What the average American knows about freight railroads is likely limited to what he sees through his windshield while waiting for a train to pass—and waiting, and waiting, and waiting. Grade crossings are a fixture of small towns (not for nothing do ruffians come from the wrong side of the tracks) and a routine headache in big cities like Chicago and Houston. The wait is getting longer because the trains are, too.
In fact, train crossings aren’t a bad vantage point to understand the crisis that has engulfed American railroads, where a looming strike could snarl the nation’s supply of grain, chemicals, and Christmas presents. The longer trains are part of the corporate strategy that has driven workers to the breaking point and diminished railroads’ role in American life, as Wall Street squeezes record profits from the country’s freight network but trucking continues to gain ground.
Conductors, engineers, and other railroad employees, who have been working without a contract since 2019, want relief from what they say are grueling schedules with severe attendance policies and no paid sick leave. Four of the 12 major unions—representing a little more than half the country’s rail workers—have voted to reject a new contract brokered by President Joe Biden this fall. If they go on strike, the unions that have ratified contracts will walk out in solidarity, too.
Congress has the power to break the strike and impose the contract, and on Wednesday the House voted to force an end to the faceoff while setting paid sick leave for the workers at seven days. Democrats would like to avert a strike so as not to roil the economy and disrupt the holiday shopping season, but there may be pushback from progressives in the Senate, which is yet to vote on the measure. Republicans, meanwhile, can be counted on to vote for chaos on a Democrat’s watch. (Rail unions last went on strike in 1992, but only for 24 hours before Congress intervened.)
Over the past decade, North American railroads have been in the throes of an investor-driven reorganization designed to optimize “operating ratio,” or profits as a share of revenues. On this point they have performed with aplomb: Railroads have some of the highest net margins of any industry, in line with software and financial services. The big seven North American outfits have shelled out $30 billion more in dividends and stock buybacks than they’ve invested in their business over the past decade. And their income has nearly doubled. “We fundamentally changed the way we operate over the last 2½ years,” Bryan Tucker, vice president of communications at the freight railroad CSX, told the Washington Post in 2020. “It’s a different way of running a railroad.”
Most of this transformation is branded as “precision scheduled railroading,” or PSR, a scientific management approach that railroads say has made their business more reliable for customers and more predictable for workers. But you don’t need to be a student of railroads to understand what has sent companies’ stock prices sky-high. In the past decade, employment at the seven Class I railroads has fallen from 162,443 to 118,208. With that retrenchment has come sketchy maintenance practices, neglect, and accidents, according to an investigation by Motherboard.
Which brings us back to the signal bell that tells you to put it in park for a few minutes and count the train cars. Falling employee headcount has encouraged long trains, because it takes just two workers to run a train, whatever its length. Between 2008 and 2017, the average train length grew by 25 percent at two Class I railroads that submitted data for a Government Accountability Office study. Union Pacific has extended its trains by 30 percent since adopting PSR in 2018. Some trains are now as long as 3 miles from the locomotive to the last car.
When something goes wrong, conductors need to walk for miles to inspect, and the more cars there are, the more likely it is that something will go wrong. “The rail bosses figured that they could just make the trains longer with their PSR scheme, mothball equipment and furlough workers—do more with less,” the SMART union, which voted to reject the contract, announced in a release last year.
Despite the name, there’s not much of a precision schedule for workers, who are guaranteed a rest after a shift but are otherwise always on call. While dangerous work all the live-long day was a hallmark of railroad life in the 19th century, many contemporary workers would like to be able, for example, to attend their kid’s birthday party or to keep their pay when they get sick.
Well, maybe that’s business. Railroads are making money like never before, and the workers make a six-figure salary, on average. But it’s not like the new American railroad has gotten better at moving freight. On the contrary, as the rail blogger Uday Schultz shows, rail carriers’ share of freight revenues hasn’t moved much since 2000. By weight, trains have lost ground to trucks in that time. And because railroads are a safer, cleaner, and cheaper way to move goods, their decision to trade investment and client acquisition for operating ratio and stock prices has costs. Martin Oberman, the chairman of the federal Surface Transportation Board, which oversees the railroads, has argued that more than 120 million tons of CO2 have been released into the atmosphere since 2002 “just because the [railroads] chose not to maintain their market share as compared to trucks.”
“They could go after that higher-value, more service-sensitive freight, but it would require a rethinking of the way they operate and an acceptance of a higher operating ratio because it would be more costly to produce this better service,” Trains magazine columnist Bill Stephens explained to me. “And that’s something that investors so far haven’t been terribly interested in.”
Nor has this obsession with efficiency translated into low prices for the goods that still do travel by rail—a mix of commodities like gas, coal, and grain, and intermodal containers full of consumer goods coming from overseas. By 2019, railroad rates were almost as high as they were in 1991, despite huge reductions in both track mileage and headcount. But there’s not much competition, and many big railroad customers have little choice but to pay what the railroads ask. Many supplier organizations have been vocal in criticizing the railroad companies for implementing PSR and have sided with their workers in the contract dispute.
If it all sounds a bit familiar—higher rates for hit-or-miss service, a captive customer base, reduced headcount, investment taking a back seat to investor profits—it’s because it’s much the same model that hedge funds have used to strip-mine local newspapers. Of course, no one thinks freight rail is being sold for parts and driven into obsolescence; some goods will always have to move by train. Still, how much have the railroads traded away, in foregone business, employee satisfaction, and investment in the future, in order to satisfy stockholders today?
The president can’t make freight companies do a better job competing with trucks. But by taking the companies’ side in the battle with the unions, he sends the railroads a sign that they’re doing a good job. The rest of us are stuck at the grade crossing, waiting for something to change.