Date: Tuesday, December 6, 2022
Source: Wall Street Journal
President Biden signed a bill Friday restricting rail workers from striking, but the industry is still struggling with a big problem: having enough staff to handle customer demand.
The largest U.S. freight railroads have reported strong profits in recent years, helped by higher prices and steady business in transporting everything from automobiles to fertilizer. Export demand for coal and grain, stemming from disruptions in supply chains in Europe after Russia invaded Ukraine, bolstered freight volumes this year, railroads said.
At the same time, railroads continue to face disruptions tied to having a shortage of workers. This year, Union Pacific Corp. and BNSF Railway have issued more embargoes—restrictions placed on the amount of cargo that can be transported—than in previous years. Railroads issue embargoes as a way to control traffic movements when service is disrupted due to a disaster or to ease congestion.
From January to Nov. 25, freight railroads issued 1,486 embargoes, up from 945 and 641 recorded in 2021 and 2020, respectively, according to data compiled by analysts at JPMorgan.
Railroad operators said they have had insufficient numbers of train and engine workers, though unions representing other types of railroad hands, such as signalmen and track workers, said they have shortages, too.
“Railroads said they’re all trying to grow, to add more head count, but ultimately, they can’t really create new demand. They’re just trying to match their plans, their assets, with what’s coming to the network. As you can imagine, it’s quite hard,” said Brian Ossenbeck, an analyst at JPMorgan.
Some freight railroad operators, such as Union Pacific and CSX Corp., said they have made progress on hiring and service levels since this past spring.
The most recent round of collective wage bargaining, affecting more than 115,000 workers, went on for more than two years and eventually required President Biden to intervene twice to break the stalemate and to enforce a resolution. Unions raised concerns about railroads being understaffed during negotiations, saying that their members are working irregular schedules more often and have less time off. They said that workers still need relief from having inadequate paid sick days stemming from railroads’ efforts at streamlining operations since 2017.
“This legislation puts one major problem to rest, but we’re certainly not out of the woods yet when it comes to fixing the breakdown of the freight rail network,” said Chris Jahn, president and chief executive of the American Chemistry Council, a trade group.
A slowdown in rail service since the start of the year has hampered operations of the Solid Waste Division for Washington’s Snohomish County, which transports 600,000 tons of waste annually, its leaders said.
For a few days in May and September, the county closed solid waste transfer stations after it didn’t receive enough shipping containers from a railroad to transport the waste to a regional landfill, said Public Works Director Kelly Snyder. At one location, garbage piled up 45-feet high and staff had to go on a 24-hour watch looking for smoke and flames for five weeks because of the risk of combustion, she said. Public officials asked residents to take their yard debris to private composting stations.
“Rail reliability is incredibly important to us. It’s our only way ultimately to export to landfills, so that level of service needs to be maintained over time,” Ms. Snyder said.
BNSF Railway, which was transporting the waste, said it has worked with the county and its vendor to provide additional capacity and respond to market conditions.
“We were meeting our agreement with the customer based on their projected needs and when volumes spiked we worked with them to fill the additional unforeseen demand,” Zak Andersen, a spokesman for BNSF, said after this article was published.
The Surface Transportation Board, a federal agency that primarily regulates freight railroads, said it received numerous complaints that the embargoes being instituted are hampering operations of businesses.
Embargoes used to be issued because of unforeseen disasters like a flood or a polar vortex, but these have increasingly been used as part of railroads’ operating plans to clear congestion, said Martin Oberman, chairman of the STB, in a recent speech at a railroad conference in New York. “Congestion: a railroad euphemism for ‘we don’t have enough crews to move our trains to keep our network fluid,’” said Mr. Oberman.
Union Pacific finance chief Jennifer Hamann described embargoes as a “tool of last resort.” “We don’t have other mechanisms to fully suppress volumes coming onto our network,” Ms. Hamann said at a recent industry conference. She added that the company is providing permits to allow customers to continue to ship despite the embargoes.
Executives at Union Pacific are slated to testify at an STB hearing later this month over its use of embargoes. The STB board has said that Union Pacific in particular has issued more than 800 embargoes this year, compared with five in 2017.
Railroads have historically furloughed workers when cargo volumes declined and then brought them back when economic activity picks up.
When the Covid-19 pandemic began to shift customer demand in 2020, railroads followed the same pattern, aiming to call back workers once activity returned. Demand snapped back faster than railroads anticipated, but they found it difficult to rehire the furloughed workers.
Some executives acknowledge that the current furlough model is outdated, especially since railroads typically aren’t quick enough to get workers back fast enough to reap the benefits of an economic turnaround.
Norfolk Southern said that it plans to make changes in decisions regarding furloughs, including finding ways to keep workers even if freight volumes soften.
“To date, we are ahead of our target for hiring train and engine team members with a strong pipeline of trainees into next year. Our customers are noticing these improvements and talking to us about bringing back more volume,” said a spokesman from the Atlanta-based railroad.