What’s Next For Class I Railroads After That Tense STB Hearing?

By Justin Franz for railfan.com

After a fiery two-day hearing in Washington D.C., about the ongoing Class I service crisis, many in and out of the rail industry are asking “What’s next?” 

After receiving an avalanche of complaints from shippers and railroaders about the state of rail service, the U.S. Surface Transportation Board demanded that executives from the worst offenders — Union Pacific, BNSF Railway, CSX Transportation and Norfolk Southern — come to D.C. to defend their companies and explain how they were going to untangle the national rail network. 

During the hearing, the board and the public heard testimony from shippers about missed switches and delayed shipments. They also heard from labor officials who blamed the railroad’s lackluster service on Precisison Scheduled Railroading, a method of railroading implemented in recent years that calls for fewer train starts, fewer locomotives and fewer workers. The railroad’s leaders admitted that service was not meeting their own expectations but that it was the fault of the supply chain crisis, the lingering impacts of the pandemic and the labor shortage, not PSR. 

The STB will likely take all of that testimony into consideration as it figures out how it can help improve rail service and during the hearing it offered hints at what it might do. The Board has “broad” authority to regulate the rail network and ensure the railroads are providing adequate service. One thing the Board is currently considering is whether or not to make it easier for shippers to ask for emergency service. An emergency service order allows the federal government to direct service decisions on railroads. If the STB determines that there is a service issue on a railroad it may “direct the handling, routing, and movement of traffic,” including forcing traffic to be detoured on other railroads. It can also force “joint or common use of railroad facilities” and “prescribe temporary through routes.” 

Last week’s testimony may also influence the STB as it considers another hot button topic: reciprocal switching. Reciprocal switching would allow railroads to operate on competitor’s track to reach nearby shippers. The industry has fought vigorously against it, but shippers are excited at the prospect of having more options when it comes to rail service, believing carriers might try and undercut each other on pricing to the customer’s benefit. 

After the hearing, the Association of American Railroads — the lobbying group that represents the Class Is — urged the STB to show restraint and not reregulate railroads. 

“While the AAR appreciates continued engagement with policymakers, the STB should proceed strategically and deliberately, particularly when considering structural policy shifts,” said AAR President and CEO Ian Jefferies. “Disruptions in service should not be used to justify long-sought re-regulatory measures such as forced switching, as this type of market intervention would only complicate network operations further at a time when the focus needs to be on restoring freight fluidity.”

Larry Gross, a rail analyst focused on intermodal, said last week’s hearings will likely play a role in the decisions the STB makes in the coming weeks — and the industry might not like all of them. 

“One thing seems clear for the immediate future: The era of an accommodating STB that will generally allow the railroads to proceed unfettered is over,” Gross said, adding that the Class Is will need to focus more on its customers and employees rather than cuts to make shareholders happy. 

Gross said while there is always “fat” that can be cut, in the last few years, the Class Is have started to cut into “muscle and bone” too. How much longer that can last is yet to be seen.

U.S. Surface Transportation Board Chairman Martin Oberman questioned Class I executives about the ongoing service crisis on America’s freight railroads during a two two-day hearing in Washington D.C.

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