Date: Tuesday, December 13, 2022
The drama about whether union members would go on strike has passed, with Congress passing legislation and President Joe Biden signing that legislation requiring all unions to ratify the labor agreement that union and railroad negotiators reached in September.
But the battle scars still remain and those scars must be healed in order for the rail industry not only to fully restore service levels but also to thrive and assume the role as a vital and necessary freight transportation mode.
“If railroads want to be serious about addressing these issues that the members so vocally stated were a problem during these past three years, that would be a welcome change. … If they want to start to build employee morale, they should proactively reach out,” said Greg Regan, president of the Transportation Trades Department, which is affiliated with the AFL-CIO.
How can the railroads and the unions move on? They can do so through local negotiations and through changing railroad culture. But both endeavors will have challenges.
Why contract negotiations went differently this time around
The unions undergo collective bargaining for a new agreement every several years, and there has been a cultural expectation within the industry that both sides would give and take without significant noise.
But this negotiation round, which started in January 2020, was different for several reasons.
One was because of the headcount reductions that had occurred in recent years, with some arguing that the railroads slashed their workforce levels as they sought to implement precision scheduled railroading (PSR). PSR is a way to streamline operations, but others contend it’s merely a means to cut costs and increase shareholder value.
The COVID-19 pandemic and quarantine orders also exacerbated staffing shortages, which in turn influenced how this latest bargaining round proceeded. It became harder to take sick leave because of attendance policies that discouraged taking time off. These policies were put into place to ensure there were enough workers on hand — especially since the railroads’ headcount numbers dropped significantly in recent years because of workforce cuts.
A third reason was the impact that social media had in fueling worker discontent; shippers also used the media to warn of the dire economic impacts that would result from a strike. As a result, a historically private negotiation process was made more public so that Congress and the general public could understand the issues at hand.
“The rail unions played their cards well. They played to the court of public opinion because they knew that the public and Congress was ultimately going to be an arbitrator,” said independent rail analyst Tony Hatch. “So with the explosion of social media, you heard all these things about how awful it was working on the railroad. And I’m not saying they were being disingenuous, I’m saying they went public [in a way] that has never happened before because they wanted Congress to know this.”
But Hatch said the unions weren’t the only ones seeking to influence public opinion: “They’re not the only ones to do it. The railroads organized [and made] very strange bedfellows [with] the shippers, who put out press releases saying this will be a catastrophe. And they wanted Congress to hear that.”
Addressing quality-of-life issues at the local level
Although the railroads and the unions have just ended this collective bargaining round, another one is following up not far in the future. The next national collective bargaining round will start in January 2024.
But before then, work is underway at the local level to try to get the railroads and the unions to address quality-of-life issues.
Local negotiations involve a railroad working with the unions on a localized or regional basis. This grew out of the period when numerous smaller railroads existed. The Class I railroads are comprised of smaller railroads that had been consolidated to become who the Class I railroads are today.
Local negotiations are traditionally where work rules and craft-specific policies were typically addressed, while top-line economic issues were discussed at the national bargaining level.
The Presidential Emergency Board, a three-person independent panel appointed by Biden this past summer to offer recommendations on how the railroads and the unions could resolve their negotiations impasse, had also recommended that quality-of-life issues be addressed at the local level.
Now that the national contract has been reached and the compensation package has been established, the hope is the railroads and unions will “begin to talk about a new way of doing business, where there is a more reliable schedule for workers because we want attrition to go back up to normal levels,” Hatch said. “The investment community is behind that 100%. Service needs to be more reliable. That is the first thing they have to do. We want to see attrition rates and quality of life improved.”
Those discussions could include how the railroads should schedule their crews. That could mean adjusting operations so that there is more shift predictability for workers.
“I really think that if you’re going to run a predictable railway, your trains are going to be on time. You’re going to be able to schedule your crews much more accurately,” said Nick Little, managing director of the railway management program at the Eli Broad College of Business at Michigan State University.
“You’re also going to have to be flexible so you need extra resources, whether it’s people or equipment, to be able to handle any minor disruptions and be a lot more responsive to things, because ultimately, what we’re trying to do is we’re trying to serve customers. We’re trying to value our workforce, and we’re trying to grow the business,” Little said.
But discussions must also include how the railroads can integrate technology into operations, Hatch said.
“In the give-and-take world that there is, we would love to see the existing and developing technology be better used. That includes some forms of autonomy that don’t have to be necessarily job reducing but could be greatly capacity enhancing. I’m thinking of things like automatic car inspection,” he said.
If the local negotiations go well, there is a possibility that those successes could inform other local negotiations, according to Jim Blaze, a railroad economist and independent contributing editor for Railway Age. Blaze also worked in the rail industry for 21 years at Conrail.
The freight rail industry needs to be on top of hiring initiatives because they’re fighting with other industries for qualified candidates, Blaze said. The need to replace retiring workers with new hires has been talked about in the rail industry for years, but the pandemic and PSR squelched that discussion.
“Which one of these Class I railroads, and in which areas of the country, is gonna say, ‘Screw this, we got to make a regional deal with one of the local cells of a union because that’s the only way we’re going to get people’? Because not only are we competing against BN and Union Pacific and Norfolk Southern for people, we’re also competing with the construction industry, the truck driver industry and everybody else,” Blaze said. “And if the other competitive opportunities for these skilled folks [are based on where] they’re gonna get treated better, particularly on the wages or time off, well, then we got to make a deal.
“It isn’t that [the railroads] can’t afford it, because which one of these industries has the highest profit margins? The railroads do. Let’s say it cost them 1, 2 or 3% of their earnings per share. Who cares? Do the shareholders really care? I doubt it. They’re not going to miss it,” Blaze said.
Ideally, local-level negotiations should also delve into other uncomfortable topics, such as how craft employees could benefit from PSR, and include discussions about how to create a more predictable schedule for some crews, Little said.
“The question of PSR has got to come up. The question of operating ratio has got to come up. But the railroads themselves — their people, leaders — have actually got to say, ‘Here’s what’s in it for you’ to the union, because they can make something in it for them, whether it’s regular working conditions or something else,” Little said. “Let’s find the right way to work together. Let’s, by all means, measure performance so that we all know how well we’re doing. But let’s use the right metrics to do that, and at the same time, let’s make sure we satisfy what it is that our stakeholders — including the shareholders — are looking for, not just today but in the long term as well.”
Norfolk Southern talks about negotiations at the local level
Discussion at the local level about creating a work-life balance is already underway at some of the Class I railroads.
At Norfolk Southern’s (NYSE: NSC) Dec. 6 investor day, NS Chief Transformation Officer Annie Adams told investors about plans to address train-and-engine workforce staffing and “modernize” NS’ labor agreements.
“We’re pursuing location-specific, incremental workflow changes, and we’re also collaborating with local labor leaders to explore creative new labor arrangements that will drive flexibility for our operation, reliability for our customers and a better quality of life for our employees,” Adams said, adding that these changes could address making work schedules more predictable, especially for train conductors.
NS is also planning to use its data science and operations research teams to leverage workforce planning with predictive analytics, Adams said. Doing so will provide NS with a more accurate reading of where to anticipate staffing needs, which will in turn help the company make more informed decisions about where to allocate resources. This will also help NS weather through and recover from market down cycles more effectively, she said.
When market downturns happen, the railroad will seek to provide additional training and develop to its craft workforce, Adams continued. If the economic downturn is severe and staffing reductions must come into play, NS will explore alternatives to traditional furloughs that would incentivize workers to return.
“The goal in all of these scenarios is to ensure that when business rebounds — and it always does — we’re positioned to quickly redeploy a more skilled, engaged and productive workforce so that customers have the confidence to tightly integrate us into their supply chains, so that we’re positioned to take full advantage of the profitable volume opportunities that come in the early stages of economic recovery,” Adams said.
Meanwhile, Union Pacific is tackling quality-of-life issues through a pilot program that it started on Nov. 1.
“Union Pacific understands how important it is to address quality-of-life concerns raised by our TE&Y [train, engine and yard] employees,” UP spokesperson Robynn Tysver told FreightWaves.
The project involves testing a work-rest cycle that includes scheduled days off for employees in jobs that have been traditionally unassigned, she said.
“We are working closely with union leaders on this project, which is in its infancy, and hope to gather a better understanding of how to best implement a work-rest balance more broadly throughout our system, while acknowledging there may not be no one-size-fits-all approach,” Tysver said.
Addressing quality-of-life issues by changing railroad culture
But beyond negotiations, sources suggested that a greater change must occur within the industry: changing the railroad culture.
The contentious nature of this latest bargaining round, particularly at the late stages, coupled with the deterioration of rail service from earlier this year, bring to light a need to address how the railroads interact with their stakeholders, sources said.
For starters, the railroads can focus on their roles and their relationships with the supply chain, as opposed to thinking of themselves as separate and distinct entities, Little said.
“This might be the start of railroads considering their stakeholders — their broad stakeholders rather than just their shareholders,” Little said. “And obviously, the labor side is one of the key stakeholders, as are the customers and the government.
“The railroads have got to start thinking of themselves as not just a transportation company but a key component of the customers’ and the end consumers’ supply chains for the products that they move. And to do that, they’ve got to really change their culture.”
The Class I railroads could learn from the short line railroads, which “have always been customer oriented and have looked after their people incredibly well,” Little said.
Another approach would be looking at gaining freight market share through a staffing paradigm, Hatch said.
“We really want to see rails move from margin focus to growth focus. You can’t do that without crews. You can’t run efficiently and reliably and improve their metrics, their operating metrics that they report — which is job one right now, now that the labor thing is resolved.” Hatch said. “They have got to improve their on-time percentage, their velocity, their dwell — all the numbers they report to the STB. The reason they weren’t doing it was crew shortages.”
Hatch continued, “It’s hurting them financially because experienced crews quit and you’re replacing them with inexperienced crews and you’re paying all that money for training. And they’re coming in sporadically so that you have sporadic crew shortages and breakdowns. You’ll never recapture the share that they lost, traffic that I think is ripe for the taking. … If they run a consistent, reliable service, there is a secular beyond just the cycle share to be taken out there.”
Shareholders themselves have also started to approach the railroads and other companies on how they can run their businesses in an ethical and sustainable manner.
Impact Shares, a 501(c)(3) registered investment adviser and fund sponsor that describes its mission as working with environmental and social advocacy organizations to translate their missions into investable products, filed a proposal last week asking NS shareholders to address paid sick leave at the next shareholders meeting. Impact Shares operates three public equity funds in the financial markets, and NS is a participant in one of those funds.
Trillium Asset Management filed a similar proposal with Union Pacific (NYSE: UNP).
Marvin Owens, chief engagement office for Impact Shares, told FreightWaves that filing the proposal at NS brings these issues to company attention.
“Our goal is really engagement — to be able to sit down with Norfolk Southern … and convince them that this is the right thing to do [and that] investors are calling for it. Our sense is that investors want to make sure that they’re invested in companies that are doing the right thing, not only by the environment but also by the workers.”
The role the rank and file might have in influencing culture
But the key element to changing culture may be with the actual railroaders themselves, according to Little.
Little, who used to work for the British railways, described how the railways were unable to produce culture change because they tried to do it from the “top down,” even though they used quality management principles to place quality controls on operations and provide positive customer service experiences.
But the British post office system, which Little also worked for, was seeking a cultural change too. The post office chose a different approach: It went straight to the workers.
“The post office said, ‘OK, our most important asset that we’ve got in terms of people are the people who are actually out there. They’re delivering mail every day. So they are the people we’re going to start with because they’re our customer interface.’ And that’s what they did. They started from the bottom up,” Little said.
“I think that’s where we need to start as well on the railways here. You can’t force it from the top down, especially in an industry where a lot of your people are out at the depot and the terminal 99% of the time. They wanted to do a job where they’re left alone … and they do a damn good job when you let them,” he continued.
“So why not build on that and encourage the unions to work things through? I think what the railroads have missed in this latest bargaining round is the ability to grasp that opportunity and say, ‘Hey guys, we really value you. We want you to be part of us. We don’t want you leaving because you’re complaining about whatever it might be — sick days, bonus schemes, point systems. We want you to be part of the future. And this is how we’re going to do it. And we want you to give us some ideas as well.’”
But the railroads will have to prove to union members that they are interested in bringing about those cultural changes, according to Regan.
“The way to make it a bottom-up and collaborative exercise, in terms of improving morale, is to proactively engage with union leadership, who have the ear of their membership, and talk about what changes need to be made, because [union leaders are] hearing from their members every day what their problems are and what they’re facing,” Regan said.
“I think everybody wants to see an improving, growing, strengthened freight rail system. It’s not like we’re interested in trying to shut down the railroads. We actually want to see growth. So I think we have some ideas for how to do that.”