Leaders of the Class I freight rail companies seem to agree they must repair rifts with their employees, customers and the communities they serve in order to usher in “a new era in railroading.”
When Joe Hinrichs started in his role as the president and CEO of CSX (NASDAQ: CSX) last fall, one comment he often received was that focusing on employees and customers would sacrifice margin.
They said, “It’s going to cost you a lot of money to do paid sick leave or whatever,” Hinrichs said during the recent North American Rail Shippers conference in Chicago. “What’s it costing us to have our employees not motivated, our employees mad and our employees quitting and leaving? Or we hire new employees — we do all the work to train them and they go in the yard and the guys say, ‘Why are you working here? They treat you like crap, you should leave, [and] by the way, they want to get rid of you.’ That’s the environment that we have had and we have to break out of it.”
He continued, “We have to break out of it because if we don’t serve our customers better, if you don’t have the right employees, if we don’t have a sustainable culture where people want to work in the railroad like they used to, we’re not going to ever profitably grow. And we need to grow for the economy, for society, for the climate and for our own expectations around returns for our shareholders. And that’s where we bring it all together.”
Hinrichs was just one of the Class I railroad leaders who addressed labor and customer relationships at the industry conference.
Hinrichs told conference attendees that he doesn’t see a conflict between treating employees well and treating customers well because acting on one intention feeds the other. He pointed to CSX’s improving service metrics in the first quarter — improvements that warranted the Surface Transportation Board to lift some of the data reporting requirements implemented in 2022 in response to service deterioration at four U.S. Class I railroads — and record profits in the first quarter. These events occurred even as CSX was negotiating sick leave agreements with some of its unions, although Hinrichs noted that there is still some way to go to fully repair relationships with CSX’s workforce.
“We’re a service business and you cannot run a healthy, good service business without your employees being engaged and feeling motivated to serve. And frankly, our industry has not provided that environment for our employees.”
Alan Shaw, president and CEO of Norfolk Southern (NYSE: NSC), echoed Hinrichs’ comments about focusing on customers as a way to grow revenue, which in turn helps the company longer term.
“You can actually improve your margins by growing your revenue. So that’s our focus. It’s no longer an intense, near-term focus on operating margins for just cost cuts, but a longer-term approach,” Shaw said. “If you’re going to grow, you figure out what strategic assets am I going to need. … What do we want our franchise to look like five years from now, 10 years from now? What assets do we know we are going to need through the economic cycles, which are going to happen? Generally, for us, it’s track, locomotives, it’s investments in intermodal terminals, it’s investments in freight cars that help us compete with truck, it’s technology and people.”
While labor-management relations within the industry have garnered media attention, that relationship building also can occur through workplace mentorships and cultivating the next generation of talent already working within the industry, according to those speaking on a panel on racial diversity.
“One thing that I have never forgotten is that it’s my responsibility to look in the shops, in the plants and the offices and say, who’s of a different caliber that you could help? Because what they did for me — not only that they changed my life, but my kids have a better life,” said Rick Galvan. Galvan is senior vice president at Greenbrier Rail Services (NYSE: GBX). “If you don’t walk away with anything else today, I challenge you to go back to your organization and figure out who you’re going to pull up. Give them that opportunity.”
Said Torri Stuckey, who was moderating the panel, “In order for you, as an organization, to make sure everybody feels valued, included, respected and appreciated, all diversity strands have to be explored.” Stuckey works as head of merchandise sales and marketing for CSX.
“And diversity is not a destination. It is a journey. And it’s one that is ever evolving. So you never actually get to that destination. But we’re all in different stages of our journey as individuals and as organizations. And so today, we don’t come bearing all the answers, or any answers for that matter. It’s really just to have a public conversation to keep the conversation going,” Stuckey said.
The panelists also remarked that this was the first time to their knowledge that NARS hosted such a panel at an annual conference.
Repairing the industry’s image
How the rail industry is being perceived in the broader public is another area where the railroads can improve, some speakers said. The contentious ending of the collective bargaining process last fall, highly visible incidents such as the Feb. 3 derailment of a Norfolk Southern train in East Palestine, Ohio, and the perception that the Class I railroads are raking in billions in profit but are not investing that back into improving service or working conditions are some of the challenges that the industry is facing.
Where industry stakeholders might start is by using stories to relay the importance of railroading to the broader public, according to S. Dilla Thomas, who kicked off the NARS conference. Popularly known as a Chicago historian on TikTok, Thomas said social media has helped him to educate the public on Chicago’s prominence in the history of American manufacturing.
Shaw, who has received flak for how he and NS handled the East Palestine train derailment, emphasized a narrative that focuses on personal connection.
“We’re taking it step by step and we’re doing the next right thing each and every day. And that’s all you can do in a crisis is be visible. Be personal. And be connected,” Shaw said.
“We understand that the financial commitment that we’re making in the community is important. We’ve already committed over $35 million just to help the community recover and help the community thrive,” Shaw continued. “But that’s just a piece of it. I think what’s even more important is that personal involvement. So I go back almost every week. I’ve made actually a lot of friends up there. I call them or text, though they reach out to me when I’m not there.
“And generally it’s not about the money that Norfolk Southern is providing. It really is about Norfolk Southern’s personal connection to the community. That’s what they want. They want to know that we’re going to be there, that we’re not just going to cut a check and walk away. … We have to be there. We have to show we care.”
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