A US Freight Rail Crisis Threatens More Supply-Chain Chaos

Early this summer, farmers worried that millions of chickens in California’s Central Valley might soon peck each other to death. The birds were running perilously low on feed, which should have been delivered by Union Pacific Railroad from Midwestern corn producers. Foster Farms needed at least nine trainloads of corn each month to feed its tens of millions of chickens and turkeys, plus tens of thousands of dairy cows at its California facilities.

But the trains weren’t showing up. Chickens can’t go long without eating—they become aggressive and turn to cannibalism—and if the feed didn’t arrive soon, the mega-flock would have to be euthanized. Executives at Foster Farms began behaving like, well, chickens with their heads cut off.

“Your failure to deliver is about to kill millions of chickens,” one incensed vice president at the company emailed a director at Union Pacific. “These dead animals will have to be picked up in dump trucks and taken to the local dumps. This is going to be an animal disaster, [and an] economic and media nightmare.

” After unsuccessfully pleading with another railroad for relief and paying more than $1. 5 million on backup transportation modes like trucks, Foster Farms turned to the federal government. The company wrote in a June letter to the Surface Transportation Board, which regulates railroads, that Union Pacific had once provided service “with reasonable regularity … but has demonstrated, without any doubt, that it can no longer do so for the indefinite future under its current operating plans and priorities.

” Two days later, the STB issued an emergency service order directing Union Pacific to prioritize corn shipments to Foster Farms. The chickens were spared—at least from starvation. But rail service remained poor, not just at Union Pacific, and not just for chickens at Foster Farms.

Since early this year, companies across numerous industries that ship goods via rail have issued increasingly stark warnings that the US freight system is in a state of crisis—complaining of weeks-long waits for trains, backed up facilities, clogged ports , and suspended business. In April, the STB held hearings on the meltdown, where representatives from sectors including agriculture, energy, and chemicals joined trade unions to complain of poor service and working conditions. STB data says railroads cut their workforce by 45,000, or 29 percent, over the past six years, with pandemic furloughs pushing staffing levels past a tipping point.

By late May, only 67 percent of trains arrived within 24 hours of their scheduled time, down from 85 percent pre-pandemic, according to data submitted to the STB by the four largest US freight railroads. Worse, the US freight rail system is now poised on the brink of total paralysis because of a contract dispute between 115,000 rail workers and their employers. Negotiations have dragged on since the last contract expired in 2019, during which time rail workers have not had a raise.

Under the Railway Labor Act, federal government mediators try to prevent railroad work stoppages, in this case to no avail. On August 16, a three-member presidential emergency board appointed by President Biden issued recommendations for the basis of a new contract. If the sides don’t reach agreement by September 15, rail workers can strike—a scenario that Rick Paterson, a rail analyst at the investment firm Loop Capital Markets who testified during the STB hearings, calls “economic WMD.

” The fallout of a prolonged strike would likely eclipse those from pandemic delays to ocean shipping because a foundational component of many supply chains would see its labor supply evaporate overnight, says Paterson. Ports would jam; trucking rates would soar; livestock would run out of feed. For that reason, Congress would likely intervene to delay or quickly end a strike, as it did during the last railroad strike in 1991.

But lawmakers may not have much time: The deadline is just three days after the House of Representatives returns from recess. US freight railroads cut staff in recent years as part of a shift toward a leaner and more profitable operating model dubbed Precision Scheduled Railroading (PSR). It was invented by a Canadian railroad executive and later replicated in the US, with the intention of simplifying a complex rail network by running fewer, longer trains, replacing single-commodity trains with mixed freight, and slashing labor.

US freight trains grew 25 percent in length between 2008 and 2017 and now sometimes reach 3 miles long. And while the profits materialized, the promised service improvements have not always followed. Rail customers, labor unions, and the STB all say that the bare-bones operating model stripped the US freight rail system of its resiliency to disruptions, be it something quotidian like weather or more catastrophic, like a pandemic.

“Covid was an extreme case, but it was entirely predictable that there was going to be, at some point, an increase in demand, and that they didn’t have the capacity to handle it,” says Jeff Sloan, senior director of transportation and infrastructure at the American Chemistry Council, a trade group that represents some of the railroads’ biggest customers. All the while, rail companies have raked in much larger profits. A recent Bloomberg analysis found that the five largest US-owned freight railroads—BNSF, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific—saw operating margins, a measure of profit, increase by a third over the past decade.

They soared to 41 percent in 2021, a level described as “off the charts” relative to other transportation companies. Last year, 170-year-old BNSF , owned by Warren Buffett, and 160-year-old Union Pacific both reported record profits. In a statement, Ted Greener, spokesperson for the Association of American Railroads, which represents the major freight rail companies, wrote, “Railroads continue to work to return service to a level customers deserve and expect,” including through hiring.

“Railroads are also fully committed to reaching an agreement with their employees on a new contract. ” Workers, for their part, complain that the leaner PSR model has heaped more work upon them, causing more fatigue, injury, and burnout. Stricter attendance policies meant to boost staffing levels have prompted protests and resignations .

“If you’re looking to move increasing amounts of freight with fewer and fewer people, you’re going to work people longer hours, which increases the risks of injury or accidents,” says Greg Regan, head of union federation AFL-CIO’s Transportation Trades Department, a coalition of 37 transportation unions. Regan says more railroaders are leaving what used to often be a lifelong career, because the pay and benefits no longer outweigh the costs of a punishing schedule. Railroads furloughed many workers early in the pandemic after demand sank, but they found most people declined when asked to return after business began to pick up again.

The combination of a skeletal workforce and a low worker recall rate proved calamitous. “A lot of our membership is saying this is the worst rail service they’ve ever experienced in their careers,” says Max Fisher, chief economist at the National Grain and Feed Association, which represents grain producers. He says that facilities such as ethanol plants and flour mills have had to halt production after exhausting the available rail cars to load product into, raising business costs and consumer prices.

The American Chemistry Council found that three-quarters of its members have shifted some freight volume from trains to trucks, which are costlier, produce more carbon emissions, and can be impractical for high-volume shipments, like say, a million bushels of corn. When Esmeralda Montelongo, a first-generation Mexican American, started working at Union Pacific in Southern California 15 years ago, she was ecstatic. “I had made it,” she says.

“I had a union job. ” Her position as a shipping clerk, which involves checking in and directing shipments as they arrive at the rail yard, supported a decent quality of life in the Los Angeles suburbs, where she lives with her three kids and husband, who is also a rail worker. But it didn’t last.

Montelongo, who is now chair of her local union branch, remembers when PSR came to Union Pacific. In 2018 a consultant began making the rounds, identifying which jobs could be eliminated. “People used to call him the butcher,” she says.

After the cuts, Montelongo began working 16-hour shifts, often back-to-back, and saw more of her fatigued coworkers getting injured. She started missing time with her kids, unable to go on family excursions or cook them a hot meal. While the overtime isn’t mandatory, if a worker declines, she says, managers threaten to cut their position.

“You do what you have to do to protect the job. ” Union Pacific spokesperson Kristen South says that employee health, safety, and well-being are a priority and that the company has been working to improve its safety programs. She says PSR increases train speeds and reduces the amount of time trains are stopped.

In addition to the personal toll they suffer, some workers say the leaner operating model has damaged railroad infrastructure, harming the system’s performance. A surfacing crew foreman for BNSF, who requested anonymity because he’s not authorized to speak to the media, said that crews used to proactively maintain tracks to keep trains running smoothly, through a process called tamping. Now workers wait for something to break before attending to it.

“We’re completely reactionary,” the foreman says, a shift he says sometimes forces trains to run more slowly over certain portions of track, or stop entirely. BNSF says it proactively maintains its tracks using a variety of technologies, including sensors on trains, cameras, lasers, radar, and machine vision. Unions have also disputed how railroads have used new congressionally-mandated automated emergency braking systems to justify plans to remove conductors from trains, which would leave the engineer the sole human in charge of up to 3 miles of rail cars moving at up to 70 miles an hour.

While the new braking system automatically stops a train if it blows through a signal, rail unions argue that it is not a replacement for a second set of hands and eyes on a lengthy vehicle that sometimes carries hazardous material. The unions often point to a 2013 rail disaster in Quebec in which a lone engineer failed to properly secure a train before stepping off, and it rolled down a hill, killing 47 people and destroying most of a downtown. Afterwards, Canada’s government passed a law mandating two-person crews; last month, the US Federal Railroad Administration proposed setting its own rule to do the same, which the railroads association opposes.

The unpredictable schedules demanded by railroad companies often lead to sleep deprivation and poor health, making solo shifts dangerous, says Jordan Boone, a conductor for BNSF and a legislative representative for the transportation division of the International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART-TD). “It’s not a sustainable lifestyle, to be on those trains by yourself,” he says. What’s more, “if something happens, it could take hours for somebody to get to you because we run in very remote locations.

” Trade associations, including those for the grain and chemicals industries, say one underlying cause of the rail crisis is a lack of competition. The number of major freight railroads has shrunk over the years, and in some areas, customers are captive to a single line. In Congress, the House Transportation and Infrastructure Committee is considering a bill that would create incentives for better service.

The railroads association opposes the bill. The STB is also considering rule changes that would increase competition. Greg Regan, of the transportation unions coalition TTD, says railroads deserve better for more than just business reasons, because they are more environmentally friendly and cost-efficient than alternatives like trucks.

“The railroads should be a growing sector,” he says. “That is not happening right now, in part because the only focus from the corporate side is on quarterly shareholder returns, not long-term growth and what is ultimately better for our country. ” Sloan of the American Chemistry Council says rail freight problems could also hinder attempts to boost US semiconductor production.

The CHIPS Act , a funding package passed last month, is expected to drive new business to chemical companies that produce chip components. “If you’re looking to make more things in America, like semiconductors,” Sloan says, “you need to be able to move them. ” The recently signed US climate bill ties tax credits on electric vehicles to a requirement to process battery materials domestically , a reshaping of supply chains that could also depend on trains.

Unions and railroad companies now have two weeks left to consider the Presidential Emergency Board’s recommendations and reach agreement before a possible strike. The board essentially split each side’s proposal down the middle, suggesting a series of raises equivalent to 24 percent over five years, and asking employees to pay more for health insurance. The railroads association indicated its willingness to accept the recommendations, but labor groups have expressed disappointment , with some saying that the board’s recommendations didn’t go far enough, in part because they did not address intense work schedules.

After two years of supply chain woes, businesses and consumers may be about to get a new demonstration of what happens when a transportation network usually taken for granted grinds to a halt. Transportation consultant Larry Gross says that the pandemic delays and ongoing rail freight crisis are a reminder that an increasingly disaster-prone world demands hardier transportation networks. “These sorts of mega-disruptions are happening a lot more often than they used to,” he says.

“The system needs to change to become a little bit more resilient and a little bit more flexible than it used to be. ”.