After five long years of the nation’s freight railroads exploiting its customers and damaging the economy in adherence to a totally unreasonable operations model designed only to enrich its shareholders, the nation appears to have finally woken up to just how bad the resulting service deterioration has been and continues to be.
All it took was the threat of a nationwide strike by the industry’s unionized workers during the Christmas shopping season to finally gain the attention of the public about the terrible damage PSR has wrought. As the 18th Century English writer Samuel Johnson once put it so aptly, the knowledge that one is going to be hanged in the morning tends to concentrate the mind most wonderfully.
The public and most policymakers were shocked to learn that the threatened strike had nothing to do with wages but instead arose from workers being overworked because PSR drove management to gut the workforce before the Covid 19 pandemic began and cut it again after it started. Even when demand and traffic picked up, the railroads did not rehire staff, meaning more work for those who remained.
In the spring of 2022, hearings that were held by a congressional committee and the Surface Transportation Board revealed the extent of the damage that was continuing to be done by the adherence of most Class 1 railroads to an extreme cost cutting operations model called Precision Scheduled Railroading (PSR).
As a result of massive personnel cuts, railroads became so understaffed that they instituted punitive attendance policies and restricted sick leave to such an extent that it became the main reason for many of the workers rejection of a collective bargaining agreement their leaders had signed off on after President Biden intervened last September.
In early December, Congress passed and the President signed legislation compelling that the unions whose workers had rejected the proposed agreement accept it anyway.
Major news organizations that had virtually ignored alarming deterioration of rail services over the past five years suddenly woke up and began reporting on how shockingly bad it rail service had become.
Just before the end of 2022, the major rail unions also petitioned the President to issue an executive order that would compel the railroads to institute the kind of sick leave policy the workers had demanded earlier in the process.
In mid-December the STB held another two days of hearings where shipper witnesses vividly described the persisting service failures and the economic destruction wrought by PSR. It was made evident how little had changed since last year when the board ordered the railroads take immediate actions to improve their services and were ordered to file regular reports with the board on their progress.
The result was not pretty. The major railroads filed incomplete and inadequate reports that failed to provide some of the most basic data required by the board’s directive, causing STB Chairman Martin J. Oberman to threaten them for not doing so.
The failure of the railroads to comply with the STB’s orders could lead to the imposition of fines of up to $8,736 per day. That can add up to more than $3 million a year, which should not be too daunting for companies that in some cases are making annual revenues of tens of billions of dollars. (UP revenues in 2021 were $23.5 billion). Proposed legislation would raise those fines.
Railroads have more to fear from other legislative reforms that could arise in Congress. Separate legislation was introduced in the House and Senate last year to strengthen the STB’s role in regulating railroads, but it was only supported by a handful of Democrat representatives and Senators.
Although several Republican Senators backed legislation that would have granted the unions the sick leave terms they sought in the most recent contract negotiations, it is not known how they will react to these proposals in Congress this year.
Some shippers and the unions are calling for Congress to give the STB power to strongly reassert the primacy of the common carrier obligation that has been embodied in federal law regulating the railroads since the 19th Century.
UP in the Cross Hairs
In particular trouble was Union Pacific, which was singled out for service embargoes and the inadequacy of its reports, particularly in regard to staffing levels at the STB hearing two weeks ago.
The board pointed out that UP carries nearly 27% of the nation’s freight served by rail and is responsible for almost 11% of all long-distance freight volume.
In the board’s cross hairs was the railroad’s controversial practice of imposing far more service embargoes than it would if it had not implemented the PSR cost-cutting model. Under an embargo, trains are stopped completely while a railroad works to undo existing congestion on its lines. UP has resorted to embargoes more frequently than is viewed as reasonable because its implementation of PSR also meant large scale mothballing rolling stock along with slashing staff.
“Unfortunately, UP’s failure to fully respond to the [STB’s data reporting] order has hindered the board in its efforts to understand this increase in the use of embargoes, and their causes and impacts,” Oberman declared.
The STB discovered that while UP called only five embargos due to congestion on its lines in 2017, last year the railroad imposed more than 1,000 by the time the hearing took place.
At the hearing, Jeff Sloan, the American Chemistry Council senior director of regulatory affairs, said, “Embargoes disrupt operations, impose significant costs on rail customers, and prolong the nation’s supply chain problems. And they are yet another manifestation of the chronic service failures that have plagued the U.S. rail network for more than two years.”
Sloan cited the case of one ACC member who was unable to deliver chemicals needed to make gasoline, while another witness said one of his firm’s assembly lines was shut down for days due to an embargo.
Tony Cardwell, president of the Brotherhood of Maintenance of Way Employees union, added, “There’s an alarming trend out here that should be taken note of the supply chain is going to continue to suffer with the operating systems in place.”
In a letter to Oberman, UP Chief Executive Officer Lance Fritz said, “We are taking a hard look at our use of congestion-related embargoes. To facilitate that hard look, we are immediately pausing any additional embargoes under the pipeline inventory management program we began in November.”
The heat on UP was so intense that a day after the hearing ended, the company announced that it was pausing the embargo practice for the time being.
At the STB hearing, ACC’s Sloan also echoed previous policy changes sought by shippers. These include establishing permanent reporting requirements that would reveal how well major railroads are delivering service to their customers.
Shippers also want the board to institute minimum standards for the delivery of efficient, timely and reliable rail service, as well as complete long-overdue rules for improving access to competitive rail service through the imposition of reciprocal switching, long opposed by the railroads.
