The fact that there was no rail freight strike happening this week is a huge win for the US economy and the still struggling supply chain. But this does not mean that freight railways provide good service to their customers.
Many of the intertwined problems in the supply chain, leading to higher prices and a slowing economy, can be traced back to the continuous decline in freight rail service in recent years. Even the railroads themselves admit that the country’s current freight service is problematic, mainly because of the lack of calls to pick up or drop off freight cars, routine and extended delays, and general unreliability that has plagued the industry, say its critics and customers.
“Railways understand that service is not at the level customers expect or deserve. A statement released last week from the American Railroad Association, the industry’s trade group, said strict measures are underway to put appropriate plans, people and equipment in place to improve service and reliability.”
“Union Pacific is fully aware of our customers’ concerns, and we have taken drastic measures to address them,” said a statement from one of the four major railroads that collectively handle 90% of the country’s rail freight. UP, AAR and other major rail lines all say they are working hard to find the employees they need. Many say the statistics show an improvement in service levels even before all new workers are in place.
But many business groups are formally complaining about poor service, including longer transit times and fewer rail journeys to pick up goods or return empty cars to the companies they serve.
“Things seem to be getting worse,” said Jeff Cooper, CEO of the Renewable Fuels Association. “Bottom line – if you’re an ethanol producer, you’re crossing your fingers and hoping everything goes smoothly because this is an industry that’s really at the mercy of railroads.”
Rob Benedict, vice president of American Fuel & Petrochemical Manufacturers, a trade group representing the country’s oil refineries, said the business agreement reached last week “highlighted how important the rail industry is to so many supply chains.” We are happy to solve this problem. But we’ve been screaming from the rooftops for the past five years how much service has been going down.”
A recent survey of its members by the Benedict trading group showed that all respondents had experienced rail shipment delays or halts of three days or more. One member noted that by the time they completed the survey, they had more than 350 vehicles that were more than 72 hours late in transit.
Many companies that rely on rail are reluctant to speak out about problems, even if they are registered to express their concerns to rail regulators. Companies have few alternatives to trying to keep relations with railroads as smooth as possible. But their trade associations are less reluctant to speak out.
“Many of our members have told me this has been the worst year for rail service of their careers. Some of them span 30 years or so, Max Fisher, chief economist and treasurer at the National Grain and Feed Association, tells CNN Business.
The biggest concerns are the reduction in service calls that railroads make to receive shipments, and the time it takes to deliver goods. And since the railroad cars themselves are mostly owned by customers, there are growing concerns about returning those empty cars so they can be filled with freight again.
The ethanol industry ships nearly 400,000 cars annually, according to the Renewable Fuels Association. But Cooper said trains carrying ethanol are still down 30% more than they were a year ago, and 40% more than that before the pandemic.
Rail delays are also a major part of the problem for cargo flows through the Port of Los Angeles and the neighboring Port of Long Beach, which are the main entry points for shipping containers from Asia.
There were 26,376 containers on the berths of the Port of Los Angeles designated for rail as of Monday. This is nearly three times what it was on average the day before the pandemic.
Of those, nearly two-thirds stayed there for nine days or more.
The problems go back well before the pandemic. Statistics show that rail service is much worse than it was at the beginning of this century, and has gotten particularly poor over the past five years, according to Pete Swan, a professor of logistics and operations management at Penn State.
“Railroad management focused on maximizing payments to shareholders and return on assets, not service quality,” Swan said. “What got us into trouble now is the lack of incentive to provide a good service. There are a lot of incentives to make the service suffer, and to reduce costs.”
For rail customers, there is no primary substitute for the products they ship. Trucking has its drawbacks and service problems, and it cannot competitively move freight volume for the distance traveled by rail.
Many rail customers are what are known in the industry as “captive freight companies,” which are companies served only by one railroad and cannot negotiate rates between different service providers.
No other company is likely to stay afloat if it offers the same poor quality of service as railroads, Swan said.
What other monopoly power do railways do? He said.
This is one of the reasons why a number of business groups have imposed stricter legislation and penalties on rail lines that cause delays or problems in service.
“We are all in favor of free market solutions, but this is not a free market,” Benedict said. “That’s why you need government support.”
There have been hearings held by the Surface Transportation Board, one of the federal rail regulators, to consider penalties for poor service. There is also legislation before Congress. Not surprisingly, railroad companies argue that this is the wrong solution.
“Today’s interim service challenges in no way justify a change in the market-based principles that have brought the industry back from the brink and paved the way for the world’s safest and most efficient freight rail service,” the AAR statement said.
The industry argues the proposals now before the STB and Congress “would have far-reaching negative effects on the efficiency of the freight rail network, but together they would be devastating to long-term US rail service, reliability, and investment.”
But while the railways fight rules and legislation, increased regulation has widespread support across much of the rest of the business community looking for better service.
“Railroads are very adept at the inner Washington game, which is why these conditions have persisted for so long. But I think the tide has turned,” said Chris Gunn, CEO of the American Chemistry Council, the trade group that represents the chemical industry in the United States. The fact is that Congress and the Board of Surface Transportation have more work to do to solve the freight rail problems that continue to hold back the US economy and prolong the supply chain crisis.”
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