Biggest railroad companies profiting from supply chain crisis, watchdog alleges

Major U.S. railroad companies have been raising fees for freight stuck in supply chain bottlenecks while lowering costs, according to a new analysis from a liberal watchdog group.

By Teaganne Finn for nbcnews.com

WASHINGTON — Several of the largest railroad companies in the U.S. have benefited from the supply chain crisis by raising fees and lowering costs, a liberal-leaning watchdog alleged in a new analysis.

Accountable.US, a nonprofit group that examines corporations and special interests, said the seven major railways, which dominate an industry that carries about 40 percent of U.S. freight, collected a record $1.18 billion in fees for freight stuck in supply chain bottlenecks in the first nine months of 2021.

As the impact of the coronavirus pandemic set in, supply chain issues worsened last year. Railways suspended and limited service, collecting more demurrage fees — which take effect when cargo stays beyond a specified time at a terminal and are an essential tool to keep cargo moving. 

Companies also lowered expenses through the use of “precision scheduled railroading,” which involves streamlining schedules and cutting staff sizes and locomotive and car fleets. Before the rail industry’s fees set a record during the pandemic, they had already increased at a rate 10 times higher than expenses since 2002, the report said.

The Association of American Railroads, an industry trade group, said that during the first half of 2021, railroads handled the highest volume of intermodal traffic ever moved in that period. 

The group, however, argued that the “idea that railroads are using demurrage charges to ‘profit from the supply chain crisis’ is untrue,” saying such charges serve “to incentivize other actors in the supply chain to act more efficiently and in ways that would improve the supply chain.”

In the third quarter of 2021, the biggest North American railroad company, BNSF, a subsidiary of Warren Buffett’s Berkshire Hathaway, charged 5 percent higher freight rates compared to the same period in the previous year and cut the time before it started imposing demurrage fees, according to the analysis.

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During the fourth quarter of 2021, CSX, the fourth-biggest railroad company, credited higher fees for its profits and improved its operating ratio, the analysis said, adding that it spent over $2.3 millionlobbying on user fees, rail regulation, mergers and other issues that year.

Union Pacific, Canadian National, Norfolk Southern and Canadian Railway also increased fees, boosting net income, according to the analysis.

CSX and Canadian National referred requests for comment to the Association of American Railroads. The other companies did not immediately respond to requests for comment.

Martin Oberman, the chairman of the federal Surface Transportation Board, a key federal rail regulator, who was appointed by President Joe Biden, has criticized railroads for abusing their market power.

In September, Oberman called out the industry’s “pursuit of the almighty OR”— referring to railroads’ efforts to improve their operating ratios by cutting costs.

Oberman estimated that since 2010, the industry has spent $46 million more on stock buybacks and dividends than on maintenance and equipment investments, “which would have increased the rail system’s resilience against the kind of supply chain shocks that are currently straining consumers’ wallets and access to everyday necessities,” according to the analysis.

Oberman said in a speech last year, “I am counting on RR’s and shippers to keep their vision on the big picture and to actively participate in efforts to ameliorate those problems, not only for the immediate crisis, but for the long term in fixing the holes in the international supply chain that the pandemic has revealed.”

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