Good news: Freight railroads are not on strike. Bad News: The Service Is Still Terrible

Many of the problems of complicating the supply chain, rising prices and slowing the economy can be traced back to the steady decline in freight rail service in recent years. Even the railroads themselves acknowledge that the country’s current freight service is a problem, mainly due to the low calls to pick up or drop off freight cars, the routine, prolonged delays and general unreliability that plagues the industry. It is, say its critics and customers.

“Railroads understands that service is not at the level customers expect or deserve,” the Association of American Railroads said in a statement last week. Aggressive measures are underway for this.” industry group.

“Union Pacific is well aware of our customers’ concerns, and we have taken aggressive measures to address them,” said in a statement one of the four major railroads, which collectively handle 90% of the nation’s rail freight. Huh. UP, AAR and other major railroads all say they are working hard to find the staff they need. And many say the figures show an improvement in service levels even before all new employees arrive.

But many business groups are complaining about poor service, including longer transit times and fewer trips by railroads to return freight or empty cars to businesses that service them.

“It looks like things are getting worse,” said Geoff Cooper, CEO of the Renewable Fuels Association. “The bottom line is – if you’re an ethanol producer, you cross your fingers and hope everything goes smoothly because this is an industry that’s really at the mercy of the railroads.”

Last week’s labor deal “shines a spotlight on how important the rail industry is to a lot of supply chains,” said Rob Benedict, vice president of American Fuel and Petrochemical Manufacturers, a trade group that represents the nation’s refineries. . “We are glad they resolved the issue. But we have been shouting from above the roof for the last five years how much service has declined.”

Here's How Important Freight Railroads Are to the US Economy

A recent survey conducted by Benedict’s trade group on its members found that all respondents have experienced delays or delays in rail shipments for three days or more. One member mentioned that at the time he completed his survey, he had over 350 cars that were delaying transit for more than 72 hours.

Many businesses that rely on rail are reluctant to speak publicly about the problems, even though they are on record voicing their concerns to railroad regulators. Businesses have few options but to try to keep the relationship with the railroad as smooth as possible. But their trade unions are less reluctant to speak publicly.

“I have been told by many of our members that this has been the worst rail service year in their careers. Some for 30 years or more,” Max Fischer, chief economist and treasurer of the National Grain and Feed Association, told CNN Business.

long wait now ideal

The biggest concerns are the reduction in service calls that railroads make for freight, and the time taken to deliver the goods. And since rail cars are mostly owned by customers, there are growing concerns about returning those empty cars so that they can be loaded with goods once again.

According to the Renewable Fuels Association, the ethanol industry ships about 400,000 carloads a year. But trains carrying ethanol are sitting idle 30% more than a year ago and 40% more than before the pandemic, Cooper said.

Rail delays are also a major part of the problem, with freight flowing through the Port of Los Angeles and the neighboring Port of Long Beach, the major entry point for shipping containers from Asia.

As of Monday, 26,376 containers were sitting at the docks at the Port of Los Angeles destined for the railroad. This is almost three times higher than the average day before the pandemic.

Of those, about two-thirds have been there for nine days or longer.

putting profit ahead of service

The problems before the pandemic date back a long time. According to Pete Swan, professor of logistics and operations management at Penn State, statistics show that rail service is much worse than at the beginning of this century, and has gotten particularly bad during the past five years.

“The focus of rail management is on maximizing payout to shareholders and their return on assets, not quality of service,” Swan said. “The trouble we’re having now is that there is no incentive to provide good service. There are too many incentives to damage the service and reduce costs.”

Profits are definitely increasing. union pacific ,UNP,, Norfolk Southern ,NSC, And Berkshire Hathaway ,BRKA, Burlington Northern Santa Fe all reported record earnings in 2021.

Rail customers basically have no substitute for the products they ship. Trucking has its own constraints and service issues, and cannot competitively move the volume of goods over the distances that can be borne by rail.

And many rail customers are known in the industry as “captive shippers,” companies that are served by only one railroad and cannot negotiate rates between different providers.

Swan said it’s unlikely any other business could survive if they were providing the same poor quality service as railroads.

“And what business has the monopoly power that the railroads do?” They said.

Call for regulation and punishment

This is one reason many business groups are pushing for stricter regulation and penalties on railroads that cause delays or service problems.

“We are all for free market solutions, but it is not a free market,” Benedict said. “That’s why you need a government backstop.”

The hearing has been held to consider penalties for poor service by the Surface Transport Board, one of the federal regulators of railways. There is a law before Congress too. Not surprisingly, railroads argue that this is the wrong solution.

“Today’s temporary service challenges in no way justify a face-off on market-based principles, bringing the industry back from the brink and providing the safest, most efficient freight rail service in the world,” the AAR statement said. paves the way for it.”

The industry argues that the STB and the proposals before Congress “will have far-reaching, negative effects on the efficiency of the freight rail network, but combined they will be disastrous for long-term US rail service, reliability and investment.”

But while railroads are fighting over rules and regulations, there is widespread support for increased regulation among the rest of the business community in the quest for better service.

Chris Jahn, CEO of the American Chemistry Council, a trade group representing the American chemical industry, said, “The railroads are very efficient at Washington’s inner game, which is why these conditions have lasted so long. But I think the tide has turned. ” , “The fact that Congress and the Surface Transportation Board have more work to do to solve freight rail problems continues to put the brakes on the US economy and exacerbate the supply chain crisis.”

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