Commentary
The Surface Transportation Board (STB) is furious with four of the nation’s largest freight railroads for their lackadaisical approach to the board’s orders requiring them to supply performance data reports and service improvement plans, and provide evidence that they are willing to take action to meet recovery goals. But even if the board levels the fines it has threatened them with, will it make any difference in the railroad managements’ attitude and behavior?
“We are in the middle of a rail service crisis and the board continues to receive reports about persistent, acute and dramatic problems in rail transportation, disrupting critical supply chains and shutting down companies,” observed STB chairman Martin Oberman in the board’s June 13 public statement criticizing four of the major rail lines.
“The freight rail industry is currently struggling to provide adequate rail service, yet the service recovery plans we received are woefully deficient and do not comport with the spirit or the letter of the board’s order,” Oberman said. He also complained that the four railroads had submitted plans “that were perfunctory and lacked the level of detail that was mandated by the board’s order.”
Hearings that were held earlier this year by the STB and Congress laid bare a rail system that is in almost total disarray. The most recent revelations include a threat posed to the fall elections because of the railroads’ failure to deliver paper used for ballots in sufficient time, as well as a mounting threat of starvation for dairy cattle and other livestock because of the disruption of feed shipments.
Much of the blame for these service failures has been placed on the major railroads implementing extreme cost cutting—including firing tens of thousands of workers, who cannot be easily or quickly replaced, and then burning out the remaining staff with overwork.
There is almost no corner of the economy that has not been impacted by rail service failures, including agricultural commodities, fertilizers and chemicals used for everything from the production of drinking water to fuel. The railroads’ top executives blamed the COVID-19 pandemic, but the one Class 1 U.S. railroad that refused to embrace the extreme cost-cutting model—Kansas City Southern—is so well positioned it has even offered to lend some of its crews to railroads that were left short-staffed by their massive layoffs.
The STB responded to these revelations and mounting complaints from rail customers by ordering the railroads to file regular performance report data reports along with detailed action plans outlining how they intend to return to acceptable levels of service. The railroads who found themselves under the gun are BNSF Railway Co., CSX Transportation Inc., Norfolk Southern Railway and Union Pacific Railroad.
It was these railroads’ failure to turn in acceptable data and detailed plans that has outraged the members of the STB. “The plans simply failed to instill confidence that the carriers have a serious approach to fixing a problem caused by their own lack of preparedness to respond to external shocks and fluctuations in demand, including especially short-sighted management of labor forces and other resources,” Oberman charged.
What Can Be Done?
“While the railroads must always comply with board orders, it is particularly disturbing that the railroads failed to comply with the order requiring them to file adequate service recovery plans. Under circumstances where service is not meeting customers’ needs, this is not too much to ask from highly sophisticated companies with important public responsibilities,” Oberman added.
He said the plans that were submitted generally omitted important information needed to assure the board and rail industry stakeholders that the largest railroads “are addressing their deficiencies and have a clear and measurable trajectory for doing so.” Of particular concern, he noted, was the fact that UP and NSR flatly refused to provide the six-month targets for achieving their performance goals that were explicitly required by the board’s order.
Given the strength of the reaction by the chairman and other board members, the next question inevitably arises: What is the appropriate response by the agency if the railroads fail to address the deficiencies in their submitted plans as they have been ordered?
The STB chairman also made a point of informing the railroads’ management that their companies could face fines if they continue to fail the responsibilities in this regard. “I had expected a better response from the carriers to the board’s previous order, and now with more explicit instructions, which should not have been needed, there will be no excuse for continued lack of compliance.”
Obviously, the STB hopes that its threatened fines will work. However, this prospect seems unlikely when you consider that failure to comply could lead to the imposition of fines of up to $8,736 per day. This may sound mighty impressive until you realize that it amounts to a grand total of $3,188,640 over a 365-day year (including both business and nonbusiness days).
Quite simply, this amounts to little more than chump change for these giant corporations. For 2021, BNSF’s annual revenue totaled $23.3 billion, Union Pacific’s was $23.5 billion, CSX’s $12.5 billion, and Norfolk Southern’s $11.14 billion. Each company probably could pay the fines out of petty cash.
But it is hard to see what else can be done to break their addiction to the extreme cost-cutting model called Precision Scheduled Railroading, which I once described (with apologies to Voltaire) as being neither precise, nor scheduled, nor railroading.
There is no appetite in Congress for returning to the old days of Interstate Commerce Commission-style economic regulation of railroads. Powerful House Transportation Committee chairman Pete DeFazio (D-Ore.) took time at the beginning of a hearing on the railroad crisis to shoot down my proffered idea of adopting a public utilities commission approach to rail regulation (and he didn’t even bother to mention my name!). My latest suggestion is to look at changing the fiduciary duty of rail corporate leadership from being totally focused on maximizing shareholder financial returns to include a duty for railroads to adhere to their common carrier obligation. This has been greeted with total silence, but if anyone has a better idea, I would love to hear it.
