Worley Blog

A RECIPE FOR REGULATION

Posted on: April 29th, 2022 by Clifford F. Lynch

For the past three years, we have either heard and read about or experienced reduced levels of service in the trucking industry. Missed and delayed shipments have worked hardships on many firms and consumers. Many of the service deficiencies have been blamed on the pandemic, but in the motor carrier industry, a shortage of over-the-road drivers and the resulting service issues have been a continuing problem. Because of the impact, the so-called supply chain crisis has had on all of us, both industry and the Federal Government are attempting to attract new drivers through recruiting, education, training, and compensation. Despite everyone’s best efforts however, this promises to be an uphill battle.

One supply chain issue we have heard less about is the ongoing difficulties rail shippers are having. To them, their issues are just as important as those of truck shippers, if not more so.

Like the motor carriers, railroads, for the most part, were deregulated in 1980; and the Interstate Commerce Commission (ICC) which had administered the regulations was abolished in 1995. On January 1, 1996, the Surface Transportation Board (STB) was established to assume some of the remaining functions of the ICC. This board now handles any complaints about rail rates and service. And there have been many.

Shippers and receivers have been plagued with delays in, or missed switching, late shipments, lack of equipment, and other operational issues. The situation has gotten so bad Congress directed the STB to investigate; and this week, there is a public hearing on “STB Docket No. EP770-Urgent Issues in Rail Service”. Summoned to appear are executive-level operating and human resource officials of the BNSF, Norfolk Southern, Union Pacific, and CSX Transportation. Other carriers are invited, as well; but these four are the ones that have generated the most complaints. Interested shippers and receivers will be in attendance, and several will offer testimony.

Crew shortages, including those caused by the pandemic, have been blamed for many of the shortcomings, but most customers and rail employees attribute the issues to the implementation of Precision Scheduled Railroading (PSR). PSR was introduced several years ago at the Canadian Pacific by the late Hunter Harrison, a well-known and talented rail executive. It was so successful there that Harrison moved on to install it at the Canadian National, and then CSX. Since then, it has been adopted in total or in part, by most of the Class I carriers. **

Exactly what is Precision Scheduled Railroading? According to a publication of the Canadian Pacific, it is a philosophy of constant monitoring and optimization of every asset throughout the entire organization. It is built on five foundations: improving customer service, controlling costs, optimizing asset utilization, operating safely, and valuing and developing employees.” One of its hallmarks is scheduled to train departures, in the past, railroads held their trains until they were completely full. Under the PSR model, trains leave at a scheduled time even if they have capacity available. In that regard, the freight movements would not be unlike Amtrak or a scheduled airline. While this business model has resulted in unprecedented profits for the railroads, it appears that it has left many unhappy customers in its wake, particularly at CSX.

The STB has been monitoring the performance of the Class 1 carriers and has concluded that the problems must be addressed. According to the STB Hearing Notice, “the data validate the anecdotal information reported to the Board, and many key performance indicators such as system average train speed and average number of trains holding per day suggests performance is below historical norms.”

In announcing this week’s hearing, Chairman Martin Oberman was a little more direct. He said, “During my time on the Board, I have raised concerns about the primacy Class 1 railroads have placed on lowering their operating ratios and satisfying their shareholders even at the cost of their customers. Part of that strategy has involved cutting their work force to the bare bones in order to reduce costs. Over the past 6 years, the Class1s collectively have reduced their workforce by 29% – that is about 45,000 employees cut from the payrolls. In my view, all of this has directly contributed to where we are today – rail users experiencing serious deterioration in rail service because, on too many parts of their networks, the railroads do not have a sufficient number of employees.”

Hopefully, regardless of the issues, the STB will approach the problems objectively.

Several firms and associations have filed statements. I have read several of them, and most mention PSR as the root cause of the problems. A number of Class 1 railroad engineers have filed statements, alleging unfair and unreasonable personnel policies and operations orders that are “unfriendly” to customers. One interesting rule mentioned was one that requires trains, upon reaching 40 mph to throttle back, even though the speed limit may be 70 mph. This saves fuel, but delays trains. Another complaint involved late additions to trains, requiring an additional locomotive when none was available. No doubt, rebuttal evidence will be presented by the rail carriers; and we will learn more about their positions. Even so, it appears that a number of the operational and employee complaints are legitimate.

Few in the industry want more government oversight, but it is interesting to reflect on the fact that this was exactly the kind of environment that led to the 1887 regulation of rail carriers

**Class 1 rail carriers are the BNSF, Canadian National, Canadian Pacific, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific.