Employed as: APE, for 10-20 years
Posted: 10 September 2021
CHICAGO — Surface Transportation Board Chairman Martin J. Oberman
stepped up his criticism of Class I railroads on Wednesday, saying the
industry’s drive for ever-increasing profits resulted in a loss of
market share to trucks over the past 15 years and is restraining growth
Rail rates fell by 27% between 1985 and 2004, as railroads’ improved
productivity largely benefitted shippers, Oberman told the North
American Rail Shippers conference. “But that happy combination came to
an end beginning in roughly 2004,” he says, noting that rail traffic
peaked in 2006, or in 2002 when coal is excluded from the tally.
“In the last 15 years, since 2006, our economy has grown by more than
50% — nearly $8 trillion of enhanced economic activity,” Oberman says.
“And yet railroads are carrying less freight today than they were in
2006 while rates have gone up. There just might be a connection.”
If railroads had simply hung on to their market share since 2002, there
would be nearly a million fewer truckloads on highways each year,
Oberman says. The shift of freight from rail to truck also resulted in
123 million tons of additional carbon dioxide emissions that cause
climate change, he says.
“This pattern simply cannot be allowed to continue,” Oberman says.
Railroads talk about growth and service improvements that make them
better competitors against trucks, Oberman says. “The railroads’
emphasis has not been on growth,” he says. “Rather the emphasis has
been on cutting in pursuit of the almighty [operating ratio] down to
To satisfy Wall Street demands for lower operating ratios, or O.R.s,
the Class I railroads have cut their workforces by 25% in recent years,
which Oberman says makes it difficult to provide more reliable service
and recover from disruptions like extreme weather events. It’s also led
to railroads demarketing certain types of traffic, he contends.
“It is clear that as a whole, railroads have foregone many kinds of
carloads that they could carry profitably, only not at O.R.s as low as
55%, and instead have focused only on the most profitable traffic,”
Oberman says. “No one is asking the railroads to focus on traffic that
would only be carried at a loss. But surely it is not asking too much
for railroads to actively seek profitable traffic, even if not as
profitable as others.”
Oberman says Wall Street’s influence has put shareholder interests
above those of other key railroad stakeholders, including customers,
employees, and the public. And he was critical of railroad stock
buyback programs and dividends that have put more money in shareholders
pockets than into maintaining and expanding the rail network.
In the last decade, Oberman notes, the five U.S.-based Class I
railroads have returned $191 billion to their owners while spending
$138 billion on capital expenses. “That’s all well and good for the
owners,” Oberman says. “But where would rail customers, rail workers,
and the public be if a meaningful portion of that $191 billion had been
reinvested in expanding service and making service more predictable,
reliable and on time? Clearly we would have more freight moved, more
quickly, and at lower rates. We would have more employment with better
working conditions. And the public would be better served with a boost
to the economy, lower consumer prices, and far cleaner air and safer
and better conditioned highways.”
All of this could be accomplished, Oberman contends, while still
providing good returns for rail investors.
The STB is considering a number of regulatory reforms, including
reciprocal switching; making it easier for shippers to challenge rates;
asking railroads to provide data on local service; expanding regulation
to several commodities that are currently exempt from board review; and
Amtrak access to host railroads.
The board must recognize today’s economic trends and respond
accordingly to ensure a healthy rail system, Oberman says.
“It bears repeating that 2021 is not 1980,” Oberman says, referring to
the year when the rail industry was largely deregulated with the
passage of the Staggers Act. “And responding to the STB’s current role
in the system by merely invoking the Staggers Act does not advance the
discussion. The railroad industry of today is far cry from the railroad
industry of 1980.”
Railroads Push Back
Union Pacific CEO Lance Fritz (Trains: David Lassen)
Union Pacific CEO Lance Fritz, who addressed the conference in his role
as chairman of the Association of American Railroads, says the
regulatory framework of the past four decades has produced a freight
rail system that is the envy of the world due to its efficiency,
safety, and service.
“The STB really needs to worry about not implementing wholesale changes
that would compromise our ability to continue that investment that
enables that kind of service,” Fritz says.
The top concern with the STB’s agenda, Fritz says, is calls for
reciprocal switching, which allows sole-served shippers to access
another nearby railroad if they are not satisfied with their carrier’s
service and rates. Reciprocal switching might save a few shippers
money, Fritz says, but it would hurt service for all customers by
creating congestion. It also would reduce a railroad’s incentive to
make capital investments when maintenance and improvements would
benefit the competing railroad, he says.
The STB is considering removing regulatory exemptions for several
truck-competitive commodities, including rock, scrap metal, and even
intermodal traffic. “When the STB starts thinking like they’ve got to
do something where competition exists, that becomes problematic for the
industry,” Fritz says.
Also a blip on the railroads’ radar: Expanding Amtrak access and
holding host railroads accountable for passenger train on-time
“In many of our schedules, there’s portions of the route that we can
easily beat the schedule and there’s portions of the route where we
don’t have a prayer,” Fritz says. The host railroads are all working
with Amtrak to develop schedules that are realistic along a train’s
entire route, he says.
BNSF CEO Kathryn Farmer
BNSF CEO Kathryn Farmer
“There’s just a lot of opportunity for the STB to get that wrong,”
BNSF Railway CEO Katie Farmer took issue with the Biden
administration’s July 9 executive order, which largely dovetails with
efforts already under way at the STB because it seeks to expand
competition across all sectors of the economy.
BNSF, which operates the largest intermodal network in North America,
competes every day against trucks, Farmer notes.
And Farmer says there are lessons in the 140 years of railroad
regulatory history. “What we have seen when we have overreaching
regulation, where we have burdensome regulation, is that it had the
impact in the past of constraining capacity, reducing investment,
disrupting the supply chain,” Farmer says. “And so none of us should
want that under this existing executive order.”
Canadian Pacific CEO defends PSR
CP Keith Creel speaks.
Canadian Pacific CEO Keith Creel (Trains: David Lassen)
Canadian Pacific CEO Keith Creel defended Precision Scheduled
Railroading, which has come under criticism from shippers, Congress,
rail labor, and the STB.
Creel says the PSR operating model, which has been adopted by all of
the Class I systems with the exception of BNSF, is not about slashing
costs to the bone. It’s about ensuring that the railroad’s costs are
under control and that it has the right number of people and assets
like locomotives and freight cars to move freight efficiently. It’s
also about partnering with customers, employees, short lines, and
respecting regulators, Creel says.
“It really is the right way to run a business. That’s what it is,”
Creel says. “It’s not the bogeyman and the evil empire that people
think it is.”
Creel, whose railroad has led the industry in growth since he became
chief executive in 2017, also disputed Oberman’s contention that
railroads are not interested in growing. CP’s formula, Creel says, is
to invest in partnership with customers so both the railroad and
shipper can grow together.
CP has been able to haul record amounts of Canadian grain since
investing $500 million in a new hopper fleet over the past four years
and moving to 134-car unit train service in conjunction with shippers.
“It’s not because we’re cutting,” Creel says. “It’s because we’re
investing for growth.”
CP’s domestic intermodal service is taking trucks off the highway and
is the fastest-growing in the industry, Creel says. In Vancouver, Creel
noted that CP and ocean shipping line Maersk are partnering on a new
transload center that will take thousands of trucks off city streets
each year while reducing greenhouse gas emissions and improving service
And for carload traffic, CP has increased sales staff commissions for
new business they bring in, Creel says. Last year, the railway’s sales
team drummed up $75 million in new traffic by making thousands of cold
calls to potential customers.
“That’s growth. That’s singles and doubles. That’s not bulk business …
it’s a boxcar here, a boxcar there,” Creel says.