The good news: the freight railroads are not on strike. The bad news: the service is still terrible


Many of the problems disrupting the supply chain, raising prices and slowing the economy can be attributed to the steady decline in freight rail service in recent years. Even the railroads themselves admit that the nation’s current freight service is a problem, mainly due to fewer calls to pick up or drop off freight cars, routines, long delays and unreliability that plague the industry, critics and customers say.

“The railroads understand that service is not at the level customers expect or deserve. Aggressive measures are underway to put in place the right plans, people and equipment to improve service and reliability,” the American Railroads Association said last week in the trade. industry group

“Union Pacific is acutely aware of our customers’ concerns, and we have taken aggressive steps to address them,” said a statement from one of the four major railroads, which collectively handle 90 percent of the nation’s rail freight. UP, AAR and other major railways say they are working hard to find the workers they need. And many say the statistics show that service levels are improving even before all the new staff are brought in.

But many business groups are complaining about poor service, including longer transit times and fewer trips on the railroads to pick up goods or return empty cars to the companies servicing them.

“It looks like things just keep getting worse,” said Geoff Cooper, chief executive of the Renewable Fuels Association. “The bottom line is, if you’re an ethanol producer, you cross your fingers and hope everything works out because this is a really railroad-dependent industry.”

Last week’s labor agreement “highlighted the importance of the rail industry to many supply chains,” said Rob Benedict, vice president of the American Fuel & Petrochemical Manufacturers, a trade group that represents the nation’s refiners. “We’re glad they’ve fixed this problem. But we’ve been shouting from the rooftops for the last five years about how the service has declined.”

In a recent survey of its members by Benedict’s trade group, all respondents reported that rail shipments were delayed or delayed by three days or more. One member stated that at the time of completing the survey, there were more than 350 cars delayed for more than 72 hours.

Many rail-dependent businesses are reluctant to talk publicly about the problems, even if they are on the record raising concerns with rail regulators. Companies have little alternative but to try to maintain relationships with the railroads as best as possible. But their trade associations are less willing to speak publicly.

“” Many of our members have told me that this has been the worst year of train service in their history. Some have been around for 30 years or more,” Max Fisher, chief economist and treasurer of the National Grain and Feed Association, told CNN Business.

Long waits are now the norm

The biggest concern is the reduction in service calls made by the railways to pick up freight and the time it takes to deliver goods. And since the railcars themselves are mostly owned by customers, there is a growing concern about returning those empty cars so they can be filled with freight again.

The ethanol industry fuels nearly 400,000 cars a year, according to the Renewable Fuels Association. But trains carrying ethanol are stopping 30 percent more than a year ago, and 40 percent more since the pandemic, Cooper said.

Train delays are also a major part of the freight flow problem at the Port of Los Angeles and the neighboring Port of Long Beach, the main entry points for shipping containers from Asia.

There were 26,376 containers sitting on docks at the Port of Los Angeles destined for rail as of Monday. That’s roughly three times more than a day before the pandemic.

Of these, almost two-thirds have been there for nine days or more.

Putting profit before service

The problems predate the pandemic. Statistics show that rail service is much worse than it was at the beginning of this century, and has gotten particularly worse in the last five years, according to Pete Swan, a professor of Logistics and Operations Management at Penn State.

“Railway management has been focused on maximizing shareholder receipts and return on assets, not quality of service,” Swan said. “What’s gotten us into trouble now is that there’s no incentive to provide good service. There’s a lot of incentive to make services suffer and cut costs.”

Profits are definitely up. Union Pacific (UNP), Norfolk South (NSC) and of Berkshire Hathaway (BRKA) Burlington Northern Santa Fe had a record win in 2021.

For rail customers, there is essentially no alternative for the products they ship. Trucking has its own shortcomings and service issues, and it cannot competitively move the volume of goods over the distance covered by rail.

And many rail customers are what are known in the industry as “captive shippers,” companies served by only one railroad and unable to negotiate rates between different suppliers.

Swan said it was unlikely there would be any other businesses left if the railways provided poor service quality.

“What other business has the monopoly power that railroads have?” he said

Regulations and calls for penalties

That’s because some business groups are pushing for stricter regulation and penalties on railroads that cause delays or service problems.

“We’re all for free market solutions, but this is not a free market,” Benedict said. “That’s why you need government protection.”

The Surface Transportation Commission, one of the federal railroad regulators, has held hearings to consider penalties for poor service. There is also legislation before Congress. Not surprisingly, the railroads say it’s the wrong solution.

“Today’s temporary service challenges in no way justify compromising the market-based principles that brought the industry back from the brink and paved the way for the world’s safest and most efficient freight rail service,” the AAR statement said.

The industry argues that the proposals before STB and Congress “would have negative impacts on the efficiency of the freight rail network, but combined would be devastating to long-term U.S. rail service, reliability and investment.”

But while railroads are fighting the rules and legislation, increased regulation has broad support among much of the rest of the business community seeking better service.

“Railroads are very adept at the insider game in Washington, which is why these conditions have persisted for so long. But I think the tide has turned,” said Chris Jahn, CEO of the American Chemistry Council, a trade group that represents the US chemical industry. . “In fact, Congress and the Surface Transportation Commission have more work to do to resolve the freight rail issues that continue to hold back the U.S. economy and prolong the supply chain crisis.”