Date: Thursday, September 22, 2022
While rail shippers are greatly relieved that last week’s potential strike was averted after two of the biggest rail unions reached a tentative agreement with U.S. freight railroads for a new contract, shippers are still wary about whether ratification of the agreements will improve service.
“I don’t want everybody to think now that we’ve solved this labor issue, we’re done,” Rob Benedict, vice president of petrochemicals and midstream for the National Petrochemical and Refiners Association, told FreightWaves. “The issues that we’re feeling based on PSR [precision scheduled railroading, an operating method used by the Class I railroads to streamline operations] are going to remain even with a new deal there.
“There have been a lot of rail shippers coming out and saying, ‘Great that we solved this and we’re glad, but the work’s not done and we’re still in the middle of a supply chain crisis.’”
One of the big concerns is whether the tentative agreements will be enough to retain the existing unionized workforce, some of whom feel that PSR has stretched them too thin.
Another is whether the railroads will be able to find all the additional workers necessary to ensure network capacity and meet service needs. That could be a challenge, not only because of the difficulty in finding qualified workers but also because of work-life balance issues that the labor negotiations spotlighted. The tentative agreements have started to address those lifestyle issues through adjustments in attendance and sick leave policy, but some railroaders question whether more needs to be done.
“Rail service would be exponentially better if rail carriers had more staff,” said Justin Louchheim, senior director of government affairs for The Fertilizer Institute. “They need more staff to be able to do their jobs. And if they have more staff to do their jobs, the staff they have will have a better work-life balance. There’ll be more flexibility if folks get sick and have to step away for a week or so.”
If the Class I railroads do sustain their recent hiring initiatives, which they kickstarted this year to improve rail service, another question is whether the railroads can reach desired staffing levels while minimizing costs to the customers. The railroads could reduce dividends and stock buybacks or reassess executive and senior management compensation, although that might be an unattractive option for Wall Street investors, said one shipper, who spoke on condition of anonymity.
Class I railroads have also been earning billions in profits, which makes these options possible, some observers have said. But the railroads have argued that those billions are needed to maintain network infrastructure since the railroads are the ones that fund the infrastructure improvements.
For now, shippers told FreightWaves that expanding the railroads’ workforce even more would enhance service because it would provide the rail network with elasticity, especially if workers are out for medical reasons, as happened when many were out sick or had to quarantine during peaks of the COVID-19 pandemic.
“The system is stretched about as thin as it can be,” said Scott Jensen, spokesperson for the American Chemistry Council (ACC). “As far as if there had been a shutdown and exploring other contingency plans, there really wasn’t much left in the bag of tricks to keep things moving.”
Chemicals shippers were having service issues even leading up to the narrowly averted shutdown and were already employing contingency plans, Jensen said. If a strike had occurred last week, there could have been some shifting of freight to truck. But because of existing service issues, some ACC members were already putting additional cars on the network to maintain deliveries.
Said Benedict: “The truth of the matter is, there’s only so much storage at our facilities, and there’s only so many options” besides rail not just to move feedstocks such as crude oil in, but to move products and byproducts, such as butane, asphalt and sulfur, out.
Shippers also said they would continue to press Congress and the Surface Transportation Board (STB) to make reforms that could improve rail service, such as the bill in the U.S. House of Representatives reauthorizing STB and bestowing greater regulatory power on it.
Whether the remaining unions will ratify their tentative agreements is yet to be seen. On one hand, union leadership worked hard to reach a deal that could pass muster among union members, according to sources. Union leaders are expected to work to educate members the next several weeks on what the agreements would mean for their paychecks and benefits.
But on the other hand, there are members, many of whom are on social media, who contend that the agreements don’t go far enough in addressing the sick leave and attendance policies of the Class I railroads, which they view as punitive because union members felt they were getting punished for taking sick days. They could reject the agreements, as the International Association of Machinists and Aerospace Workers (IAM) did last week.
If the contracts are rejected, the unions may seek further negotiations with the railroads, as IAM is doing. But another unknown is whether the railroads would be willing to negotiate further, given their actions during the negotiations process and their dedication to PSR.
A new labor deal for union members has been in the works since January 2020, but negotiations between the unions and the railroads failed to progress. A federal mediation board took up the negotiations but released the parties from those efforts earlier this summer.
The Presidential Emergency Board — a three-person panel appointed by President Joe Biden that convened in July and August to come up with ways that the unions and railroads could resolve the impasse — issued recommendations last month. The recommendations were meant to serve as a jumping-off point for a new contract.
Almost all of the dozen unions reached tentative agreements with railroad representatives in recent weeks, but two of the biggest unions — the Brotherhood of Locomotive Engineers and Trainmen (BLET) and the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART-TD) — were deep into negotiations over issues regarding the railroads’ attendance policies, which they viewed as punitive and too restrictive.
Both BLET and SMART-TD said last Thursday that they finally reached a tentative agreement with the railroads, and that agreement will be sent to union members in the coming weeks for approval.
The Association of American Railroads estimated that a strike would have cost the U.S. economy as much as $2 billion a day. Shippers lobbied Congress to ensure that the tentative labor deals were reached to prevent a strike.