Part 1: How Corporations Are Running Freight Rail Off the Track…
“It’s really bad on all fronts—it doesn’t make sense until you see how much they’ve cut.” —Maddock Thomas, author, “Putting America Back on Track: The Case for a 21st Century Public Rail System.”
Editor’s Note: This is Part 1 of a special two-part Work-Bites report on the increasing dangers across the nation’s freight rail system and the growing calls for public ownership of those lines.
By Steve Wishnia
Corporate ownership has messed up freight rail in the U.S. and Canada so badly that public ownership is the only way to save it, argues a study released this summer.
The six corporations that control 70% of all track miles in the United States “have run our rail system into the ground for the sake of short-term profit,” says the report, “Putting America Back on Track: The Case for a 21st Century Public Rail System.” The report was backed by the cross-craft group Railroad Workers United.
“It’s really bad on all fronts,” says the author, Maddock Thomas, speaking to Work-Bites in a coffeehouse near Wall Street. “It doesn’t make sense until you see how much they’ve cut.”
More than 50,000 workers, more than a quarter of the workforce, have been laid off since 2015, as railroads reduced crew size and maintenance. A century-long trend of fewer accidents, due to changes such as reducing the number of grade crossings, has been reversed. The accident rate rose 28% between 2013 and 2022, the study says. At Norfolk Southern, it more than doubled.
“It comes from this cost-cutting and this idea of speed at all costs,” Thomas says.
The six main freight-rail companies, known as Class I railroads, have reduced service, largely abandoning rural areas, the report says. They moved 30% fewer carloads of freight in 2023 than in 2000. Much cargo is now shipped by “intermodal” trains, carrying shipping containers. But this is less profitable, and has also led to service cuts. Intermodal trains no longer deliver to major cities such as Baltimore and Detroit: The Baltimore-bound trains end in Chambersburg, Pennsylvania, where the containers are unloaded and trucked the last 100 miles.
“They’re driving customers away. We’ve seen an enormous explosion in freight traffic, but all of it’s gone to trucks,” Thomas says.
With freight service effectively a duopoly in most of the country, shippers are a captive market. In some cases, the report says, railroads pick up cars from customers only two days a week even when their contract is for service five days a week, and don’t make deliveries on the days they agreed on.
“It is nearly impossible to plan a supply chain when you have no idea when railcars will arrive or be picked up,” the report says. This is a particularly bad problem for perishable goods such as food. Farmers being unable to ship grain was a “huge problem during the pandemic,” Thomas says.
Railroads have decided that “they’re going to run the trains when they want to run the trains—without regard for the shippers’ needs,” Thomas says.
Profits not reinvested
The Class I railroads, the report says, have also failed to invest in infrastructure needed to meet the growing demand for shipping and reduce pollution, such as building overhead catenary systems to power engines by electricity instead of diesel fuel. Instead, they have taken nearly half their revenues as profits. Union Pacific, one of the two main carriers west of the Mississippi, which had $20 billion in revenues in 2022, spent $6.28 billion on stock buybacks and $3.16 billion on dividends—and $1.89 billion on track maintenance, $800 million on equipment, and $584 million on expansion, building only 44 miles of new tracks. BNSF, the largest U.S. railroad, builds about 20 to 70 new miles a year, Thomas says.
“Trains are longer and longer. They don’t fit in the passing sidings anymore,” he notes, referring to the sidings where one train can pull over to let another pass. “These companies don’t want to invest in longer passing sidings.”
The federal Surface Transportation Board, the report says, calculated that between 2010 and 2020, the four U.S.-based Class I railroads paid out $196 billion in buybacks and dividends, adjusted for inflation. That is $21 billion more than the amount that a 2007 study by the Association of American Railroads trade group projected would be needed to expand to meet the demand expected for 2035.
The report says Class I railroads have cut the number of shop-craft workers, who repair locomotives and freight cars, by nearly 40%, and reduced the number of maintenance-of-way workers—who maintain tracks, bridges, signals, and defect detectors—by more than 20%.
Since the 1990s, the number of maintenance workers has been slashed by more than 40%, says RWU activist Matt Weaver, from about 50,000 to about 27,000 or 28,000 today. He is Ohio legislative director for the Brotherhood of Maintenance of Way Employees union.
“I’ve seen it go from preventive maintenance to reactive or deferred maintenance,” he says.
“Oftentimes, workers are given one minute or less to inspect each railcar—down from three just a few years ago,” the report says.
Shop-craft unions have called for more inspections. The National Transportation Safety Board investigation of the East Palestine derailment found that one-fourth of the train’s 149 cars were defective. A surprise Federal Railroad Administration (FRA) inspection last fall found that 73% of Union Pacific locomotives had defects.
Another result of the reduced workforce is massive speedup “all across the industry,” Thomas says. There are many fewer jobs doing local service that had set schedules, so engineers and conductors mainly work on-call. “Now everyone’s on the extra board. You get a call two hours ahead of time. Maybe 3 a.m., maybe 4 in the afternoon.”
A 2023 FRA study found almost 40% of engineers and conductors reported being “highly fatigued,” with the vast majority blaming irregular work hours.
Passenger-train problems
Freight-line ownership of rail lines outside the Northeast Corridor also causes problems for passenger trains. Service from New York to Montreal has been suspended during the last two summers because the tracks were in too bad shape to be usable in a heat wave, Thomas says. “There’s no profit motive for Canadian National, who owns that trackage, to maintain it, so why should they?”
Passenger trains are often delayed to let freight trains pass. Freight companies, which “ripped up” passing sidings and double trackage, often demand hundreds of millions of dollars in improvements to let passenger trains run on their tracks, Thomas says.
That means American passenger trains’ performance has regressed, he adds. In the 1920s, with steam engines, the trip from New York to Chicago took 15 hours. Today, it takes 19½ hours nonstop.
In contrast, the report says, Switzerland’s publicly owned railroads intensively plan timetables, and “90% of trains arrive within three minutes of their scheduled arrival.”
Precision Scheduled Railroading
In the last 10 years, the dominant business model has been “precision scheduled railroading” (PSR), pioneered in the late 1990s by Hunter Harrison, then an executive at the Illinois Central. He brought it to Canadian National after it acquired Illinois Central, and went on to Canadian Pacific and CSX before his death in 2017.
PSR relies on maximizing the number of cars in motion by running longer trains with cars containing different cargos, rather than “unit trains” transporting only one product, and also operating with fewer workers and lower capital expenditures. The basic principle, Thomas says, is productivity and efficiency at all costs: eliminating less-profitable routes and cutting maintenance and the number of workers.
By 2019, all the Class I railroads had adopted it, with the possible exception of BNSF, Thomas says. That happened, he explains, because since about 2000, Wall Street discovered that “if we do certain things, the rail industry can become very profitable,” so there’s a lot of pressure to focus “on short-term profits, at the expense of customers, the public, the environment, and workers.”
This spring’s proxy fight at Norfolk Southern illustrates that, Thomas says. After the disastrous East Palestine derailment in February 2023, which cost the railroad more than $1 billion in cleanup and restitution costs and put it under pressure from workers, Congress, and the public, CEO Alan Shaw tried to do what he called “resilience railroading.”
But when he started making slight changes to improve safety and service, and to not “aggressively furlough people every time traffic dips slightly,” Thomas says, “we saw an investor firm come in and mount a proxy challenge.” That firm, Ancora Holdings, insisted on returning to “full-blown PSR,” cutting jobs, and focusing on more profitable carload traffic rather than intermodal shipping.
Before the May vote took place, Norfolk Southern voluntarily closed 53 intermodal routes—something Thomas says raises costs to shippers and makes the railroad less competitive, because the containers have to be unloaded and trucked to their destination. Shaw kept his job, but the railroad agreed to make reducing the operating ratio the most important criterion for executives’ performance bonuses.
Operating ratio—the percentage of revenue going to expenses—is “the king of all metrics in railroading,” Thomas says. Hunter Harrison’s private jet’s tail number was OR69, to signify his desire to get it below 70%. Ancora insisted that Norfolk Southern bring it below 65%.
Alan Shaw’s concept of fewer furloughs and better service was a great idea, “but I don’t think it’s going to happen except under a publicly owned railroad,” Thomas says. “It’s really bad across every aspect of the railroad industry, and we can’t last much longer doing this.”
Matt Weaver says he was at first skeptical of public ownership, hoping that government regulators would “do their job,” but there’s been “years of failure. What is the public and rail labor supposed to do?”
“Public ownership of roads is already there,” he adds. “Public ownership of airports is already there.”
Click here for more on the “Getting America Back on Track” study.
Part 2: How Public Ownership of the Freight Rail System Could Work.