Union Pacific Corp., CSX Corp. and other big U.S. railroads that slimmed down to please investors are now facing customers angered by poor service and workers worn out by a relentless drive for efficiency.
The conflict is expected to come to a head at a two-day hearing of the Surface Transportation Board, where shippers and rail employees will lay out their grievances. The in-person meeting begins Tuesday in Washington and will be streamed online.
“This board is the most activist ever that I’ve seen,” said Tony Hatch, a former longtime Wall Street analyst who started his own railroad consultancy. “This board and this chairman are much more vocal.”
Traffic snarls on the rails have contributed to supply-chain breakdowns for a range of businesses. At the same time, railroad executives blame the Covid-19 pandemic for labor shortages and logistical challenges. But some workers and customers say a long-term focus on wringing out costs has been more harmful.
Publicly traded railroads have showered Wall Street with billions of dollars in share buybacks and dividends in recent years. The payouts have been driven in part by a management strategy known as Precision Scheduled Railroading, which was adopted to reduce costs and preserve profits by streamlining the switching of railcars.
The shift to precision scheduling—often associated with the influential late CSX Chief Executive Officer Hunter Harrison—resulted in reductions of rail yards, equipment and workers. While the steps produced savings and lifted profit margins for railroads, customers say they were left paying more for shoddier service.
“Precision scheduling, far from its intended result of increasing efficiency, has created total communication breakdowns,” the Sweetener Users Association said in a letter to the Surface Transportation Board.
Blame Game
Shippers plan to make the case at the hearing that service degradations drive up costs, hurt sales and affect their operations. The testimony could help persuade regulators to streamline rate disputes and allow shippers to compel a railroad to switch freight to a competing rail when feasible, an issue the board has taken up this year.
Railroad executives say that the pandemic is to blame for derailing service, not precision scheduling.
“Pointing at PSR as our problem is just not correct,” said Lance Fritz, CEO of Union Pacific, the largest publicly traded railroad, in an interview. “Even though we’re congested right now, we’re operating better than we did when we were congested prior to PSR.”
Union Pacific has been able to move the same amount of freight or more with 25% fewer locomotives and railcars, Fritz said. At the height of the pandemic, as many as 900 employees a day were out sick, wreaking havoc on service, he said. That’s now down to as few as 50 a day.
Hiring Struggles
Railroads have struggled to hire as the spirit of the Great Resignation swept across the U.S., Jim Foote, CEO of CSX, said in an interview.
Foote also said that railroads could once count on experienced furloughed workers to bolster their ranks when needed. That pool dried up in the pandemic, and railroads ran into difficulty enticing candidates even with union wages and benefits.
“We’re going to manage the workforce differently to make sure, with the ebbs and flows of this business, which is always the case, that we do it in a different manner so we don’t caught short like we just did,” said Foote, adding that on-time railcar deliveries were at a high for CSX in 2019.
Labor leaders say the drive for efficiency has pushed workers away. Precision scheduling made the job much worse and that’s why companies are struggling to hire, said Jeremy Ferguson, president of the transportation division of the Sheet Metal, Air, Rail and Transportation Workers. Employees are being asked to do more as their colleagues are terminated, and they’re expected to be available around the clock with no set schedule, he said.
“Railroads workers are just being worn out from doing more for what is turning out to be less, financially and personally,” Ferguson said. “We’re seeing people up and leave the industry, walking away from the security of a railroad pension they’ve put into for 10 or 15 years because they are just ground down.”
Falling Short
Precision scheduling was supposed to increase carload volume and help railroads take business away from trucks—and even help the environment, since trains are as much as four times more fuel efficient than big rigs.
Instead, average carloads for U.S. railroads have dropped slightly from a decade ago, while profits have soared.
The Concerned Shippers Alliance, which represents lumber, paper, bulk goods and construction-material shippers, said in a letter submitted for the hearing that trains are running slow and railcars are stuck in yards, causing its members to lose sales and pay more for trucks. The root cause is precision scheduling, the group said.
“For the past several years, the freight railroads have voluntarily eviscerated and emaciated their respective workforces,” according to the letter. The effect, the group said, has been akin to “in a manner most closely analogous to a pack of hyenas devouring a wildebeest.”
