A Tipping Point for Freight Rail Misconduct?

by Sean Jeans-Gail

Several of our members reached out this week to share a YouTube video called “The One Tiny Law That Keeps Amtrak Terrible” by Wendover Productions. It’s a concise and accurate summary of the structural problems that allow freight railroads to delay Amtrak passengers and obstruct new frequencies and passenger train services.

Rail Passengers has written about this issue many times (many, many, many times), but it’s nice to see these facts summed up in an easy-to-digest video on a channel with a large following (one million views and counting!).

However, there are a few important omissions in the video, primarily the fight to give teeth to Amtrak’s right of preferential dispatching. Amtrak, Rail Passengers, and other stakeholders have been fighting for over a decade to implement the Metrics & Standards for intercity passenger rail service passed by Congress in 2008. After an extended legal battle that went all the way to the Supreme Court, these Metrics & Standards are now in place. Just last month, Amtrak filed a complaint before the Surface Transportation Board (STB) over Union Pacific’s illegal treatment of the Sunset Limited. America's passengers finally have a test case!

You can read Rail Passengers’ analysis of why the Sunset was chosen, and why this will be an important piece of the puzzle in changing the incentive structure that allows freight railroads to treat Amtrak passengers so poorly. (NB: The Metrics & Standards law enables the STB to levy fines, but Class 1s have paid out $196 billion in stock buybacks and dividends to shareholders since 2010. That's a lot of money, and these fines won’t be of a sufficient size to act as a silver bullet. They will need to be part of a larger regulatory response to host railroad dispatching practices.)

Train Magazine columnist Bill Stephens uses this STB filing as an entry point into investigating what went wrong at Union Pacific (UP) in his bluntly titled piece “Union Pacific has lost its way: Analysis”. Stephens uses UP as a case study to build on the argument being made in the Wendover video:

The primary culprit, Amtrak claims, is UP’s practice of running freights that don’t fit in passing sidings. When the Sunset gets behind a long train that can’t make track speed, there’s nowhere to overtake the no-fitter. And so the Sunset plods along, getting later and later despite a schedule that has more padding than a sumo wrestler.

If Amtrak trains are the canary in the freight railroads’ coal mine, they’re giving plenty of warning about the state of UP’s overall operations and the service it provides.

Yes, like the other three big U.S. railroads, UP has experienced crew shortages, as it’s become harder to hire conductors amid the tightest job market in decades. But CEO Lance Fritz admits UP was already running too lean when crew shortages cropped up. So when harsh winter weather raked the railroad in early 2022, UP coagulated and never fully recovered.

Stephens goes further, arguing that the bill has come due on all UP's deferred maintenance, route-cutting, and rounds of layoffs:

So it shouldn’t be a surprise that running an overly lean railroad has backfired. It costs more to run an under-resourced sluggish railroad with a high recrew rate and unpredictable service. Plus, revenue is lost when traffic is diverted to trucks. Customers complain to regulators. And regulators demand answers. UP is caught in a vicious circle, not the virtuous circle railroads need to grow and prosper over the long term.

Paterson puts it this way: “If UP is unable to stabilize service over the next few years, the end game will be more share losses to BNSF, no deceleration in share losses to trucks, more pushback from price-fatigued captive shippers culminating in greater re-regulation risk … and a stock that’s little more than a no-growth buyback and dividend yield play. That’s not Building America and nobody wants that, including presumably UP management.”

In a separate Trains’ piece by Stephens this week, he spotlights a more positive model for running a railroad. In an analysis of Norfolk Southern CEO Alan Shaw’s December presentation to investors, Stephens describes an operational model the looks to — gasp! — grow business by shedding U.S. railroads' obsession with cost-cutting and operating ratios:

“Our traditional approaches for dealing with business cycles — by furloughing temporarily surplus employees and tightening other spending when demand falls off — did not work well,” Shaw says. “When the time came to rebuild our ranks as freight transportation demand returned, we were unable to rehire quickly enough to operate fluidly. Today, we are still recovering from the disruption of the pandemic. Our service has turned the corner, but we are not yet at our desired level of staffing, or at the level of service that our customers expect.”

The Class I railroads get caught short of crews every three or four years. In the short term, this creates congestion, increases costs, and means railroads can’t handle all the freight that wants to move on rail.

The velocity of Norfolk Southern’s network drops when it’s congested due to crew shortages.

“In the long term, these disruptions have eroded the confidence customers need to have if they are going to structurally rely on rail instead of highways,” Shaw says. “A company can’t expect to provide sustainable growth if it provides its customers with a lousy service product every three years.”

Bravo to NS, and we hope the conclusions Shaw outlined make their way to the C-suites at other Class 1s.

But hoping won’t be enough. Rail Passengers is going to continue to educate the public on the role Class 1 freight railroads are playing in blocking passenger service and the havoc their corporate strategy is wreaking across the U.S. (and not just for passengers, e.g., “Chickens, Turkeys at Risk of Starving as Rail Shipments Run Late”).

We’re also heartened that the STB is playing a more active role in exercising its duty to provide regulatory oversight to the industry. Chair Marty Oberman recently called out UP for their horrible operations, saying their service recovery plan was “by far the worst of all Carriers and reflected an attitude of indifference” to their legal obligations to customers.

In the end, it’s not “one little law,” as the video argues. There’s a whole regulatory apparatus in place that exists to keep passengers and shippers from getting screwed by freight railroads; we just forgot how to use it. It’s time for this generation of government officials to re-learn how to use these laws to protect everyday Americans.