Union Pacific, CSX aim to solve workforce woes to move petroleum, coal and more

Union Pacific and other major railroads said they are acting aggressively to solve their workforce woes and operations inefficiencies to move more petroleum, coal, agriculture and other products amid growing customer complaints and federal regulatory scrutiny.

A combination of previous spending cuts, omicron pandemic disruptions, rising workforce attrition and supply chain problems contributed to escalating railroad slowdowns this spring, and the railway companies are rushing to hire and train new generations of employees, especially the more specialized engineers and conductors.

"We thought that our hiring pipeline had been charged up heading into 2022," Union Pacific CEO Lance Fritz said during an earnings call April 21. "What happened was we were more fragile than we'd given ourselves credit for. Shame on us. We did not have the crew availability for when something went wrong."

A key efficiency metric, Union Pacific's average freight car velocity fell by more than 5% compared with the first quarter of 2021, and by 12% as of this April. UP's percentage of train cars arriving on time declined from 68% to 62% during the first three months of 2022 compared with the prior year.

Public hearing April 26

The US Surface Transportation Board already plans to hold a two-day public hearing beginning April 26 to address the "inconsistent and unreliable rail service" moving energy, agricultural, steel and automotive supplies throughout the country. The STB is directing top rail operators BNSF, UP, CSX and Norfolk Southern to participate. Kansas City Southern, Canadian National Railway and Canadian Pacific Railway are invited as well.

STB Chairman Martin Oberman said that in recent years -- and exacerbated even more during the pandemic -- railroads have cut costs and jobs to improve profits. He said the top US railroads have reduced their workforces by 29% -- a loss of 45,000 employees -- in the last six years.

Fritz said UP's customers see the rail slowdowns and then they put in more inventories to make sure they get ample supplies, triggering a downward performance cycle.

"It's going to take us a while to work out of it," Fritz said. "We're going to work out of it in the second quarter and into the third quarter." arguing tha

He argued that the issues were labor and utilization. There are enough trains and rail cars, he said, and "rash" regulatory action is not needed.

UP said it plans to hire about 1,400 people this year, while CSX, which operates mostly in the Midwest and East Coast, said it is hiring 30-40 people weekly.

"The extremely tight labor market and the higher -- somewhat higher -- attrition rate that we went through have held us back," CSX CEO James Foote said in a call April 20. "And so we've figured it out. We're going to continue to hire. We're going to manage this employee pipeline differently than we have in the past."

The additional challenge is that it takes months of classroom and on-the-job training to fill these train engineer and conductor jobs, Foote said, especially in a low-unemployment environment of people seeking other jobs or wanting to work from home. Acknowledging the elephant in the room, Foote said the relationships between the railways and the labor unions have "not necessarily been one of mutual admiration, and we need to fix that."

"I mean, these guys were out there for two years in the middle of a pandemic working every single day and night, in a chaotic operating environment caused by surges in traffic and you name it," Foote said, "and, at the same time, didn't get a raise. That's wrong in my opinion."

Energy issues

Union Pacific said its petroleum shipments are down a bit -- and could stay that way through 2022 -- though revenues are up from higher commodities prices.

UP's energy and specialized markets quarterly freight revenues rose 4% from $530 million to $552 million compared with the first three months of 2021, but actual volumes by revenue carloads dipped from 139,000 carloads to 131,000 carloads.

However, as oil and gas drilling activity increase, UP said its frac sand and downhole piping volumes are rising, citing greater shipments of oil country tubular goods, called OCTG.

"The producers seem to be more disciplined on capital spending, and they're walking up production," Fritz said.

And crude-by-rail exports from Canada into the US are not expected to pick up much until 2023 because of new pipelines, especially Enbridge's Line 3 replacement into the US.

"Those spreads between Canada and the Gulf Coast are just not where they should be," UP Executive Vice President Kenny Rocker said, in order to incentivize more crude-by-rail shipments.

Just prior to the global pandemic, Canadian crude-by-rail export volumes hit an all-time high of 411,991 b/d in February 2020 because of pipeline constraints.

After bottoming out at 38,867 b/d in July 2020, those rail volumes had only rebounded to 165,136 b/d in September 2021 just before the Line 3 pipeline replacement came online, according to the Canada Energy Regulator. Volumes fell to 132,669 b/d in October and have dipped more since then.