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Rails and regulators battle publicly over service issues

The spring meeting of the North East Association of Rail Shippers (NEARS) saw three Class I railroads seeking to persuade rail shippers and other stakeholders that they are working hard to improve rail service.

For instance, the Class I railroads all told rail shippers that they are taking aggressive steps to increase their ranks of train and engine crews so that they have the capacity to meet demand. Absences due to the COVID-19 pandemic exacerbated service issues, they said at the gathering last week in Baltimore.

The Surface Transportation Board doesn’t appear convinced. At the same time this meeting was underway, the STB announced that it will conduct a two-day public hearing in late April to gather testimony not only from the railroads but other stakeholders, including shippers and even unions, over whether deteriorating rail service stems from deeper issues related to precision scheduled railroading (PSR), an approach that seeks to streamline operations.

Indeed, service metrics have fallen in 2022 compared with other years, according to FreightWaves SONAR data. Weekly average train speeds of the Class I railroads in 2022 are down from 2021 and 2020, although rail traffic was much lighter in 2020 due in part to the quarantine restrictions at the onset of the pandemic.

A comparison of the weekly average train speeds for U.S. operations of the Class I railroads over three years. (FreightWaves SONAR) To learn more about FreightWaves SONAR, click here.

Meanwhile, terminal dwell has increased year-over-year, meaning that trains are spending more time at rail terminals compared with previous years.

The rail terminal dwell time system average is a weekly average. It tells how many hours a railcar may reside at the largest 10 terminals. It excludes cars on run-through trains. (FreightWaves SONAR)

These service metrics and wider service-related issues are why event panelist Chesapeake Speciality Products, a small, Maryland-based abrasives supplier, no longer ships via intermodal rail. The delays, as well as damages to goods during transport and a lack of communication over why railcars hauling the company’s goods have been located in remote cities, stymie the industry as well as the company’s ability to utilize the Class I rail network fully, said Chesapeake Specialty Products CEO Kenneth Sanchez at the conference.

“I love rail. I just want to fix it so we can use it more and more,” Sanchez said. He also praised working with his short line operator.

Class I railroads defend response to service issues

A perfect storm of employee absences related to COVID-19 — not just in the freight rail industry but also in the warehouse and distribution channels — combined with supply chain congestion and robust consumer demand during and after the height of the pandemic were among the factors that affected the railroads’ ability to respond to rising service demands.

“CSX’s operating teams are working hard to get our merchandise performance measures back to the record levels that we achieved prior to the pandemic. We’re investing in our people, our network and our customer service platform to further improve service and expand capacity,” said Farrukh Bezar, senior vice president of marketing for CSX (NASDAQ: CSX).

The railroads presenting at the NEARS conference sought to show how they are responding to service concerns, as well describe how they perceive the future market environment.

Bezar told the NEARS audience that CSX has been aggressively adding employees to its mechanical department and to its ranks of conductors and engineers. The company has also been offering existing employees bonuses and incentives to improve conductor availability. 

“There’s no denying that the fluidity across the entire supply chain is not very good right now. And no matter what mode of transportation you’re looking at, we’re facing the same challenges as everyone else,” Bezar said. “We’ve been working closely with our customers to reduce container dwell, to maintain terminal fluidity.”

Despite recent service hiccups, there have been a number of initiatives that could benefit rail shippers, including the Carolina Connector intermodal transportation facility in Rocky Mount, North Carolina, a public-private partnership between CSX and North Carolina that opened in November. CSX connects the Rocky Mount facility to the deepwater seaport in Wilmington, North Carolina, as well as other East Coast ports.

Another initiative is CSX Greenway, a premium door-to-door service between Florida, Georgia and the Northeast using refrigerated trailers.

CSX’s proposed acquisition of Pan Am Railways would also provide shippers with access up and down the East Coast and through New England, according to Bezar.

Internally, CSX is seeking to revamp regional sales teams, leverage real estate teams and align the operating team closer to the sales and marketing teams, Bezar stated. CSX is also developing a company culture plan that seeks to align management and union members with a unified vision for the company.

Jacque Bendon, vice president for industrial for Union Pacific (NYSE: UNP) told NEARS attendees that it is looking at growth opportunities post-PSR. These opportunities entail further increasing car cycle times to free up terminal capacity; conducting network extensions through transloading in places such as Phoenix and Los Angeles; building out UP’s network to short line operators and expanding intermodal options through pop-up yards; and investing in capital improvement projects such as siding extensions, additional railcars and technological investments.

The railroad is also changing its hiring practices to find qualified applicants and expanding its benefits program as part of a wider goal to have the manpower to meet capacity needs.

“We are learning more from our customers about what is really important to them,” Bendon said.

Meanwhile, in Norfolk Southern’s (NYSE: NSC) presentation, Chief Marketing Officer Ed Elkins pointed to how global market dynamics changed so abruptly and unexpectedly as a result of the pandemic. 

“There is now a real and sustained recognition of supply chain risk. … We’ve all spent the last two years understanding how that risk manifests itself, whether it’s that you don’t have any toilet paper when you go to the store or you can’t find the critical part for your industrial manufacturing facility,” Elkins said.

“This risk will go away over time, people will go back to a just-in-time model at some point. But I think for the foreseeable future, we’ve seen this sort of partial unwinding of this just-in-time mentality. And it really is manifesting itself as ways to mitigate that now-recognized risk,” he continued.

To that end, companies are seeking to simplify supply chains and considering onshoring, which in turn will lead to investments in warehousing and technology, as well as a potential return of manufacturing to North America.

“As businesses move supplies closer to manufacturing and inventories closer to the customer, rail-served industrial development is a real engine to growth,” Elkins said, noting that NS’ pipeline of projects is the longest list the company has had in the past 10 years. “We’ve seen an extraordinary amount of interest in new developments, not only in warehouses, but also in manufacturing.”

One example of a recent industrial development project is a frac sand transload terminal that began operations earlier this year in Pennsylvania. The terminal is a unit train-capable facility and serves the southwest portion of the Marcellus shale in Pennsylvania. 

For potential intermodal users, the Thoroughbred Freight Transfer seeks to reach out to customers that aren’t connected to the railroad in a traditional sense but could still benefit from rail transport. The service includes adding truck and cross-dock options to closed-car rail transport, according to NS’ website.

Elkins also said it has been offering hiring and retention bonuses, increasing the size of its conductor classes, as well as utilizing small teams of mobile employees that can move around the network.

“I’ve never seen the amount of disruption that there is out there in terms of wildly swinging demand, and a tremendous amount of smart people [are] trying to figure it out,” Elkins said. “That being said, I will tell you that Norfolk Southern is working on fixing our service. It really is a resource problem for us.” 

Regulators want railroads to address service concerns

The campaigns by the Class I railroads aimed at reassuring customers come as STB said last week that it will hold a public hearing on April 26 and 27 on recent rail service problems and recovery efforts. 

The board has been receiving comments from groups such as the National Grain and Feed Association in recent weeks over subpar rail service, while the rail unions and congressional leaders have raised concerns over the attendance policies of the Class I railroads.

STB is asking executive-level officials of BNSF (NYSE: BRK.B), CSX, NS and Union Pacific to appear, while leaders of Canadian railway CN (NYSE: CNI), Canadian Pacific (NYSE: CP) and Kansas City Southern are invited to participate.

Also invited are other carriers, rail customers, labor organizations and other interested parties. 

The timing of the hearing comes right in the middle of the Class I railroads’ earnings season, when companies report their financial results to investors.

CSX and UP are reporting their first-quarter 2022 earrings on April 20 and April 21, respectively, while NS will report its first-quarter earnings on April 27. CN and CP will report first-quarter 2022 results on April 26 and April 27, respectively.

STB said it was holding the hearing in response to comments from stakeholders, including the U.S. Department of Agriculture, about inconsistent and unreliable rail service. 

STB Chairman Marty Oberman noted that the Class I railroads have been trimming their workforce in recent years amid efforts to deploy PSR. The Class I railroads collectively have reduced their workforce by 29%, or 45,000 employees, over the past six years, Oberman pointed out.

“In my view, all of this has directly contributed to where we are today — rail users experiencing serious deteriorations in rail service because, on too many parts of their networks, the railroads simply do not have a sufficient number of employees,” Oberman said.

“This hearing is not just about where we are but also about where we are going. The board expects the railroads to explain the actions they will take to fix these issues. The board will also consider stakeholder views on how it can use its authority — including measures to address emergencies, increase transparency and promote reliable service — to ameliorate problems on the network.”

The hearing will be held both in person at STB’s headquarters in Washington and online. Those wishing to speak must submit a notice to participate by Thursday. Written comments will be accepted through April 22. 

This isn’t the first time that STB has sought answers from the Class I railroads over service issues. The board wanted the railroads to explain several times how they were responding to supply chain congestion issues last summer, and it has engaged with individual railroads such as CSX and NS over service disruptions.

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Click here for more FreightWaves articles by Joanna Marsh.