The Monopoly Jeopardizing Your Safety…
Latter-day railroad Barrons in the U.S. are using “Precision Scheduled Railroading” to cut costs—and cut corners. The results? Predictable and deadly.
By Steve Wishnia
Editor’s Note: This is part two of a special two-part Work-Bites report about increasing dangers inside the nation’s railroad industry. Read part one here.
Randy Fannon, vice president for safety at the Brotherhood of Locomotive Engineers and Trainmen, says in his 37 years working for railroads, the “most drastic” changes have come in the last five years.
The biggest, he says, is the effect of Precision Scheduled Railroading [PSR], a business model brought to the U.S. in 2017 by longtime railroad executive E. Hunter Harrison, who pioneered it in Canada, and hedge-fund investor Bill Ackman. The model relies on maximum utilization of assets, keeping cars in motion and eliminating unprofitable routes. The six largest North American rail carriers now all use PSR or similar methods.
Harrison developed PSR in the 1990s at the Illinois Central Railroad, and brought it to Canadian National when the newly privatized CN took over the Illinois Central in 1998. He came out of retirement in 2011, when Ackman (now best known for his recent demands that universities he donates to suppress anti-Zionist protests) bought up enough shares in Canadian Pacific to pressure the company to name Harrison CEO. Harrison became CEO of the U.S.-based freight carrier CSX in 2017, under similar pressure from an associate of Ackman’s.
The holy grail is lowering the operating ratio, the percentage of revenues that goes to expenses. CN reduced its operating ratio from 89% to 61% from 1998 to 2006, International Railroad Journal noted in 2019.
That gave shareholders big gains, but it cost workers and customers, with layoffs and the elimination of routes. That damages the business “to gain short-term returns,” Fannon says.
In Canada, the government owns the tracks, but in the U.S., where private companies own them, Fannon says, PSR means “deferring maintenance. It’s not just about lean management.”
He remembers when there were 60 workers within a 30-mile radius, but now, “they’ve got that down to five guys.”
East Palestine was a “PSR failure,” Fannon says. Union Pacific, he adds, has had major derailments, as have CSX, Norfolk Southern, and BNSF.
Private Equity And Ownership
There are now six Class I railroads, carriers with revenues of at least $900 million a year. In 1980, when the federal government deregulated railroads, there were 40. Railroads employed about 500,000 workers in 1980. At the end of 2022, that was down to 117,500, says Matthew A. Weaver, a national organizer for the Teamsters-affiliated Brotherhood of Maintenance of Way Employees and a member of the cross-craft coalition Railroad Workers United
According to the Association of American Railroads [AAR] trade group, those six carriers have a network of almost 140,000 miles and account for around 67% of freight rail mileage, 87% of employees, and 94% of revenue.
Two, CSX and Norfolk Southern, operate largely east of the Mississippi River. Two others operate largely west of the Mississippi: BNSF, a subsidiary of Warren Buffett’s Berkshire Hathaway since 2010, and Union Pacific, founded in 1862 to build the first transcontinental railroad. It more than doubled its size after the federal deregulation of railroads in 1980, culminating in its merger with Southern Pacific in 1996.
The other two, CN and CPKC (Canadian Pacific & Kansas City), operate from coast to coast in Canada and north-south in the central U.S., roughly between Chicago, Kansas City, and New Orleans. CN, formerly run by the Canadian government, was privatized in 1995. CPKC, which runs as far south as Mexico City, was formed after Canadian Pacific purchased Kansas City Southern for $31 billion in a deal finalized in April 2023.
All six are significantly more profitable than the average of investment-grade U.S. companies, which had an 83.7% operating ratio in the fourth quarter of 2023. Five had operating ratios of between 60.8% and 68.4% in 2023. The outlier was Norfolk Southern, damaged by the East Palestine crash. Its ratio rose from 62.3% in 2022 to 76.5%.
There are also about 615 smaller railroads, of which Genesee & Wyoming is the largest. It owns or leases more than 100 short-line and regional railroads in the U.S. and Canada, on more than 13,000 miles of track. These railroads have been popular acquisitions for private-equity firms. Genesee & Wyoming was bought by Brookfield Infrastructure Partners and GIC for $8.4 billion in 2019.
The Class I railroads’ different territories give them a “duopoly,” says Jared Cassity, alternate national legislative director of the SMART-TD union. “They set the terms. They dictate the standards. They are telling customers what the terms are.”
In other words, he says, the railroads could tell a steel mill that they can pick up freight on Mondays and Tuesdays only, but the mill can’t say it needs a load picked up on Thursday or Friday.
“Long-term planning seems to have fallen by the wayside at hedge-fund railroads,” says Weaver. “Workers are encouraged to not sweat safety rules. The shareholders make the decisions, and people die from it.”
The number of railroad workers killed on the job averages about 10 per year. Deaths this year include Chris Wilson, 55, a Norfolk Southern engineer who succumbed to injuries after his locomotive was struck by rolling freight cars in a yard in Decatur, Alabama on Jan. 31. On April 11, Union Pacific track maintenance manager Danny Brent Wilkins, 43, was fatally hit by the bucket of an excavator while he was supervising a crew repairing a washed-out culvert near McNeil, Arkansas.
Wilson’s death may have come because of brake failure on cars in the yard. Air brakes work because the engine pumps air into reservoirs in each car, with enough pressure to keep them on. If they lose pressure, the brakes fail, so train crews need to set handbrakes.
That was one of the causes of the 2013 disaster in Lac-Mégantic, Quebec, when a 72-car train carrying crude oil rolled down a hill and derailed, setting off an explosion that killed 47 people. The number of handbrakes set wasn’t enough to hold the train when the pressure failed, the Canadian Transportation Safety Board found in 2014.
“If I’m following rules, I’ve left enough handbrakes on any cut of cars to hold those trains,” says Sawyer. “You cannot get distracted. An empty car weighs 33 tons. There are no small injuries.”
“This is all part of PSR—cut costs, cut corners. We’re failing the country. We’re a critical link,” he continues. “I’m not a socialist, but the only way it’s going to change is public ownership of the railroad tracks.”
“There’s derailments happening every few minutes. It’s mind-boggling,” says Weaver. “It’s a monopoly that’s jeopardizing the safety not only of its own employees but of the communities they pass through.