By Wolf Richter, editor of Wolf Street. Originally published at Wolf Street.
So there are few hiccups in the US economy right now. James Foote, the chief executive of CSX, one of the largest railroads in the US, put it this way during the earnings call yesterday (transcript by Seeking Alpha):
“I’ve never seen any kind of a thing like this in the transportation environment in my entire career where everything seems to be going sideways at the same time,” he said.
“In January when I got on this [earnings] call, I said we were hiring because we anticipated growth. I fully expected that by now we would have about 500 new T&E [train and engine] employees on the property,” he said. “No way did I or anybody else in the last six months realize how difficult it was going to be to try and get people to come to work these days.”
“It’s an enormous challenge for us to go out and find people that want to be conductors on the railroad, just like it’s hard to find people that want to be baristas or anything else, it’s very, very difficult,” he said.
“Nor did we anticipate that a lot of the people were going to decide they didn’t want to work anymore. So attrition was much higher in the first half of the year than what we had expected,” he said.
“So even though we brought on 200 new employees, we fell short of where we thought we would be by now….”
Railroads are grappling with a weird phenomenon that is a combination of “labor shortages” and 12.6 million people still claiming some form of unemployment compensation, amid stimulus-fueled demand.
And this comes after railroads had spent six years shedding employees in order to tickle Wall Street analysts and pump up stock prices. The North American Class 1 freight railroads combined – BNSF, Union Pacific, Norfolk Southern, CSX, Canadian National, Kansas City Southern, and Canadian Pacific – have tried to streamline their operations, using fewer but longer trains and making other changes, including under the strategy of “precision scheduled railroading,” implemented first by Canadian National, then by CSX.
The resulting deterioration in service triggered numerous complaints from shippers. But one of the big benefits was that the workforce could be slashed, which fattened the profit margins at the railroads. Wall Street analysts loved it, and it was good for railroad stocks. By now, precision scheduled railroading has become the new religion at all Class 1 railroads except at BNSF, which has not officially adopted it, at least not completely.
In the process, over the past six years, the Class 1 railroads have axed 33% of their workers through layoffs and attrition. According to the Surface of Transportation Board (STB), an independent federal agency that oversees freight railroads, the Class 1 railroads slashed their headcount from 174,000 workers in April 2015 to 116,000 workers in June 2021.
The results of the efforts to hire people back this year are barely visible in the chart – that risible uptick in employment over the past few months. Turns out, it’s a lot easier to cut workers than it is to suddenly hire workers:
Before the railroads blame the 33% cut in the workforce on the pandemic, let’s point out that by February 2020, just before the pandemic, their headcount had already been cut by 46,000 workers, or by 26%, to 128,000. Only 12,000 workers were cut during the pandemic.
Since September 2016 – the beginning of the STB monthly data by individual railroad – the biggest workforce slashers were CSX and Norfolk Southern, which both cut over 30%, and Union Pacific which cut nearly 30%. The other railroads cut far less over that period. But massive cuts occurred in 2015 and 2016, before this by-railroad data began.
During the pandemic, some of the workers were put on furlough, to be recalled more easily. But turns out, not all of them are eager to return to work on the conditions offered by the railroads, including relocation to new assignments.
These cuts in the workforce, and now the scrambling to hire people amid “labor shortages,” is contributing to issues in meeting heavy transportation demand: Union Pacific temporarily suspended traffic from Los Angeles into Chicago, and BNSF has started to meter traffic into Chicago, to allow them to catch up unloading the trains that are stuck in their Chicago railyards. The resulting pot-banging by frustrated shippers has gotten the attention of the STB.
“The railroads cannot strip down to bare-bones operations,” STB chairman Martin Oberman told the Wall Street Journal. “It’d be like a professional football team only having one quarterback.”
The American Chemistry Council – which represents companies in the chemical industry, such as BASF, Chemours (the DuPont spinoff), Chevron Phillips Chemical, DuPont, ExxonMobil Chemical, etc. – lamented in a letter to the STB, cited by the WSJ, that railcars were waiting at railyards for over a week and travel times for some routes more than doubled. Some factories were running out of materials because shipments had gotten hung up and were approaching the point where they’d have to close, and other factories have cut production.
The railroads “clearly weren’t as prepared as they should have been for the increase in traffic,” Jeff Sloan, senior director of regulatory and technical affairs at the Council, told the WSJ. The deteriorating service shows that the railroads cut too deep before the pandemic and were unable to catch up, he said.
In line with the executive order from the White House that exhorts agencies to work on making markets more competitive, the STB is now examining what can be done to improve competition among the railroads. Nixing any thought of mergers among Class 1 railroads would be a no-brainer.
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Railroad engineers and conductors have pretty terrible jobs, even if they are well compensated. In general there are no defined work days with regular start and end times. Most work off of FIFO call lists and are not predictable. Sleep disorders are common and have been cited by the NTSB as the cause of many fatal wrecks.. Employers have draconian work rules that are rigorously enforced with kangaroo court disciplinary hearings. There are limits on how many consecutive days per month a worker can have off. As business picks up operating crews basically work continually with only 8 or 12 hour rest periods between 12 hour shifts as mandated by law.
“precision scheduled railroading”, mergers and deregulation have resulted in entire business segments and customers being abandoned. Shipping costs have risen. It has been a Wall Street mandated program for asset stripping and pumping share prices. The environmental costs of forcing freight on to highways is simply an externality.
This is typical capitalism. Toss out highly skilled workers (while preserving share buybacks and executive compensation), then expect workers to enthusiastically return to bad jobs at a bad workplace.
If we still had very last jot and tittle of our legacy High Classical New Deal legal and regulatory ecosystem, this might have been blocked from happening. We will never know for sure.
That was ordered capitalism under law. This is disordered capital-anarchism under Law of the Jungle.
If we can’t totally restore the Heavy Hand of High Classical New Deal Laws and Rules and Regulations, we can’t affect this problem. And if it all gets bad enough, people may want more Stalinist solutions than a mere New Deal Revival.
If BNSF is not all the way into precision railroading yet, does that mean that BNSF layed off and attrited a smaller proportion of its workforce than what the other railroads did? And if so, would that make BNSF less understaffed now, and also more able to attract new workers than the other railroads?
It is ironic that the interstate highway system destroyed railroads and now it can’t do the job as economically as the railroad. Help shortages aren’t the only problem. A lack of tracks is another. At one time railroads visited small towns. I remember the coal fired steam engine coming through town every day. Now all of the tracks have been removed. The expense of replacing them is out of reach. I think greed is also at play. Short sighted people made decisions based on short term profits instead of long term existence. I suspect the railroads will look for the government to rescue them.
It’s less the tracks as those cost nothing and the railroads have kept their rights of way (Virginia had something like 2500 miles of unusedtrack bed) than the stations themselves and problems with where existing tracks go. The price tag for the latter has scary numbers attached that make highways feel cheaper whenever state legislators discuss these issues. Many of the highway costs are hidden behind the costs of owning a vehicle.
The tracks in DC go underground and are designed for single cars, so any double stacked trains can’t run through there. They may have fixed this, but per memory, the price tag wasn’t cheap assuming everything went well. Then there is a worker issue. The needed expanded stations often have really important stuff built on top of the larger stations with workers, requiring stations where they have to relocate relatively expensive workers as they aren’t simply people that can recruited off the street.
Seems like every time a system used to connect the producer to the consumer – no matter the time frame or technology – it soon becomes a tool to extort from both the producer and consumer – trains, plains automobiles, internet, computer software, seeds….. anywhere there can be a choke hold there is found a plethora of stranglers.
Does not the railroads have a long tradition of neferious deeds perpetrated against the lower classes by the upper asses who own the same.
Everything old is new again.
https://www.u-s-history.com/pages/h950.html
(Are any new Roosevelts on the horizon?) / ;)
My original comment was going to consist of one word – Dumba**** – but that would not do. When that guy in the article said ‘Nor did we anticipate that a lot of the people were going to decide they didn’t want to work anymore’ I am going to say that it was more a matter of those people not wanting to work for people like him. I’ve worked in the railways and it can be hard and even dangerous work. The ones in the US nowadays sound far more worse. If they cut 33% of workers over the past six years, that can only mean that they loaded their work on the shoulders of the remaining 67% and I am willing to bet for no extra pay as well. Furthermore, I would guess that a lot of those workers have re-evaluated their options during the past year or two and have decided that working for the railways these days is just not worth it. And now those railway companies are having to sit down to a banquet of consequences.
One silver lining of the covid pandemic (if there is one) is that it has given millions of people pause to consider the nature and conditions of their former work. Steeping off the treadmill for a few months has given new perspectives and opened up a wider range of mental possibilities.
I think it has also commenced a period of reckoning for the entire neoliberal era, during which work became harder, pay became lower, costs became higher, the poor became poorer, and the very rich gained a level of power and opulence not seen since ancient Egypt. The level of enthusiasm for the entire enterprise has suddenly plunged and people are belatedly asking themselves why they would even want a job that has no future and barely pays for the costs of being employed.
I like to think this will result in worthwhile material changes in the society and the nature of work, but we will see.
Could millions of people be getting ready for a leaner tougher meaner New Counterculture for today’s leaner tougher meaner times of today?
I am not my Keeper’s brother.
Tune out. Slow down. Slack off.
Make love, not money.
etc.
“Nor did we anticipate that a lot of the people were going to decide they didn’t want to work anymore.
Always the conflation of ”work” (good according to the Bible) with working for wages (not something a citizen should normally have to do, per the Bible)??
Work is something everyone normally likes to do, to at least some extent; working for wages, not so much; being a wage-slave*, least of all. In other words, people don’t necessarily dislike work; they dislike being under someone’s thumb.
I also see in today’s NC links Opinion: Small farms are the future of food systems. Looks like Jefferson’s nation of small farmers idea is worth a reconsider.
*ie. having no choice but to work under one master or another.
never mind that pay the workers every day. not once a week/2 weeks/month
Good point (cf James 5, etc.). I once had a great job that paid once a week; the manager himself personally handed out the checks. I loved it! Then some MBA, I suppose, changed it to once every two weeks via direct deposit. That was not so rewarding at all despite the increased convenience of direct deposit; I felt cheated and degraded as a worker.
Railroads are heavy dirty work. Add on call, rotating shifts, reassignments and a dash of danger only a fool would wonder why workers don’t want to return.
This is the result of asset stripping to throw money at the feet of the Wall Street gods. Lunacy !!!
“Railroads are heavy dirty work. Add on call, rotating shifts, reassignments and a dash of danger only a fool would wonder why workers don’t want to return.”
That’s true. About 50 years ago I was a brakeman for the CB&Q in South Dakota and Wyoming. It is hard and dangerous, but I was young and agile and looking for adventure when I left home in the deep south. I found that and also earned enough to pay my way through college.
I still have my Ball Railroad watch on my desk right now. I also have a set of switch and caboose keys for the CB&Q and Northern Pacific whose tracks we used when going from Sheridan, Wyoming to Laurel, Montana.
Great fun at the time.
About 50 years ago i had a friend who was a brakeman. I was amazed to learn that he worked a select section of the track (SoCal: Santa Barbara-Los Angeles- Indio,CA). He lived in LA. No long treks across the western states for him. Of course, brakemen in the caboose were replaced with the End of Train Device decades ago.
He showed us how to hop the freight train and ride in the last engine where it is warm and comfy. Rode one up to San Jose and back; the soot from diesel-electrics found its way into all our clothing. Dirty doesn’t begin to describe it.
Working in a rail-yard has got to be one of the most dangerous jobs going.
Whatever happened to “Free markets”?
Reduced supply and increased demand results in higher prices, no?
Offer high enough wages and this problem disappears.
That rule only applies to the capital element, never to the labor component!
never to the labor component!
Because the labor component, due to the legalized theft* of the means of production (family farms, businesses, the commons, etc), are largely no longer voluntary wage workers but instead are wage slaves.
*eg. via government privileges for private credit creation.
it couldnt be that since employers have made monopolies for jobs (i.e. like nurses, sales staff, wait staff, etc) so that in the ‘old days’ that if you were in a specific field, there might only be one employer to work for in that field. but now since so many dont trust employers or job location because of the pandemic, and of course the low wages doesnt help. so supply and demand makes it harder to hire in a work site that is now much more unsafe (pandemic…..especially of the workers dont trust them much to a safe work environment). while for some $1200 a month might make a difference (but given how UE is set up, most states it so low that its basically not even survival wages….so the its not that…besides it would end soon if it hasnt ended already)
Since the industry has been shedding employees for decades, I’d assume that a large portion of the remaining are close to retirement. Unless the RR have been replacing better paid long timers with newbies
Neoliberal economics can be also called Jenga economics. The blocks removed from the base (the labor and labor’s-wage block) is added to the top (the stock market value and owner’s-profit block). Until the tower collapses. /heh
Wow. Insightful.
Did these people believe their own Randian ballox? Surely they knew better than that. It’s simple greed, right? Anything beyond base reaction is probably too cognitive an explanation for someone like Foote. Further, what can one say about a mouthpiece like Seeking Alpha?
One of the important plot points of Atlas Shrugged was that the railroad was destroyed through management incompetence, so actually this is probably the only time when Ayn Rand was ever correct.
If the R.R. labor shortages continue I guess the Government must step in and add R.R. workers to the list of those who can come to the US on H1-B Work Visas, or maybe add a special Work Visa category for R.R. workers. As conditions in the US deteriorate there may be a point when even R.R. workers from poor countries refuse to come to the U.S.
These R.R. snafus might make a dent on some categories of just-in-time deliveries.
Jeremy I think you are correct up to the point of adding anyone to a list for employment. The R.R. wants only one man per train and when they succeed at that the only thing left to do is get rid of that person. I speak from my experience as a thirty year employee in train service. I am not trying to take any thing away from the article or disagree what was said , but the one man crew has been the biggest push from management for a lot of years.
There is definitely a pattern. Asset strip Boeing, PG&E, Intel, CSX, GE, IBM & Kodak, and they stop working. In addition to manmade problems, fragile institutions are unable to deal with Mother Nature. Coronavirus made isolating at home a never-ending necessity since the public health services failed to eradicate the virus. New more contagious variants are transported across the world. A new Delta lockdown is threatened. Western heat domes and wildfires are also cutting the railroads mainlines. Ports and container yards are grid locked.
The USA is getting to the point that the government must step up to prevent an apocalypse, but politics has been so efficient at dividing the people, there is no indication that the nation is capable of doing a another “New Deal“ to save society from itself.
Separate medium-sized and little jurisdiction-loads of people who correctly perceive themselves to be “micro New-Deal capable” should figure out how to stealth-detach themselves in-place from the wider society so that they have a chance of survival when it dies around them. And local-regional improvement in the meantime.
Railroad freight rates are half of what they were 40 years ago (Google “rail freight rates over time to verify). The accident and death rates for rail workers are down by 75% and 90% respectively in the past 45 years (https://www.bts.gov/content/fatalities-and-injuries-duty-railroad-employees). The best book on the history of US railroads is Railroads triumphant” by Martin; an amazing read. The guys I know who are RR engineers now and about to retire earn well north of $100k/yr.
Reductions in derailments, injuries and deaths is a direct result of FEWER movements and handling of freight cars. Railroad carload freight has catered (i.e., one or a few cars picked up or delivered to customers). Today freight is largely handled in “block ” movements of 20 or more cars or containers that are placed onto truck trailer beds. The opportunity for errors has been greatly reduced because cars are not “touched” as many times. Perhaps the best analogy is interstate highways have far fewer crashes and deaths than city streets.
While freight rates for *some* customers are lower in inflation adjusted terms, it must be remembered that entire commodity groups are no longer shipped by rail. Further, rates are no longer published public information. Rates are now mostly contained in confidential contracts. So I don’t know how google can make this claim.
Ask yourself who wants to actually work for a railroad. You’re basically just a trucker but must share a very large vehicle that traverses very dangerous, un-friendly places (trainyards) with other people. Side-benefits to the job are nonexistent, because these companies don’t do passengers anymore they can’t rope people in with free vacations for the family (a serious benefit in the past for the same reasons standby flights are a major perk today). Work is inherently full-time with absolutely no part-time positions, and hours are rigidly inflexible even if you’re spending most of the day waiting on other trains. For an actual train engineer there is far better work for the government (in areas with mass transit) and for those concerned with money trucking offers them flexibility. And with single crewed trains right around the corner, the average on-the-job stress is likely to increase greatly.
This sort of demanding, no-compromises work doesn’t appeal to most people. Pay has to rise to attract willing talent. Railroad engineers aren’t even considered a Skilled Trade by the government. It’s a job for college dropouts, just like truck driving is – who takes such work?