Getting US rail shipments back on track 

There have been recent ructions for US rail freight but with strike action averted and rate hikes under scrutiny, the industry now needs to focus on better allocating capacity for returning vehicle volumes. Hazel Southwell and Marcus Williams report

Rail is the main mode of transport for finished vehicles over long distances in the US and 75% of finished vehicles are moved on it. The rail industry is also heavily involved in the movement of inbound material and parts. It is also the most sustainable way of moving volumes of freight on land. A shipper can already move one ton of freight 480 miles on one gallon of diesel fuel. In addition, rail cars are completely recyclable.

The US rail freight sector is operated by seven Class I railroads: BNSF Railway, Canadian National Railway, Canadian Pacific, CSX Transportation, Kansas City Southern Railway. Norfolk Southern and Union Pacific Railroad. However, Canadian Pacific and Kansas City Southern Railway are in the process of a merger, expected to be complete by the end of this year. The rail freight network is also served by 22 regional and 584 short line railroads. Together the sector is worth almost $80 billion, according to the Federal Railroad Administration.

However, the rail network in the US has been under significant pressure and market share is declining.

Canadian Pacific is joining forces with Kansas City Southern in a merger announced last year

Vehicle shipments by rail have been hit by staff shortages and threatened by strike action. There are also concerns that the US rail freight market is monopolised by those seven Class 1 railroads and they are focusing on profits above services and capacity for shippers, as well as neglecting pay and conditions for workers.

The issue of declining marketing share does not arise from an overall lack of railcar capacity across the US. There are plenty of railcars in storage ready to move the recovering volume of vehicles being manufactured in the US. In the last decade the rail industry has added more than 20,000 railcars to the fleet, investing a significant amount in new automotive capacity. Yet there is still a squeeze on capacity because of shortages in the type of rail cars needed to transport the more popular bigger and heavier vehicles. The car industry has seen a significant shift toward larger vehicles, which must be transported in bi-level railcars, and away from smaller vehicles that can be moved in tri-level railcars.

Providers of rail freight services take longer to adjust to market changes and have not always been quick to keep up with fluctuations in demand, something that reached a new level over the disruption caused by the pandemic. Rail companies need to continue their investments in equipment and facilities, especially given the rise in electric vehicles sales, another major change in the market.

In the last decade the rail industry has added more than 20,000 railcars to the fleet in North America

Strike averted

Poor pay and conditions were exacerbating a staffing problem that got worse over the Covid pandemic with an exodus of staff. Rail freight workers had first asked for a pay rise back in 2019 and by August this year unions representing them were on the verge of network-wide strike. That would have cost the US economy $2 billion a day, according to the Association of American Railroads (AAR). The situation forced the Presidential Emergency Board (PEB), which mediates disputes, to submit recommendations for a deal. The railroads negotiated a deal, through their National Carriers’ Conference Committee (NCCC), with unions representing 60,000 workers.

The new deal provides rail employees with a 24% wage increase over a five-year period from 2020 to 2024, including an immediate average pay out of $11,000.

In a statement Joe Biden issued in September, he said the tentative agreement was a win for the economy and for tens of thousands of rail workers.

“These rail workers will get better pay, improved working conditions, and peace of mind around their healthcare costs: all hard-earned,” said the US President. “The agreement is also a victory for railway companies who will be able to retain and recruit more workers for an industry that will continue to be part of the backbone of the American economy for decades to come.”

Fighting for a fair market 

Helping to avoid strike action is not the only way the US government has recently got involved with the rail freight sector in the US. In August this year a US governmental subcommittee responded to the poor service levels by introducing legislation designed to “create a fair marketplace” for Class 1 freight railroads and the companies using them. The Freight Rail Shipping Fair Market Act aims to authorise the Surface Transportation Board (STB), which is responsible for economic regulation of the various modes of transport in the US, with powers to control the railroads.

Donald Payne, chair of the Subcommittee on Railroads, Pipelines, and Hazardous Materials

According to Donald Payne, chair of the Subcommittee on Railroads, Pipelines, and Hazardous Materials, freight rail companies have “focused on profits instead of performance”, which has led to delays and problems in how goods are transported across the country.

“My bill gives the [STB] the power to prohibit rail rate increases during a rail emergency and resolve rail emergencies when they occur,” said Payne at the time the bill was published. “This bill will improve the speed and reliability of rail service[s] and guarantee that freight rail shipping continues to improve in the future without unnecessary regulations.”

Extended powers 
The AAR expressed its opposition to the act stating it would replace fairer, free market competition with over-regulation. It also said that the mandated studies and concerns proposed in the bill were already actively under investigation by the STB.

AAR president and CEO, Ian Jefferies, called the act an “impudent proposal” that turned the clock back “more than 40 years” and introduced heavy-handed government mandates. Jefferies pointed to the $760 billion invested in freight railroads since the industry was partially deregulated in 1980, with the Staggers Act.

“Overreaching re-regulation will take us backward and won’t do a thing to solve current service challenges and supply chain problems,” Jefferies warned policy makers.

The prioritised items in the act give more funding and extended influence to the STB. In particular, there are powers to prevent rate increases during periods of high demand and to force railroads to ensure there is sufficient capacity to meet that demand.

Furthermore, the STB will be given the ability to declare a rail service emergency and thus freeze rail rate increases until the end of the emergency period. The STB will also be able to require railroads to have adequate equipment, track and personnel whenever it determines that there are urgent freight rail problems.

Railroads, private car owners and lessees would all have to report how much demurrage they have charged, on a quarterly basis, to the STB. This is part of a plan to even the way that companies, in particular private rail car owners, are able to charge premiums when there is high demand for rail freight services.

President and CEO of the Association of American Railroads, Ian Jefferies

Funding for studies
The funding offered by the act is quite small: $256m over five years. Of that, 5% needs to be reserved for passenger rail activities and job creation, while at least $2m, over the first two years needs to be used on funding studies into the environmental benefits of rail freight and passenger services, and into how rail fits into supply chains.

One of those studies will look into competition in the US freight railroad industry and will be carried out by the STB.

The STB is also required to review what is listed as exempt commodities one year after the act is brought in and every ten years thereafter. Exempt commodities would be those considered to have such a competitive market that there was no need for the STB to regulate how they were charged to freight.

A subsequent report is required into the viability, safety and regulatory challenges of implementing a GPS and telemetry system for rail cars, with details of what cargo is where in the network. In principle, the system gives shippers the ability to track their own cargo. That report will be prepared in collaboration with the Federal Rail Administration and the Department of Homeland Security.

Caramakers need to collaborate and work with rail providers on better network optimisation

Two additional studies are directed at the National Academies of Sciences, Engineering and Medicine and in the US. One of them will look into the environmental benefits of rail freight and passenger services, and how the STB can incentivise the industry to improve those environmental benefits further. The other is into supply chain data constraints that could be preventing full, holistic awareness of freight delays and ways to improve the flow of rail freight.

One other way that could be improved is through better coordination in the planning of vehicle shipments by US carmakers, who tend not to work together on levelling flows between their facilities and the rail ramps. That in turn, however, depends on better network optimisation of the vehicle delivery process and a reassessment of the strategic location of those rail ramps in North America.

Rail workers will get better pay, improved working conditions and peace of mind around their health care costs: all hard-earned 

Joe Biden, US president

My bill gives the [STB] the power to prohibit rail rate increases during a rail emergency and resolve rail emergencies when they occur 

Donald Payne, Subcommittee on Railroads, Pipelines, and Hazardous Materials

Overreaching re-regulation will take us backward and won’t do a thing to solve current service challenges and supply chain problems 

Ian Jefferies, Association of American Railroads