Empty shelves in grocery stores. Delayed shipments of important goods. The words “supply chain shortages” are all over the news. But COVID didn’t cause the disruption to the nation’s supply chain; it merely exposed a self-inflicted inflexibility in at least one essential link in the supply chain—the rail industry.
Having witnessed the issues first-hand as a freight locomotive engineer and a negotiator of rail workers’ labor contracts, I will briefly explain how we got here.
The Problem with “Precision Scheduled” Railroading
In the early 20th century, North American railroads flourished by transporting people and goods. With the advent of commercial airlines and interstate highways, however, railroads faced significant competition. By the 1970s, the nation’s railroads were in trouble, with many facing bankruptcy.
In an effort to save the railroads, Congress passed the Staggers Act in 1980, which significantly deregulated the rail industry. Mergers and acquisitions followed, along with carrier-initiated collective bargaining campaigns to reduce staffing, all in an effort to reduce operating costs, increase profits, and spur growth
By 2000, the North American rail industry had been partitioned, with rail duopolies in every region. With the advent of new technology, train crew size was reduced from four or five to just two—a conductor and locomotive engineer. The appetite for mergers eventually subsided, and the rail industry settled down and enjoyed solid performance and profits.
Then the financial crisis of 2007-2008 hit. Investors who had no prior interest in railroads started to invest in them, often demanding operational “efficiencies.” As a result, a new operating strategy called Precision Scheduled Railroading (PSR) was introduced. Profits soared. Investors chortled.
While shareholders value the profits gained by running longer, heavier trains, by eliminating small margin business, and by other cost-cutting measures, many industry experts consider PSR to be a short-term, cut-to-the-bone strategy, inconsistent with long-term performance. As a result of PSR, between April 2015 and February 2020, North American railroads eliminated 26 percent of their workforce. They cut an additional 7 percent after the pandemic began. According to Surface Transportation Board figures, the rail industry employed approximately 175,000 people in April 2015; by June 2021, only 116,000. So, why should we care?
Here’s why: As the global economy stabilizes and business levels return to normal, there are simply not enough rail employees to move trains. Attrition rates and difficulty hiring due to working conditions have become serious problems for the rail industry. By the summer of 2021, the situation was untenable. In a recent interview, CSX’s CEO James Foote said, “No one ever gave me a heads up that says, ‘by the way when you want to hire somebody, nobody is going to want to work for you.’ This is a phenomenon that nobody saw coming, and it is a phenomenon that affects everybody in the supply chain.”
Rail Labor and Management at a Stalemate
As the railroads struggle to staff freight trains, carriers are offering sign-on bonuses and other incentives to attract and retain employees, while at the same time instituting rigid availability policies for the existing labor force. These hardline approaches have exacerbated an already difficult situation and have triggered a litany of lawsuits from rail labor.
Rail labor has been without a national contract since 2019. At the end of January 2022, the national rail labor bargaining coalition formally declared that a voluntary agreement with the nation’s rail carriers is not possible. The main sticking points concern management’s efforts to make a freight train a single-person operation, along with a shift toward automation and autonomous operations. This stalemate has triggered various statutory procedural and cooling-off mechanisms under the Railway Labor Act. If the parties continue on the path to self-help (strike or lockout), presidential and congressional intervention will be required.
Most of this self-inflicted crisis has occurred under the radar of public attention; however, the situation has spurred congressional hearings and plenty of finger-pointing. Who is right? That depends on whom you ask. Investors and shareholders expect a return on investment; directors and management have a fiduciary responsibility to run a profitable company; organized labor has a duty to represent the best interests of its members; and political leaders need corporate donations and votes.
This conundrum reminds me of a story that retiring U.S. Supreme Court Justice Stephen Breyer told about an old judge who listens to Plaintiff’s counsel and says, “You’re right,” whereupon Defense counsel says, “But Judge, you haven’t heard my side yet.” To which the Judge says, “You’re right, go ahead.” After Defense counsel finishes, the Judge says, “You’re right.” To which Plaintiff counsel speaks up and says, “But wait a minute, Judge, you said I was right! We both can’t be right.” To which the Judge replies, “You’re right.”
The next time a shipment is late, or you can’t find something at the store, just remember, it’s “precision scheduled” to arrive . . . eventually.
On the bright side, because of PSR, I left the rail industry and became a lawyer. I recently joined Mountain, Dearborn, where we offer a full suite of exceptional legal services. Give me a call if you have a legal need. Just don’t ask me to help you find toilet paper at the supermarket.
Image: Andrew Coop