STB reauthorization hearing: Freight-rail service problems were top of mind for House Railroad Subcommittee lawmakers

5/16/2022

By Julie Sneider, Senior Associate Editor 

The House Subcommittee on Railroads, Pipelines and Hazardous Materials last week held a public hearing on Surface Transportation Board reauthorization, at which board members responded to committee members’ questions about the STB’s authority and focus on railroad regulation. 

The board’s five members were called to appear before the subcommittee to hear their thoughts on potential reauthorization, said Subcommittee Chairman Donald Payne Jr. (D-N.J.) U.S. Rep. Rick Crawford (R-Ark.), the subcommittee’s ranking member, noted that the STB has been reauthorized only once since it was created as an independent agency in 1996. That was in 2015, when “changes were made to ensure the STB operated more effectively.” Also at that time, the board’s membership was expanded from three people to five. 

Donald Payne Jr. The railroads’ “unacceptable” service decline is rippling through the supply chain, causing harm to the economy, said Subcommittee Chairman Donald Payne Jr. (D-N.J.) payne.house.gov

“This year, the STB is busier than ever as it reviews several major proposed rulemakings, a major merger between two Class I freight railroads, and the potential expansion of Amtrak service,” Crawford added. 

But Crawford and Paine then transitioned to what many of the lawmakers’ questions would zero in on: railroads’ recent failures in delivering freight and cargo to shippers and customers on time. 

A rippling effect on the supply chain 

The railroads’ “unacceptable” service decline is rippling through the supply chain, causing harm to the economy, Paine said. He pointed to the dramatic reduction of railroad workers — the industry’s workforce has been slashed by a third since 2015, as railroads implemented precision scheduled railroading (PSR) operating models that they said would improve efficiency. But those drastic employee reductions have now “come home to roost” in the form of worker and crew shortages. 

House Transportation and Infrastructure Committee Chairman Peter DeFazio (D-Ore.) began his testimony by slamming the freight railroads for providing “appalling” and “abysmal” service. As he has before, DeFazio blamed the industry’s problems primarily on the Class Is’ adoption of PSR. 

“Sadly, the freight railroad CEOs blame poor service on everyone but themselves. They blame COVID, supply chain disruptions, their workforce and their customers. The CEOs are not looking for change. They are bringing in record profits for their shareholders, and they are not going to do anything to mess with this ‘winning formula’,” DeFazio testified, according to a written version of his opening statement. 

Rail shippers from industries that haven’t agreed with him for years now “bemoan PSR” and the harm they say it’s having on their businesses, DeFazio said. 

Although “pleased” the STB is addressing the shippers’ service complaints — the board last month held a two-day emergency hearing on the topic — DeFazio chastised the board for not acting fast enough to use its regulatory authority to correct the industry’s problems. 

“Your mandate is not to protect the freight railroads’ bottom lines or rail shippers’ bottom lines, but to ensure the rail network is operating efficiently, keeping costs low for Americans, maintaining reasonable profits for the railroads, and giving American manufacturers a competitive advantage worldwide,” DeFazio said. “We need the STB to do more to meet those mandates.” 

If the STB doesn’t move quickly to address the problems, “the committee will legislate,” he added. 

Reliable rail service is STB’s top priority 

In response to the subcommittee leaders’ opening remarks, Oberman said rail network reliability is his top priority as STB chairman, a position he assumed in January 2021. He explained what the STB’s response to the service crisis has been so far and detailed what he believes the board’s existing authority allows it to do. 

In May 2021, Oberman said he wrote to the Class I CEOs asking them to report on their preparedness to meet the growing demand for rail service, as freight rail volumes rebounded as part of the economic recovery. He wrote again in July 2021, about intermodal network congestion, and “significant fees that railroads were imposing on their customers” largely due to circumstances beyond their control.  

Martin Oberman “While the problems facing the rail industry today are significant, in my view, the board can use its existing authority to mitigate those problems.” — STB Chairman Martin Oberman stb.gov

“In response, the railroads provided assurances and expressed confidence they could handle freight volume as the economy continued its recovery,” Oberman testified. “Nevertheless, in the second half of 2021, rail service was erratic and inadequate for many rail customers, albeit with different Class I railroads performing better or worse at different points in time.” 

But today, the industry is struggling to provide adequate and reliable service, Oberman said. Although the industry was hit with the same problems brought on by the pandemic, the Class Is’ recent business practices “have undermined industry preparedness and service reliability,” he said. 

The Class Is’ “significant” labor cuts prior to the pandemic left holes in the railroads’ ability to turn around quickly once volume demand bounced back, he added. 

“It is clear the four largest U.S. Class I railroads’ earlier assurances about having sufficient employees, locomotives and rail cars to meet service demand going forward were incorrect,” said Oberman, adding that not all Class Is have had the same problems.  

Also, some rail users have reported to the board that short lines and regionals have been more responsive to customers’ needs “despite facing many of the same external forces,” Oberman added. 

At last month’s two-day STB hearing, the railroads, rail users, labor executives and rail industry experts all attributed the current service disruptions to the industry’s labor shortage. That shortage was exacerbated by the Class Is further cutting their workforces — by as much as 20% — in response to the pandemic’s onset, without knowing when the economic recovery would begin. 

Oberman said the rail employees who were cut or furloughed are highly skilled workers whose positions require several months of training. Consequently, many of those previously laid-off employees had moved on to other careers, he said. 

Given the railroads’ challenge to quickly ramp up their staffing in a tight labor market, “I am not optimistic about significant improvement in rail service in the near term,” he said. 

STB’s response to rail-service crisis 

While the board has no authority over rail labor agreements, it can respond to service complaints. So, after last month’s hearing, the board ordered the rail industry to restore reliable Class I service as quickly as possible, Oberman noted. The order requires: 

• the four largest Class Is to submit service recovery plans and biweekly progress reports over the next six months; 

• all Class Is to submit to the STB weekly performance data and monthly employment data for a sixth-month period; and 

• the four largest Class Is to participate in individual biweekly conference calls to update the STB on their service recovery progress. 

The information the railroads must submit goes beyond the data they regularly report to the STB. 

The board is considering taking additional steps, including permanently collecting more detailed information on service reliability and implementing reciprocal switching regulations, Oberman said. 

Additionally, the board has proposed two new rules: one would address rate reasonableness; and the other would establish a voluntary and binding arbitration process. The board intends to act on those proposed rules by fall. 

To be sure, not everyone agrees on the scope of the STB’s authority, and some of the recent proposals have been challenged, including by the rail industry. 

“However, while the problems facing the rail industry today are significant, in my view, the board can use its existing authority to mitigate those problems in a meaningful way,” Oberman said.  

Although much of the board’s work involves freight railroads, the STB’s involvement in passenger rail has been expanding and will expand even further under the Infrastructure Investment and Jobs Act that Congress passed last year. Under the new infrastructure law, the STB will set up a passenger-rail office that will enforce on-time passenger-rail performance, Oberman noted. 

After Oberman’s prepared remarks, various subcommittee members asked about the STB’s authority, particularly in addressing the current rail service problems. Some of the Republican members asked the STB members to take into consideration how their proposed rulemakings, particularly on things like reciprocal switching, could further complicate the nation’s freight-rail network and/or the supply-chain.

Oberman assured lawmakers the board would take into consideration the potential impact of its regulatory proposals on the rail network and broader supply chain.