Opinion: We’ve come full circle

David C. Lester

During the 1970s, the railroad industry as a whole was struggling. Some thought nationalization was imminent, and rail service was generally in the toilet.

Fifty years later, after Staggers, huge mergers, massive technology and physical plant investments, big new or remodeled headquarters buildings, strong financial performance, and PSR, rail service has returned to the toilet. Recognition of this by shippers and the federal government resulted in Surface Transportation Board hearings on April 26-27, entitled “STB Hearing on Urgent Issues in Freight Rail Service.” Regulators, shippers, and railroads gathered for these two days to listen to shippers tell horror stories about how poor rail service had cost them millions of dollars.

Hearing transcripts and videos are available on the web, but my colleague Frank Wilner, Railway Age’s man in Washington, offered some highlights in a recent piece on the hearing: “The American Farm Bureau Federation reported unfilled grain car orders up 47%. The Fertilizer Institute said a railroad told customers to ‘curtail’ shipments, menacing maximum crop yields owing to a short window for fertilizer application. Ranchers said they are ‘depopulating’ (killing?) herds owing to feed shortages. Increases in dwell time (cars not moving), said a witness, elevates storage fees even when the customer has ‘no control’ over the delay. A municipality said its water supply system is dangerously short of chlorine. A shipper said a car destined for Galesburg, Ill., was detoured to Nashville to alleviate carrier congestion, arriving in Galesburg 33 days late.” What a mess.

After this airing of grievances during the hearing, the STB directed the railroads to develop and submit service recovery plans “that would specifically describe their key remedial initiatives and promote a clearer vantage point into operating conditions on the rail network.”

I’ve read the four reports; unfortunately, they appeared to have been written by Harvey Milquetoast.

The STB was not happy and ordered the four railroads “to provide additional information on their actions to improve service and communications with their customers and additional detailed information to demonstrate their monthly progress in increasing the size of their workforces to levels needed to provide reliable rail service.”

There were similar stories from other shippers, but too many to discuss here. One observer said that he had never seen the service situation this bad in thirty years of railroading. And, it is bad. It’s a fact that freight railroads are the lifeblood of much of our economy. And, except for intermodal freight, many of the products carried by rail are not topics for household discussion. Fertilizer? Chlorine? Feed for herds of cattle? Certainly not things we have on the tip of our brains that kick off red signals when we hear about poor rail service. What is the government (i.e., the STB) supposed to do when they hear these horror stories? Sit back, relax, and say, “oh, it’ll get better?”

I believe the STB is on the right track, despite the Association of American Railroads’ concerns such as its assertion that there is no explanation by the STB around how it will use requested information. While the AAR may have a point, I believe the level of crisis warrants giving the STB a relatively free hand at gathering data from which it can draw actionable conclusions. Moreover, with the seriousness of the situation, I was surprised to hear the AAR point out the need for STB data, “[to] undergo a Paperwork Reduction Act analysis.” So, let’s sit around and perform a paperwork reduction analysis while shippers lose business and rot.

While the pandemic had some impact, I believe our current situation is primarily the result of the industry having Precision Scheduled Railroading (PSR) thrown back in its face. Power storage? Worker layoffs? Sound familiar? With PSR, roads had planned to create super railroads, running efficiently with minimal crews, minimal locomotives, and three-mile-long trains that would cut expenses to the point where shareholders would fawn over the company’s impressively low operating ratio and load their pockets with short-term profits from rising stock prices.

Power and worker shortages have put the rail industry behind the 8-ball, and the economy is suffering for it. I’ve written in this space before that the stakeholders of most significant companies include the customers, employees, the communities in which they operate, and the shareholders. Over the past several years, the excessive attention paid to shareholder value has left the other three significant stakeholders in a lurch.

While some believe the STB is overstepping its bounds and placing an unnecessary burden on the railroads, I disagree. Indeed, the longer it takes for the Class 1s to get their acts together, the more we will hear now distant thunder around the possibility of re-regulation of railroading. Class 1 leadership needs to study the history books on railroading in the 1970s and read about how the Interstate Commerce Commission regulation left the railroads to wither on the vine and some to die on the vine. The rail industry is in a much better position now to meet the needs of all stakeholders and has a bright future ahead if it can get back on track. Otherwise, railroad service will remain in the toilet, and the industry will haul a smaller percentage of the nation’s freight than it does today.

Read more stories about Class 1 railroads.

For brief news updates and commentary, please follow me on Twitter @davidclesterRTS.