© Christopher Rawlins rail US
© Christopher Rawlins

North American rail operators have been accused by shipper organisations of putting Wall Street analysts before customers.

Shippers are frustrated by poor service and tight capacity and blame the Class One rail companies of scrimping on investment for the sake of higher profits.

A shipper survey, published by investment banking firm Cowen & Co, shows widespread dissatisfaction with the performance of the large US and Canadian rail firms.

More than half the respondents rated the service levels of CSX, Norfolk Southern, Canadian National and Canadian Pacific “fair” or “poor”, and 47% found Union Pacific’s service fair or poor.

The rail industry has acknowledged there are problems. According to the American Association of Railroads, rail speed slowed 4% during the winter, resulting in containers piling up in the Midwest, south-east and the mid-southern US.

Some shipper organisations have taken their frustration over rail service and insufficient capacity to Washington. The National Grain & Feed Association (NGFA) and Alliance of Automobile Manufacturers wrote to the Surface Transportation Board (STB) complaining of the “severe degradation of rail service”.

The NGFA lists the shortcomings of individual operators, which range from “significant delays” of 8-10 days, misrouted cars and switching problems, to trains sitting idle for up to two weeks waiting for locomotives.

The NGFA expressed concern that the underlying root cause of the service problems lay in the Class One rail firms’ “aggressive effort to reduce their operating ratios to impress Wall Street investors and shareholders”, which resulted in the “systemic shedding of resources”, which has “degraded service to unacceptable levels” and “resulted in virtually non-existent surge capacity to meet rail customers’ needs”.

Their protest caused the STB to send letters to the CEOs of the Class One rail companies requesting information about locomotive availability and purchase plans, labour resources, local service performance, demand projections, capacity constraints and initiatives to proactively communicate with shippers about service issues.

For their part, the rail operators have blamed severe winter conditions for the deterioration of their services. Some also pointed to investment in new rail equipment, but shippers are not convinced.

 

According to the Cowen survey, 65% of shippers are concerned about the rail companies’ ability to take on additional freight. In December, only 45% had such worries, and a year ago, the number was 30%.

Given the constraints on trucking in the US, shippers would welcome the opportunity to move more of their traffic by rail. Cowen found that three out of four shippers would be willing to shift up to 5% of their volumes to intermodal rail – if the service were reliable.

Apparently many feel they have no choice. The Intermodal Association of North America registered a 7.5% increase in domestic container and trailer volumes in March. In the first quarter, domestic container volume was up 6.2% while trailer loads increased 14.5% on a year earlier.

The high levels of demand mean that rail operators find themselves in a sellers’ market. The CASS intermodal index continued its upward momentum with a 5.8% rise in March, and no relief is in sight for shippers.

Cowen and CASS both predict further price increases in the coming months. Cowen’s survey found that shippers expect an increase of 3.8% in intermodal rates during the next 6-12 months.

Under these circumstances, rail operators feel little pressure to make investments to beef up their service. Shippers feel they have to pay more for less.

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  • [email protected]

    May 18, 2018 at 4:26 pm

    One of the “benefits” of deregulation, you can’t really complain about hang nails any longer and get a quick and positive response. Thousands of miles of track abandoned, many, many locations deleted (more coming). They are running a business, not a public utility. They cater to the large shippers, who were the real impetus behind deregulation, but on a pure business basis. Do they care more about Wall Street than they do their customers? How are they paid (top management). Profitability and stock price. Mr. Buffet didn’t buy a railroad because he was philanthropic.