Despite Class I railroads thriving financially in 2017, just last month, the Surface Transportation Board cracked down on the railroads over deteriorating service after hearing from concerned shippers.
All seven Class I freight railroads operating in the United States were full steam ahead in terms of profitability during 2017, but their customer service has started leaving a lot to be desired for American shippers.
The railroads—BNSF, Canadian National (CN), Canadian Pacific (CP), CSX, Kansas City Southern (KCS), Norfolk Southern and Union Pacific(UP)— drastically increased their net incomes in 2017 from the year prior and lowered their operating ratios. The leap in net income also benefitted from last year’s enactment of the Tax Cuts and Jobs Act.
For the most part, the Class I’s will blow their horns about their capital investment plans. Four of them—CN, CP, Norfolk Southern and UP—announced plans for higher capital expenditures in 2018, while BNSF expects to spend the same as last year and CSX and KCS aim to spend less.
Despite their financial success, the Surface Transportation Board (STB) on March 16 sent a letter to each of the railroads expressing its concern with deteriorating freight rail service, which was brought to the regulator’s attention by numerous shippers.
The National Grain and Feed Association (NGFA), for example, sent a letter to the STB on March 10 stating its concerns over significantly increased and, in some cases, new accessorial charges imposed upon its members by the Class I railroads.
“There is a fundamental concern among rail customers that the underlying root cause of these service and accessorial charge-related issues is Class I railroads’ aggressive effort to reduce their operating ratios to impress Wall Street investors and shareholders,” NGFA said.
STB also received a March 12 letter from the Alliance of Automobile Manufacturers, which said a serious shortage of bi-level and tri-level railcars for transporting finished vehicles occurred in February and worsened during March, even though demand for finished vehicles had not increased. The association said this further illustrates an overall slowdown in the rail transportation network.
To improve freight equipment availability, some railroads told the STB they are buying or leasing additional locomotives, as well as bringing existing units out of storage.
Railroads, such as BNSF, CN, CP, Norfolk Southern and UP, also emphasized to the agency efforts to bolster their workforces to improve customer service. However, BNSF and UP both warned that the job market for recruiting new employees has become increasing tighter.
CSX, on the other hand, said its network performance enhancements have “allowed for sustainable, lower crew counts that are adequately meeting service demand.” The predominantly East Coast railroad has no plans to raise its “train and engine headcount” in 2018.
Meanwhile, the pressure on the railroads’ service performance continues to mount as shipper demand is expected to gain traction in 2018. In March alone, U.S. rail traffic rose 5 percent year-over-year, with the Association of American Railroads reporting that combined U.S. carload and intermodal originations during the month stood at 2.13 million, an increase of 102,308 carloads and intermodal units from March 2017.
On top of this, the railroads continue to face myriad regulatory changes racing down the track. One of the biggest and most costly obligations is the implementation of positive train control (PTC), a wireless communication system that helps to prevent rail accidents by overriding a conductor to slow or stop a train.
The Rail Safety Improvement Act of 2008 required PTC’s implementation across a significant portion of the nation’s rail system by Dec. 31, 2015, but Congress later extended the deadline to Dec. 31, 2018, with the possibility of an additional two-year extension under certain circumstances.
The Federal Railroad Administration recently said its fourth quarter 2017 data showed that PTC systems were by then in operation on 56 percent of the freight railroads’ route miles, which was up 45 percent from the previous quarter and 16 percent from the last quarter of 2016.
While it’s good for the Class I railroads to show a profit, it’s also more important than ever for them to show demonstrable investments in technology and human resources that allow them to expeditiously meet their regulatory obligations and improve shipper satisfaction with services. Perpetuating dysfunctionality within the nation’s vital freight rail delivery system ultimately fails to demonstrate Class I leadership.
On The Surface: Top of the class
