Lockout Looms

Railroad Weekly August 19, 2024

courtesy: Steel Wheels Photography

Inside This Issue

·   Rail Lockout Looms: Canada Braces for Thursday Doomsday

·   Already, A Cargo Embargo: CN, CPKC Begin Preparations for a Shutdown

·   Steel Ordeal: Slumping Steel Demand Bad News for Met Coal

·   Super Power: Rising Electricity Demand Good News for Thermal Coal

·   Vena Vents: UP Chief Says New Engineer Work Scheds Too Costly

·   STB Pleas: Stakeholders Start Expressing Views in Advance of Sept. Hearing

·   Milestone Birth in Dallas-Fort Worth: BNSF Celebrates 30 Years of Alliance

·   Never-Ending Spending: U.S. Retail Data Still Mostly Positive

Publisher’s Note: Railroad Weekly publishes 48 issues a year, with two-week breaks in August and December. The next issue will be on September 9th.

Track Talk

“We fully understand and appreciate what is at stake for Canadians and our economy... CPKC is acting to protect Canada’s supply chains, and all stakeholders, from the more widespread disruption that would be created should this dispute drag out further resulting in a potential work stoppage occurring during the fall peak shipping period… All this uncertainty and disruption could be ended today if the TCRC would agree to binding arbitration.”

      -statement from CPKC   

“CN is attempting to create an artificial crisis. The TCRC has not issued a strike notice for either CN nor CPKC. The TCRC desires to continue bargaining and achieve voluntary settlements or at least agree upon as much as possible with CN (and CPKC).”

-statement from the Teamsters Canada Rail Conference union (from an Aug. 13^th letter to Canada’s Labour Minister)

“CN has made four different offers to the TCRC since January. The first three offers addressed a wide range of topics, including wages, rest, health and safety, and labour availability… The latest offer proposed third-party arbitration to avoid a strike or lockout… The Union rejected all of those offers.”

-statement from Canadian National

The Latest

·   Thursday. That’s the day when Canada’s rail network could stop running. Canadian National and CPKC—still unable to reach new contract terms with the union representing their engineers and conductors—began preparing for a shutdown. Ottawa rejected a plea to impose mandatory arbitration. As a result, the railroads started refusing shipments of hazardous materials, a prelude to locking out their TCRC union workers at midnight, Aug. 22^nd. U.S. railroads too, will be affected. Indeed, the STB in Washington said it’s “actively monitoring” the situation. Union Pacific, for its part, said it’s “actively monitoring the Canadian railway labor negotiations and is in close contact with our Canadian interchange partners.” Explaining why the process of shutting down is already underway, CN remarked, “It takes more than 72-hours, which is the required notice before any work stoppage, to help ensure a safe, predictable, and orderly shutdown of our network.” As of Sunday, the parties were still negotiating. At stake is the health of the entire Canadian economy.

Headline from Canada’s Financial Post:

·   Anticipation is building for the STB’s upcoming hearing on “Growth in the Freight Rail Industry.” Industry stakeholders began submitting requests to speak at the two-day public event, scheduled for September 16^th and 17^th in Washington. Some have even submitted their written opinions in advance. The American Chemistry Council (ACC), for one, said in a filing that its members “want to ship more by rail,” having shipped more than 2.3m carloads of chemical and plastics products in 2022. Their transport needs are growing, with chemical and polymer production expected to increase by more than 25m metric tons in the next eight years. However, the ACC—echoing the worries of new STB chair Robert Primus—is “concerned that freight railroads are not fully pursuing new business… While rail offers some inherent advantages, ACC members cite excessive rates, unreliable service, and the unwillingness of railroads to make infrastructure investments as key barriers that limit volume growth.”

·   Also filing comments in advance of the STB hearing was a coalition of rail unions. It argued that railroads are incapable of taking on more new business because the Class Is have “dramatically cut employment… [they’ve] only merely recovered to a level of service that is mediocre at best and is incapable of responding to extreme but predictable conditions or surges in demand; from an employment perspective, they are certainly not in a position to take on increases in traffic.”

·   The railroads themselves will look to counter such narratives. CSX and Norfolk Southern will send their CEOs (Joe Hinrichs and Alan Shaw) to testify at the STB meeting. Other Class Is will send top marketing, strategy, or operations executives. Union Pacific plans to send Kenny Rocker, BNSF Tom Williams, CPKC John Brooks, and CN Derek Taylor and Patrick Lortie. Ian Jefferies and Rand Ghayad of the AAR will be there representing railroad interests as well. They’ll also be joined by several shortline executives, including Kimberly C. Thompson of Genesee & Wyoming, Shannon Drown of R.J. Corman, and Henry Posner III of the Iowa Interstate Railroad.

·   Whenever he speaks with investors, Union Pacific chief Jim Vena makes no effort to hide his dislike of a new staffing agreement signed in May 2023, a few months before he arrived. It was with The Brotherhood of Locomotive Engineers and Trainmen (BLET), granting a work schedule of 11 days on, four days off. The BLET commented at the time: “The 11-4 work/rest schedule will be life-altering for employees who are used to working on-call 24/7, 365 days a year.” UP, for its part, hoped the change would reduce last-minute call-outs, improve worker morale, and boost retention and recruitment. Vena, however, doesn’t like it. Why not? Because, “The amount of work we’re getting—the starts per the 11 days that they’re available—is not anywhere near where both us or the union thought it was going to be.” That’s a quote from an Associated Press report earlier this month, in which Vena continues, “So we’re just trying to figure out how we can fix or tweak it. But at the end of the day, we’ve committed to people. We signed an 11-and-four deal and we’ll live up to our commitments.” The agreement, he adds, has forced UP to hire additional engineers to cover the shifts of workers getting regular time off. Will the railroad manage to change the agreement?

·   The latest edition of Norfolk Southern’s annual “Forging a Better Tomorrow” report features the company’s commitments on safety, sustainability, infrastructure investment, corporate governance, and employee development. It also discusses its three big commercial priorities: service, productivity, and growth. Advancing all three involves everything from deploying new technology to the creation of a new department focused on “Business Development and First and Final Mile Markets.”  One specific productivity victory in 2023 was helping its customers move 23% more grain per loaded train. The report highlights some growth victories last year, including major new customer wins in the plastics and battery sectors, handling more packages for FedEx, acquiring a Chicago transload facility (Great Lakes Reload), and offering new intermodal lanes in conjunction with Canadian National and the Florida East Coast Railway.

·   BNSF commemorated 30 years since the opening of its 24/7 Alliance intermodal hub in its hometown of Fort Worth, Texas. As the railroad explained on its website, 1994 was the year in which the NAFTA trade agreement took effect, not to mention the year that Amazon was founded. Both milestones would have great impact on the North American supply chain. BNSF didn’t yet exist in its current form. But its predecessor, the Atchison, Topeka & Santa Fe Railway “was more aggressive than many railroads at growing its intermodal business.” So, it designed and built Alliance specifically for intermodal. A year later, Santa Fe merged with Burlington Northern, creating today’s BNSF. It would go on to build a logistics park at Alliance, converting land around the intermodal hub into real estate for warehouse development. The giant railroad now has logistics parks in Chicago and Kansas City as well. “In 1994, the [Alliance] facility loaded and unloaded about 500 trailers and containers a day. Today, it averages about 2,700, with a daily lift record of 3,900.” (see BNSF graphic below):

·   FreightCar America, a railcar builder—but not a lessor—echoed rivals in sounding bullish about market demand. FCA last quarter delivered 1,159 new cars, while taking orders for another 3k. Customers, it said, are taking longer to analyze their purchase decisions but are nonetheless still eager buyers. FCA is now entering the tank car market, starting with a major order to upgrade more than 1k DOT 111 tank cars to DOT 117R status. This process includes giving the tankers a new exterior tank jacket, thermal protection, full-height head shields, top fittings protection, and upgraded bottom outlet valves. “As part of a federally mandated program, all tank cars transporting certain hazardous and flammable liquids must be upgraded by 2029.” Eventually, FCA hopes to build new tankers for customers as well, probably sometime after 2026—rail tanker market demand, it estimates, is about 8k units a year. Separately, the firm says it’s winning a larger share of the gondola, flatcar, and open-top hopper market. Roughly speaking, Class I railroads, shippers, and railcar lessors each account for a third of FCA’s customers.  

FCA’s position in the railcar market:

The Economy

·   There were two big government reports on the minds of U.S. economists last week. One was the Labor Department’s consumer price index for July, which gave more evidence that inflation is slowing, and that the Fed will finally lower overnight