Nati Harnik/AP Photo
Train operators remove their belongings from a Union Pacific locomotive at a rail yard in Council Bluffs, Iowa, in 2014. Freight trains once were typically staffed with seven people, but now rail companies want to cut that to just one.
If you thought that the worst of the supply chain woes might be behind us, think again. In the next few days, we could see either a strike or a lockout of the entire U.S. rail industry, more than two years after negotiations began on a new agreement.
President Biden has a narrow window to intervene and create a “presidential emergency board” to mediate the dispute, between today and Sunday. If he doesn’t, a walkout is likely. The Brotherhood of Local Engineers and Trainmen (BLET), which is leading the coalition of a dozen unions in talks, announced on Tuesday that they passed a strike authorization vote with 99.5 percent support. It’s the first nationwide strike vote in 11 years.
The backdrop to this looming labor unrest, and the larger supply chain crisis, is the rail industry’s big bet on throttling its own capacity. Class I railroads have reduced their workforce by 29 percent over the past six years, according to the unions. In the middle of the supply snarl last summer, Union Pacific closed service for a week between Los Angeles and Chicago, two key hubs, due to a lack of equipment or manpower.
As the Prospect has reported, Wall Street has effectively controlled the prerogatives of the industry, directing massive consolidation and “precision scheduled railroading,” a euphemism for running faster and longer trains, demolishing resilience, and sidestepping safety considerations. In other words, the largest rail companies intentionally gutted their own spare capacity, which meant the surge in goods production during the pandemic has produced skyrocketing freight prices—and then record profits—instead of more deliveries.
This strategy is continuing in the form of a proposed merger between Canadian Pacific and Kansas City Southern, amid outcry from both unions and business owners in need of shipping. This would be the first combination between two large rail companies since the 1990s, and would narrow north-south routes going through Canada and the U.S. Midwest.
Some unions and leading Democrats have begun to speak out about the proposed merger, which the Surface Transportation Board (STB) will decide whether to allow in the coming months. Rep. Katie Porter (D-CA) has asked the STB to deny the merger, citing “a grave threat to competition in the domestic rail industry” that would lead to “job losses, harm to other industries reliant on railroads, and more fragility in American supply chain infrastructure.” Rep. Raja Krishnamoorthi (D-IL) told the suburban Chicago newspaper The Daily Herald that the merger “just not viable as of right now,” citing the impact of longer trains in neighborhoods. Sen. Dick Durbin (D-IL) has also raised objections.
The complaints about the merger and about the labor situation resemble one another, with both reflecting anger toward an industry that critics say has prized profits over workers, safety, and the economy.
WORKERS HAVE A NUMBER OF COMPLAINTS that go back to the significant changes in rail since the industry was deregulated with the Staggers Act of 1980. In 1976 there were 63 Class I railroads in the U.S.; today there are just seven, and the Canadian Pacific/Kansas City Southern merger would take that to six.
More recently, the firings of nearly one-third of the workforce has changed the nature of the job for conductors and trainmen. A new attendance policy at BNSF Railway, owned by Warren Buffett’s Berkshire Hathaway, requires workers to stay on call for up to two weeks, able to be brought in to work at a moment’s notice. The policy, which is in place at other railroads, also penalizes workers for taking time off, up to and including termination.
Workday times have also increased to as much as 12 hours. The current CEO of BNSF, Katie Farmer, has called for one-person crews for trains, saying that “Railroad jobs, as most jobs, have always evolved over time.”
Another policy has been to run longer trains, which reduce the amount of labor per load and consequently raises profit margins. Trains can be up to three miles long, which many tracks were not designed to handle. Such enormous trains can not only block intersections but also crowd out passenger rail that often moves along the same tracks. Metra, the Chicago commuter rail system, has estimated that the Canadian Pacific/Kansas City Southern merger could cause a “1,200 percent increase in delays.”
The pandemic did not change these dynamics. According to union leaders, railroads did not staff up operations to meet rising shipping demand—and indeed they could not, because they were no longer offering competitive compensation. Nonetheless, high demand allowed railroads to raise prices. Buffett called BNSF one of his “four giants” and “an indispensable asset” in his annual shareholder letter, while Union Pacific celebrating its most profitable year in its history in 2021. (It’s been around since 1862.)
“These ridiculous policies forced thousands of employees out of the industry,” said Dennis Pierce, president of BLET, in a statement. “The railroads used and continue to use their economic strength to steam roll their employees, their customers and the nation, all for the sake of their bottom line, and it is clear that they have no intentions of changing.”
DESPITE WIDESPREAD INDUSTRY UNIONIZATION, the Railway Labor Act (RLA), which governs transportation industry labor relations, makes obtaining a new contract impossible. In 2019, unions served notice that they wanted to amend the existing agreement. Voluntary bargaining began in January 2020, but because the RLA makes it very hard to strike, it went nowhere. The railroads have offered no more than a three percent wage increase, at a time where inflation would make that a big loss of earnings in real terms. “They count on and hide behind the provisions of the Railway Labor Act to save them from having to treat their employees fairly,” Pierce said in his statement.
For the past six months, the two sides have been in mediation, and then three bouts of “super-mediation,” where members of the National Mediation Board sit in the room during negotiations. These yielded no result, and the mediation board released the two sides, leading to a “cooling-off” period that started June 17. At the end of that period, on July 18, railroads can either lock out workers, or workers can go on strike.
The Biden administration could create a presidential emergency board, and the Chamber of Commerce has been urging him to do so. That would block a strike action and force another round of mediation.
Rail shippers have also asked Biden to act, but in hearings in April, they made very clear that they blame rail companies for service delays, inadequate staffing, and detrimental impacts on commerce. “There are instances of origin grain elevators needing to turn away grain sales from farmers because they are full,” said Mike Seyfert of the National Grain and Feed Organization, who estimated $100 million in lost revenue and added freight expenses in the first quarter of 2022.
The hearing laid out what sounded like a hostage situation, where shippers and employees alike were at the mercy of an industry doing well by squeezing capacity and shirking the consequences. And according to critics, yet another merger will make things worse.
THE PROPOSED MERGER was announced in March 2021. It would create the first Canada-U.S.-Mexico rail line in history. While Kansas City Southern doesn’t have as big a footprint in America as the four giants—Norfolk Southern and CSX in the east, and Union Pacific and BNSF in the west—the merged giant would still serve 20,000 miles of rail, and combined revenues of the two railroads in 2020 were $8.7 billion.
Canadian Pacific in particular traffics tar sands oil from Alberta, and while pipeline construction has been stopped by activists, the rail merger would facilitate distribution. Kansas City Southern runs rail cars directly to refineries in Louisiana and Texas. Local officials have also raised concerns about crowding out transit, reducing pollution, and preventing more capacity loss that would shift logistics to trucking, which is more carbon-intensive. Cities in Illinois have placed the cost of the merger to their communities at $9 billion.
Some West Coast port unions have also spoken out. In a letter to Sen. Maria Cantwell (D-WA), the president of United Steelworkers local 592, Jared Moe, said that the merger would “divert the cargo coming through our U.S. ports in favor of Canadian ports,” because of the new rail path to the Midwest. Sources indicate that other port unions were unhappy about the merger as well. Other national unions, like the machinists, electrical workers, and other allied rail unions have asked for the STB to impose conditions, both for employment rates and collective bargaining standards.
“More consolidation will only further insulate railroads from competition,” Rep. Porter concluded, “and leave workers, businesses, and supply chains in an increasingly precarious position.”
In her five-page letter, Porter said that the merger would allow the new company to exert more power over shippers and limit competition to favor its long-haul routes, particularly at a gateway for U.S.-Mexico traffic at Laredo. “Dominant railroads increasingly alter service agreements, adding junk fees while limiting service,” Porter wrote, noting that price fixing allegations against the major railroads have been rising. She also pointed out that railroads have paid $196 billion in stock buybacks and dividends since 2010—disgorging cash while weakening overall system resiliency. “More consolidation will only further insulate railroads from competition,” she concluded, “and leave workers, businesses, and supply chains in an increasingly precarious position.”
Canadian Pacific has countered that the merger would increase competition, by adding a rail line from Chicago to Texas. A spokesperson for Porter said the congresswoman would let the letter speak for itself.
Ultimately, the STB will determine whether the merger goes through. Spokesperson Michael Booth told the Prospect the board has a statutory deadline of roughly the end of the year to make a decision, or February 2023 at the latest. There’s also an environmental impact report expected as soon as this summer, which may show the impact of facilitating tar sands oil.
STB chair Martin Oberman, in a press release this week lauding the anniversary of the Biden executive order on competition in the U.S. economy, said he has “prioritized enhancing competition in the nation’s rail industry” to reduce businesses having no choice for freight shipping. Oberman said that the agency would “act expeditiously” on the merger proposal.
Both the merger and the looming strike reflect an industry whose decision to limit capacity before a jump in demand has triggered outrage from workers and business partners, despite the boost to the bottom line. It has created an industry with high turnover, large external costs to transportation safety and the environment, and objectively poor performance in reaching its own service goals.
“The responsibility for the rail industry and our union even being in this situation lies squarely on the rail carriers,” said Pierce. “They created the mess, and they have the power and financial means to fix it.”
