The rail industry on track despite post-pandemic challenges

ORLANDO, FLA. — The global pandemic may be over, but the rail industry is still managing challenges to the supply chain. Leaders from the six Class I North American railroads participated in a panel discussion March 17 at the 128th annual National Grain and Feed Association (NGFA) conference in Orlando to review current issues and supportive opportunities they are juggling in the post-pandemic environment. Max Fisher, chief economist and treasurer of the NGFA, led the round-robin type discussion.

Fisher began by asking the panel to provide a year-over-year comparison of their ag freight business, assessing the prior year’s activities and what they’re forecasting in 2024. Macro factors like interest rates, shipping disruptions in the Red Sea and diminishing grain exports were issues for all the carriers. Some were having great success with coal exports and intermodal transit. But overall, the carriers acknowledged the lingering freight recession in 2024, saying they were prepared to re-engage when freight comes back to rail.  

Jim Wilson, marketing director for Norfolk Southern (NS), said the record US corn harvest last year kept trains busy in the final two quarters of 2023, with some of the activity bleeding over into the first few months of 2024. But one of the major issues coming into play this year for NS is recent efforts of activist investor Ancora Holdings Group to take over NS’s board with the intention of scraping the carrier’s 2022-implemented strategy of prioritizing service over profits and refocusing the company’s efforts back to maximizing profits.  

Ted Johnson, marketing director for agriculture and food at CSX, said the prior nine months have been rather limited on the grain traffic front, especially due to the record crops in Brazil pressuring US exports.

“We’re hoping 2024 will cycle some of these ag lows, but they’re persisting a little bit into this year, so we expect probably until May or June for our grain shipments to be a little soft,” Johnson said.

Jared Farmer, managing director of grain sales for Canadian Pacific Kansas City (CPKC), said the biggest difference between this year and last year was adjusting to servicing three countries following the merger of Canadian Pacific Railway and Kansas City Southern on April 14, 2023.

“We’re seeing shippers test the new network and starting to see traffic move in different ways and using routes they haven’t used before, so we’re staying busy and expect to be busy in 2024,” Farmer said.

Angela Caddell, group vice president of agricultural products at BNSF Railway, said BNSF’s grain volume movements have increased by double digits compared with the same period a year ago. Caddell credited the increase to labor strike resolutions along the West Coast allowing West Coast traffic to re-engage in their network.

Fisher next asked the panel about their post-pandemic efforts to recruit and sustain train and engine employees. Ryan Raess, general director of grain for Union Pacific, and Caddell of BNSF both said their railroads recently have hired thousands of new train and engine employees to rebuild their labor pool. Caddell said BNSF was still actively hiring.

Johnson of CSX said one recruitment measure they’ve adopted is to pay 100% of the new hire’s salary during training instead of the 75% to 80% they previously administered, mainly as an incentive to the new hire to follow through and complete the training process.

“It’s a tough lifestyle,” Johnson said. “For every 100 people we put through training, we may get 20 people that last six months and have some staying power.”

Neither two Canadian carriers, CPKC and Canadian National Railway (CN), furloughed their employees during the pandemic and both utilized an hourly pay agreement, which allowed train and engine employees to transition to other tasks for additional pay and gave them better control of their schedules.

“Our people have known on and off day patterns, and that’s meant a lot to them because it helps them plan their lives, and it’s helped us in managing our workforce,” said David Przednowek, assistant vice president of grain at CN.

When asked about the current state of the supply chain, all panel participants agreed there was some normalization happening compared to the frantic backlog of the pandemic. But they were still managing post-pandemic and supply-disruptive challenges.

“Since the pandemic, there have been labor disputes, disruptions on the Suez and low water on the Panama Canal, fires in Canada, so there have been a number of disruptions to the supply chain that we’ve all had to deal with as railroads over the last couple of years,” Farmer said.  

Many of the carriers were investing in technology to help enhance their efficiencies while supporting safety goals.

“Our automated track inspection program is a big deal,” Przednowek said, explaining that the system was basically a box car filled with “a bunch of gizmos” that can identify rail defects at track speed rather than closing a section of the line down so an employee in a high rail can safely survey for defects. “It’s helped us identify a heck of a lot of deficiencies before they become a bigger problem. And if you fix them before they become a bigger problem, you’re going to avoid a mainline disruption or some other disruption of that nature.”   

Several of the carriers mentioned investing in RailPulse, a telematics platform that instantly provides data from GPS and railcar-mounted sensors.

“We were very frustrated not just with CSX’s platform but with the entire industry’s way of doing things as far as tracking and tracing,” Johnson said, sharing how the carrier’s newly minted chief operating officer a couple of years ago was shocked to learn that he couldn’t track the company’s rail cars like consumers can track Amazon deliveries.

“RailPulse is putting the industry on a common platform,” Wilson said. “The sensors on cars allow people to see where the cars are, see whether gates are open, if hand breaks are on, whether they’re loaded or empty.”

A final point of discussion for the panel was the rise in state-level policies aimed at rail industries. All participants expressed concern about the impacts these policies may have on costs, rail capacity and the potential long-term consequences on the railroad industry. One item specifically mentioned by the carriers was the proposed legislation in several states on train length.

“Train sizes have gotten longer over the past couple of decades, and it improves the reliability for our customer, especially exports,” Farmer said.

“Even if you’re not doing business in these states, if you traverse it, it’s potentially impactful,” Caddell said, adding “These train lengths are arbitrary. There isn’t any data and science that ties shorter train length to safety, so our concern certainly is that it’s taking capacity away that both we and our customers have invested in to be as efficient and low cost as possible.”

Caddell also talked about the in-use locomotive rule proposed by the California Air Resources Board, which will require any locomotive older than 23 years that wants to operate in California to be decommissioned and replaced with a zero-emission (battery-operated) locomotive by 2030. The rule also will require carriers to annually fund a California trust until they can transition to zero-emission locomotives.

“BNSF’s contribution to a California trust annually would require around $800 million,” Caddell said. “Our entire capital is just shy of 4 billion.”

Wilson added, “Railroads operate on an interstate basis, and things get difficult if you have a patchwork of laws and regulations out there. We don’t want to see an accident. We don’t want to see a derailment because it’s way too disruptive. It’s bad for the employee, it’s bad for you as the customer and it’s bad for the industry we serve. So, we operate with the idea of not having those situations. But state specific laws could be very expensive and less effective and may force you to choose modes that are less safe and also less environmentally friendly.”

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