Client anger as US Class I railways report huge earnings despite poor service
Results from three of the top four US Class I railways for the past year ...
The US Surface Transportation Board (STB) is getting impatient with the large rail carriers and has issued a ‘notice of proposed rule-making’ in a bid to speed up solutions to service delays.
According to the agency, part of the proposal is to make it clear that the STB has the authority to direct emergency rail services and establish a faster process to deal with acute service emergencies.
“The existing emergency rules are too cumbersome to be of use to shippers in need of immediate relief,” said STB chairman Martin Oberman.
The move is an immediate reaction to a recent deterioration of service. Terminal operators at the port complex of Los Angeles and Long Beach have complained about lengthening container dwell times on docks, because of insufficient rail cars, locomotives and rail staff.
“In recent weeks the rail service has become more unreliable, with most stakeholder concerns focusing on crew shortages and the inability to move trains,” the STB noted, adding that this had led to a litany of headaches for shippers.
But Mr Oberman has criticised the rail carriers for some time about their service levels. He said: “The rail service challenges shippers are experiencing are amplified by certain recent conditions, but are not new.”
In November, he said: “Shippers view service as more unreliable,” explaining they had been informed at short notice about service patterns being reduced from five to three days, or between weekdays and weekends, with “switches being missed, affecting their operations and manufacturing processes”.
Train speeds are also down. According to the Association of American Railroads, UP intermodal trains moved 2.1% slower than last year, while CSX’s intermodal trains were 6.9% off the pace.
The STB has summoned the top brass from UP, BNSF, CSX, Norfolk Southern, Kansas City Southern and the two Canadian Class I carriers to hearings this week to discuss the service problems.
Senior management at UP acknowledged a deterioration of service in an earnings call last Thursday, after presenting record results for the first quarter.
“Operationally we did not meet expectations, which is having an impact on our customers,” admitted CEO Lance Fritz. “We recognise that for growth to be sustainable, we need a reliable and consistent service product our customers can depend upon.”
He blamed the problems on insufficient train, engine and yard employees to meet demand. The company did not have enough resources to cope with adverse winter conditions in February, which led to a build-up of inventory and customers putting more railcars on the networks to cover their needs, he said.
In CSX’s earnings call last Wednesday, CEO Jim Foote also laid the blame squarely on lack of staff, saying: “We need more people in the engineer and conductor ranks.”
Mr Oberman concurs on the issue of labour shortages, but blames these – in part at least – on the rail carriers’ drive for precision railroading (PSR) in recent years. This bid to reduce costs by streamlining the switching of railcars, resulted in fewer rail yards, equipment and workers, while boosting profit margins.
Mr Obermann accused the rail carriers of operating with “bare bones” work forces after shedding 45,000 staff over six years.
Some shippers that vented their frustration over rail services in submissions to the STB have also laid the blame on precision railroading. In a letter to the STB for this week’s hearing, the Concerned Shipper Alliance complained its members were losing sales and paying more for trucking, as trains were running slow and railcars were stuck in yards. Precision railroading is the root cause of these problems, they claim.
Rail executives differ, arguing that precision railroading was helping them manage service recovery efforts more efficiently.
“Unequivocally, PSR has been a benefit to the railroad,” Mr Fritz argued in the investor call. “It means we try to touch cars the fewest number of times necessary to satisfy demand for our customers. That by itself allows us to have excess capacity.”
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