Share Repurchases”
While importers, exporters, container terminals and freight forwarders are struggling with delays and congestion, the Union Pacific disclosed that it has accumulated $7 billion to be invested in “share repurchases.”
According to the July 22, 2021 transcript of a call with analysts discussing Union Pacific’s second quarter earnings announcement, Jennifer Hamann, chief financial officer, Union Pacific disclosed:
“With that strengthening outlook, cash generation is growing as is our plan for share repurchases, which we would target at approximately $7 billion or $1 billion more than we had originally planned.”[10]
During the same July 22nd call, ceo Lance Fritz noted :
“Union Pacific is reporting 2021 second quarter net income of $1.8 billion, or $2.72 per share. This compares to $1.1 billion, or $1.67 per share in the second quarter of 2020. While comparisons to the second quarter of last year are skewed by the COVID impact, a comparison to 2019 further demonstrates the impressive results we achieved during the quarter. Our quarterly operating ratio of 55.1% is an all-time record.”[11]
Increasingly, shippers are complaining that increased cutbacks on service, workers and equipment utilizing precision scheduled railroad (PSR) practices have made a bad situation worse at both the Union Pacific and Burlington Northern Santa Fe railroads.
Critics, who include railroad workers, say PSR undermines service and contributes to the inability of U.S. exporters to find rail books for exports through the California ports of Los Angeles, Long Beach and Oakland as well as the ports of Seattle and Tacoma.
At the same time, importers, especially smaller importers, are experiencing delays shipping their containers from West Coast ports to Midwest destinations.
Fritz went on to say: “But PSR and the fact that we’ve transformed our railroad has us in a whole different ballpark of performance than these kinds of issues would have us in three, four, five years ago. And we shouldn’t miss that.”[12]
Retired BNSF Executive Warns PSR May Be Going Too Far
Meanwhile, a retired chief executive at BNSF had warned that the decision by Class 1 railroads to embrace PSR may cutback rail service to the point that the federal government might intervene.
Trains.com reporter, Bill Stephens, reported a 2019 warning issued by retired BNSF Railway executive chairman Matt Rose that Class 1 railroads have gone too far cutting back on workers, equipment and operations utilizing PSR:
“Before he retired in 2019, BNSF Railway Executive Chairman Matt Rose warned that the other Class I railroads were inviting regulatory risk by adopting Precision Scheduled Railroading, reducing service, and demarketing some types of traffic in pursuit of higher profits.
“We have this common-carrier obligation to provide freight service to all customers in all markets,” Rose told an industry conference in January 2019. “And what we’re doing in PSR is we’re redefining what we’re willing to accept in the freight railroad industry on certain lanes. And I really do believe we’re going to get in a lot of trouble by doing that.”
“When you start redefining markets,” Rose warned, “I think then the federal policymakers will look at this, and quite frankly, they will not be happy with us.”
Stephens writes “That day of reckoning is here.”
He quoted STB’s Oberman as questioning whether the railroads are shirking their common-carrier obligations due to pressure from Wall Street:
“I have wondered … whether the combination of the reductions in workforce, the interruptions in service, the demarketing all implicate the common-carrier obligation that railroads have and have had really since the beginning of the railroad industry,” Oberman told the Midwest Association of Rail Shippers. “And it’s something that I continue to focus my attention on.”[13]
Challenges Booking Rail Cars
In September, 2020 a Northern California logistics consultant was unable to book containers on the Burlington Northern Santa Fe (BNSF) or Union Pacific (UP) railroads for the first week of September going to and from U.S. West Coast ports and Midwest destinations.[14]
The consultant said, “I have been working in the industry for thirty years and I have never seen anything like this. It’s weird.”
The result is that importers of low value products being shipped by containers such as tee shirts would be at an economic disadvantage transporting containers by truck as opposed to by rail between U.S. West Coast ports and Midwest destinations, because of the higher cost.
The consultant explained that there is a huge shortage of rail capacity: “There are no rail cars and there are no chassis.”
The consultant, who is not identified, was contracted to research container rail bookings on the UP and BNSF to and from U.S. West Coast ports including:
- Los Angeles
- Long Beach
- Oakland
- Seattle
The result of the research was that: “The railroads will not take any bookings right now and so all the containers going to and from the West Coast to places such as Chicago and Memphis must go by truck.”
The consultant cited the following trucking rates per container as examples:
- Los Angeles/ Long Beach to Chicago: $7000.
- LA/LB to New Berlin, Wisconsin: $6,700.
- LA/LB to Nashville, Tennessee: $7,200.
- LA/LB to Dallas, Texas: $5000.
- LA/LB to Jacksonville, Florida: $8,800.
The consultant said that in the past it had been possible to truck a container coast-to-coast for $2,000: “But those days are gone.”
In addition, “In the good old days you could ship a container from the West Coast to Chicago or Memphis by rail for $1000 dollars.”
In July 2021, the consultant said that trucking costs are even higher than in 2020: “Everything is more expensive than Sept 2020. I hear of rates from California to Florida being over $ 12,000 now. LA – Chicago is somewhere around $ 8,500.”
Railroad Workers Warn About Impact From Cutbacks
Ron Kaminkow is a locomotive engineer and general secretary of Railroad Workers United a rank-and-file association of railroad workers, drawn from a cross-section of crafts and carriers. The association has campaigned against the railroads’ cutbacks in jobs, working conditions and rail service.
Kaminkow says the criticisms of the Class I railroads that STB’s Oberman made made to the North American Rail Shippers Association (NARS) in Chicago reflect “what we’ve been saying for years.”
Kaminkow said that the managements of Class 1 railroads have moved further and further away from the business of railroading by cutting back on workers, locomotives, service and maintenance to expand profitability through cutbacks:
“You would think that at a time that the West Coast ports are jammed with containers that this would be the time that the UP and BNSF railroads would want to expand services, put back more locomotives into service and hire back more workers to take advantage of booming imports from Asia. You would be wrong: the railroads don’t want more business. They want to make money by cutting back.”
Railroads Need A Growth Strategy To Address Rising West Coast Port Volumes
Kaminkow said that the higher volumes of import and exports passing through U.S. West Coast ports should have prompted the Union Pacific and the Burlington Northern Santa Fe to take the following steps:
- Double-track all major rail routes and consider triple tracking of rail links between Los Angeles/Long Beach ports and Midwest destinations such as Chicago so as to avoid the July shut down in rail service to Chicago.
- Invest in electrification of tracks so as to reduce diesel fuel consumption costs.
- Use electrification to increase the speed of trains and fast-track shipments between West Coast ports and the Midwest.
- The consequent reduction in fuel cost and faster delivery times would justify hiring back more workers to improve safety on trains and investing more in maintenance and repair to reduce derailments.
- Expand service back to smaller rail ramps that were shut down due to cutbacks prompted by Precision Scheduled Railroading (PSR) practices so as to expand growth of small and medium-sized exporters.
- Make the railroads part of a National Freight Strategy and use rail’s economies of scale and fuel efficiencies to take trucks off the road and reduce carbon emissions.
He says the fixation on cutbacks appeals to financial institutional investors as well as rail executives who focus on profitability rather than making their railroad companies more productive.
As an example, Kaminkow cited sections of single-track Union Pacific rail lines that should be double-tracked.
Like other railroad union officials, Kaminkow blames the adoption of Precision Scheduled Railroading by UP, BNSF and other railroads for accelerating the cutbacks in railroad work employment, service and locomotives. BNSF denies that it utilizes PSR practices.
Following comments made by UP & BNSF that supply chain partners need to do more to reduce congestion and avoid demurrage fees, Kaminkow responded as follows: “Yes the rail industry – as always – claims complete innocence. It is other players and factors in the supply chain that are the problem.”
UP Employee Criticizes PSR & Cutbacks
In a second interview, a Union Pacific locomotive engineer, who asked not to be identified, also spoke out against PSR and related practices which he says began to be implemented by UP in 2018:
“The company insisted that they had their own version and that it was not as extreme at what had been adopted on the CN and CSX. What we saw was an acceleration of the move by the company to cut back on the workforce using the rationale of precision. “
The engineer was dismissive of the use of the word “precision”:
“For us at the UP, the use of precision usually meant cutbacks. The use of precision concluded that locomotives cost money to operate and so you mothball as many as possible. You also cut back on the number of locomotives that you used to pull a train to the bare minimum, sacrificing speed and safety for cost savings. You slowed down the trains to reduce fuel.”
He said Congress had enacted the use of Positive Train Controls to create computerized systems to avoid collisions: “Companies like the UP expanded this use for software to regulate the speed of the train and reduce fuel consumption. In this, the use of software as opposed to human operation reduced the speed so that there was less fuel consumption and slower speeds. The downside is that human interaction can still help with irregular terrain, such as going up and down steep grades. To reduce costs further the UP made the trains longer. It used to be that trains lengths were 6,000 to 7,000 feet long. This has since doubled to 10,000 to 15,000 feet long. You had a locomotive engineer and conductor manning the shorter train and now you have the same two people manning the longer train. The problem here is that more can go wrong with a longer train and it is harder to monitor what is going on with the train when its nearly 3 miles long.”
The net effect of all of these changes is that costs and manning have gone down: “The flip side is that derailments have gone up, accidents are on the rise and workers and the public suffer.”
Scheduling is another misnomer: “By reducing the costs, the (number of) locomotives, building up the train sizes and slowing down the speeds, you are creating a situation that benefits a big shipper with a large train car requirement such as a coal train, but you have undermined the schedule reliability of deliveries for small and medium size shippers. These shippers can’t afford to pay for the larger number of train cars such as an Archer Daniels Midland, Wal-Mart or UPS. A service that used to provide deliveries twice a week gets cut to once a week. Less profitable routes get cut and shippers have to move more merchandise by truck raising the cost to the shippers while the UP saves money and increases its profit margins. “[15]
A National Freight Policy Needs To Support Railroads
In an interview with Michael Sussman, ceo, Strategic Rail Finance and chairman of OnTrackNorthAmerica, a transportation think tank, argues that U.S. railroads are not entirely to blame for the dislocations that have impacted rail operations in the United States today:
“There has been a conscious effort by the federal government to build up the highways and to, in effect, subsidize trucking while the railroads finance their infrastructure out of their own pockets. The result is that as companies became bigger and as they depended on shareholders and investors for future investment the horizon for carrying freight became more focused on bigger shippers, longer consists (trains) and less service to destinations that generated smaller loads.”
PSR was the logical extension of this finance driven system: ““PSR became a natural outgrowth of this and the accelerated cutbacks in the last five years have been huge. PSR strategies succeed by decreasing overhead expense and increasing asset utilization. Overhead reductions inevitably impact staffing of marketing support and industrial development. The Class 1s presently meet profit goals by reducing operating and capital expenses rather than through top-line revenue growth from new customers…. This has gotten to the point where you see the STB now calling for some regulation to encourage competition and more service.”
Sussman says: “The railroads would like to be able to regain market share, but they cannot do this with a total reliance on private finance. There needs to be public investment and in exchange for those public investments there needs to be an expansion of services to smaller markets and more services to exporters who may not have access to rail heads.
He adds: “We saw this in the study we did in Nevada where 83% of rail freight flowing through the state never stops in the State. Only 4% of the freight moving in the state, by rail and truck, actually goes to or from a Nevada business by rail. The warehouses in Nevada outside of Las Vegas in the Southern part of the State receive container loads coming from San Pedro Bay by truck. The bulk of the goods in the Nevada warehouses are then loaded back onto trucksto go back to California end-users. The same holds true for Reno-Sparks in the North which essentially services Northern California via the Donner Pass.”
He says states are required by the USDOT to file updates on the state of the railroads every four years and in California the California Department of Transportation (Caltrans) issues the report for California: “These plans are rarely implemented to actually expand rail services and provide shippers with better rail service.”
This regular report system could be utilized to build up “rail implementation strategies that identify expanding services to smaller communities and shippers and in the case of California support the increased investment in intermodal upgrades at ports to ease port congestion and expand services to exporters. I see the role of the states as a coordinator and supporter but this has to be a collaborative process with the railroads and linking all major players in the supply chain.”
Sussman says: “There have been cutbacks in service and rail infrastructure between Nevada and California. So in some cases, you have single tracks where there is high volume rail thru-traffic. These reductions have been accompanied by reductions in staff, operation and maintenance.”
The imbalances require a more productive government role:
“So, there is a role for government here to advocate for regional and national supply chain strategies that emphasize the need for interaction between road, rail and water. This needs to be supportive of the railroads by developing infrastructure investments from private sources in productive public private partnership … There are a number of infrastructure funds on the national and international level that are anxious to invest in the long-term growth of railroads.”
Sussman says there is a role for government working with the railroads in a collaborative way but “not in a punitive way.”
FOOTNOTES
[1] https://www.federalregister.gov/documents/2008/02/27/E8-3712/common-carrier-obligation-of-railroads#:~:text=The%20common%20carrier%20obligation%20refers,would%20be%20inconvenient%20or%20unprofitable.
[2] https://prod.stb.gov/wp-content/uploads/BNSF-Final-RR-Intermodal-Letter-July-2021.pdf
[3] https://prod.stb.gov/wp-content/uploads/UP-response-to-Chairman-Oberman-regarding-intermodal-supply-chain-issues-August-5-2021.pdf
[4] https://prod.stb.gov/wp-content/uploads/BNSF-response-to-Chairman-Oberman-regarding-intermodal-supply-chain-issues-August-4-2021.pdf
[5] https://prod.stb.gov/wp-content/uploads/BNSF-response-to-Chairman-Oberman-regarding-intermodal-supply-chain-issues-August-4-2021.pdf
[6] https://prod.stb.gov/wp-content/uploads/CSX-Response-to-Chairman-Oberman-Regarding-Intermodal-Supply-Chain-Issues-August-2-2021.pdf
[7] https://prod.stb.gov/wp-content/uploads/BNSF-response-to-Chairman-Oberman-regarding-intermodal-supply-chain-issues-August-4-2021.pdf
[8] https://files.ctctusercontent.com/3190e792601/44238ace-fde8-416e-827c-c0ec09a65e8a.pdf?rdr=true, p.16
[9] https://ajot.com/insights/full/ai-polbs-hacegaba-says-up-rail-service-one-week-suspension-to-west-coast-could-be-positive
[10] https://seekingalpha.com/article/4440738-union-pacific-corporation-unp-ceo-lance-fritz-on-q2-2021-results-earnings-call-transcript, Union Pacific Corporation’s (UNP) CEO Lance Fritz on Q2 2021 Results – Earnings Call Transcript, Jul. 22, 2021 2:15 PM ET Union Pacific Corporation (UNP)
[11] Ibid.
[12] Ibid
[13] https://www.trains.com/trn/news-reviews/news-wire/former-bnsf-executive-matt-roses-2019-warning-comes-true/
[14] https://ajot.com/insights/full/ai-stb-and-fra-echo-rail-worker-concerns-about-u.s-rail-service