The Surface Transportation Board’s regulatory to-do list, train crew sizes and merger conditions related to Canadian Pacific’s acquisition of Kansas City Southern are just some of the big issues that rail industry stakeholders will be watching in 2023.
One of the biggest issues that the U.S. freight industry will tackle is how to improve rail service. Closely related to that are the potential actions that STB could take to address that issue.
“After being dormant for much of the last decade, the board has several large cases before it, including private railcar demurrage, reciprocal switching, [as well as] the carriers’ use of embargoes to meter traffic and essentially skirt the common carrier obligation,” said Todd Tranausky, vice president of rail and intermodal for consulting firm FTR Transportation Intelligence. “This board really likes the idea of fairness and that will lead them to be active.”
STB’s proceeding on reciprocal switching, Ex Parte 711, could be decided and resolved in 2023, Tranausky added. Reciprocal switching occurs when a shipper has access to one freight railroad but seeks access to a nearby competing freight railroad to cultivate a competitive pricing environment. A shipper gains that access at an interchange between the two railroads.
Meanwhile, the railroads will be eager to show how they’ve improved service metrics since last spring’s service meltdown. That could be a theme discussed during the Class I railroads’ fourth-quarter 2022 earnings calls starting in mid to late January.
“As an industry, we’ve been talking about service for two years now and it is unlikely to stop anytime soon. We’ve gotten back to historical average levels recently, but that is not going to be enough to impress shippers to bring volume back to the rails,” Tranausky said.
“Service has certainly been in the crosshairs of the STB and taken some of the momentum out of their other priorities while they try to sort out the service issue. The service issues also allow the board to see a reason for needing to get involved in some of the other areas they are looking at,” he said.
Another issue that could arise in 2023 involves STB itself as a regulatory body. Both shippers and some unions are pressing Congress to pass legislation that would give the board more regulatory authority.
Shippers and unions also want Congress to revise the common carrier obligation, which is the federal mandate requiring the railroads to carry freight at reasonable terms. Advocates for revising the definition argue that it would better define what service metrics the railroads need to meet. Legislation to revise the definition could come through part of STB’s reauthorization and/or as an independent bill.
One shipper said STB’s recent hearing on Union Pacific’s use of embargoes showed the need for the common carrier obligation to be revised since shippers at the hearing said they thought the embargoes were leading to a violation of mandate.
“The STB needs additional statutory authority to address today’s freight rail shipping market conditions more effectively,” the shipper said. “A goal of the Staggers Act was to restore financial stability to the U.S. rail system. By all accounts, this goal has been achieved. However, another goal of the Staggers Act was to foster reliable service at competitive rates, which has not materialized due to several factors, mostly due to the lack of railroad-to-railroad competition.”
Employee head count and quality-of-life issues are other themes that could be big in 2023. These themes can be broken down even further.
On one level, the railroads will need to have adequate staffing to ensure that their networks have enough elasticity to handle both market downturns and upturns. This includes finding alternatives to furloughing as well as continued hiring and retention efforts.
Dealing with the STB and rail service is “in the carriers’ best interest” because “it is through better service and stronger volumes that carriers will be able to achieve higher pricing power coupled with a shipper willingness to actually pay those rate increases,” Tranausky said. “Shippers have always said they are willing to pay more for consistency, and the rub has almost always occurred because railroads haven’t been able to provide that consistent service while still insisting on rate increases.”
On another level, shippers are concerned that the 24% retroactive pay raise that was established in the recently concluded collective bargaining round between the unions and the railroads will be passed onto shippers even though shippers contend that the railroads can pay for those costs.
Shippers are also skeptical that the freight railroads will be able to fully staff their crews, and they are watching how the labor situation involving West Coast ports and dockworkers might play out since those dockworkers have been working without a contract since July 1.
Meanwhile, the unions are anticipating the final rule on train crew sizes to come out in 2023.
Union members want to maintain having a locomotive engineer and train conductor inside the locomotive cab. Freight railroads want the ability to explore alternative arrangements where a conductor would be based on the ground; doing so could help with future recruiting efforts, the railroads argue.
The implementation of safety and management plans, including fatigue management plans, is another issue that the unions are watching in 2023. The Federal Railroad Administration in June mandated that the Class I railroads, Amtrak and commuter railroads include fatigue risk management plans as part of their larger system safety and risk reduction programs.
“All of that stuff, while it’s not going to be super flashy, makes a difference in terms of practical day-to-day life of railroaders,” said Greg Regan, president of the Transportation Trades Department of the AFL-CIO.
The unions will also seek to reform the industry through working with congressional leaders, Regan said.
One other issue that stakeholders will be watching is the outcome of the proposed merger between Canadian Pacific (NYSE: CP) and Kansas City Southern. Observers expect STB to approve the merger, although shippers and the other Class I railroads are watching what conditions the board might give CP and KCS, including whether those conditions will address concerns about congestion in Chicago and Houston. CP has said it expects STB to render its decision sometime in the first quarter of 2023.
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