Freight News:
7 hot issues for rail stakeholders in 2024
Railroads, shippers and unions are tracking hot topics ranging from service improvement to government oversight to safety regulations in 2024. Here is an overview.
Reciprocal switching, common carrier obligation
The Surface Transportation Board is continuing work on rail service issues, including finalizing a rulemaking on reciprocal switching in the first half of the year, if not in the first quarter, industry stakeholders told FreightWaves.
Under reciprocal switching, shippers that have access to one Class I railroad can gain access to the network of another at an interchange point between the two railroads.
STB’s proposed rule, announced on Sept. 7, would allow shippers to seek reciprocal switching if the railroad that they have access to fails to meet certain service thresholds. The proposal also would make permanent the collection of first- and last-mile service data from the Class I railroads. This would include data such as industry spot and pull, which addresses rail service at the local level, and on-time performance for manifest trains. STB began requiring the railroads to submit that data regularly following an April 2022 public hearing on deteriorating service.
While shippers generally supported the board’s proposing a rulemaking on the longstanding issue, some had also hoped STB’s proposal on reciprocal switching would address more ways to promote rail competition and incentivize the railroads to better serve their customers. These shippers say the board needs to strengthen how it defines adequate rail service.
“Tying reciprocal switching to poor service is an interesting approach. But the devil is really in the details, and we’re going to need to really make sure we’re not setting up a race to the bottom or a minimum service level,” said Rob Benedict, vice president of petrochemicals and midstream with American Fuel & Petrochemical Manufacturers.
Jeff Sloan, senior director of regulatory affairs for the American Chemistry Council (ACC), said: “The bottom line is that a catastrophe shouldn’t be a measure [for] when you are able to access reciprocal switching when it comes to service issues. Competition more generally should provide more incentives for the railroads to keep service at adequate levels. If you’re worried about losing your business to another railroad, you’re more likely to offer quality service to your customers. It’s really about putting something in place that prevents and heads off problems in the first place.”
Industry stakeholders are also keeping an eye on whether Congress will pass any bills that address revising the definition of the common carrier obligation so that railroads have more clarity on whether they are adequately meeting their obligation to move freight.
In addition, rail shippers are looking at whether STB will further simplify proceedings regarding rate disputes for larger shippers, as well as how the board will manage its new responsibilities per the 2022 infrastructure law to oversee passenger rail service.
“The overall thing is just keeping freight rail service a priority when we’re not in a crisis and using this time to actually think through and identify additional policies which would translate into additional statutory tools for the STB to continue to meet the current market situation,” said Ann Warner, spokesperson for the Freight Rail Customer Alliance.
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Uncertainties over STB chairmanship and makeup of the board
STB Chairman Marty Oberman, who directed the board to focus on rail service issues, surprised many in December when he announced he would not seek another term on the board. Oberman said he would remain on the board until sometime in 2024.
Oberman’s departure raises several questions for stakeholders: Who will replace him as chairman and whom will the White House appoint to ensure there are five members on the board? And how will his departure impact the board’s momentum for addressing issues such as reciprocal switching?
“We’re going to have to try to get a new chairman in place and someone who will hopefully maintain the same sort of vigor in terms of overseeing the industry,” said Greg Regan, president of the Transportation Trades Department (TTD), which is affiliated with the AFL-CIO.
Said Ian Jefferies, president and CEO of the Association of American Railroads (AAR): “I do expect Chairman Oberman to maintain a very active docket until he leaves the building. First and foremost, the board will be working to finalize its reciprocal switching [rulemaking]. I believe the chair has stated that he would like to get that done by the end of the first quarter. …
“And to the chairman’s credit, he’s been working very hard to maintain consensus. The initial proposal was a five-vote decision. I think the chair deserves credit for balancing very strong views from five very intelligent, sharp, strong-viewed individuals. … But I do believe the board will continue to be focused on service, making sure railroads are delivering for their customers just as railroads are. So we’ll stay engaged over at the STB.”
What could complicate the appointment of a new board member — as well as the reappointment of STB member Patrick Fuchs as his term expires in January — is the presidential election and the appointments become politicized, according to Warner.
“I think the most pressing issue is taking steps to ensure a full complement of board members on the STB. I think the concern is that it takes so long for a new board member to get acclimated to the issues, no matter what your background has been or what your professional experiences have been,” Warner said. “So, I think the concern is trying to find a Democratic person who can be nominated and successfully get through the process, but also be experienced enough … really to go through a learning curve and go through it fast.
“But if you’re looking at [reappointing] Patrick and if you’re looking at a Democratic nominee for 2024, you’re doing that in an election year, [which can be] always fraught with mischief. If the Republicans feel that they are going to take the Senate in 2024, then the Republicans aren’t going to want to move much. Some of them have real problems with the rail safety legislation.”
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Government action to bolster the supply chain and fund infrastructure
Rail shippers also told FreightWaves they are looking at supply chain issues beyond rail, such as rulemakings on the ocean carrier and trucking sides.
That broader perspective is necessary because “our expectations — and I think even the railroads are looking at this — is that there will be more freight to move next year,” said Scott Jensen, ACC communications director. “We’re looking at a bit of a bumpy patch right now for chemical production, but we’re looking at 2024 as a year when things can pick up. So, the freight rail network will be tested next year.”
While shippers aren’t anticipating a supply chain crunch similar to the one seen in 2021 and 2022 after the height of the COVID-19 pandemic, “there are still concerns about — I hate to use this word but we use it — the elasticity in the system on being able to handle increased demand,” Jensen said.
Rail shippers are also keeping an eye on how regulators, including the Federal Maritime Commission, will resolve issues surrounding rail demurrage and detention charges at port when the bill of lading originates from the ocean carrier. They are looking as well at whether the European Union’s decision to remove antitrust exemptions for ocean carriers will affect ocean shipments to the U.S.
Meanwhile, the trade associations for the railroads are watching how the federal government grapples with a number of national security and budgeting issues, which could in turn impact either cross-border freight rail operations or funding for federal grants for infrastructure.
On the surge of migrants crossing the U.S.-Mexico border, AAR’s Jefferies said: “We’ve got a very challenging situation on the Southern border with the humanitarian crisis, and we’ve got to make sure that commerce can continue to be able to move as well as we try to manage through what is a very challenging process.”
Said Chuck Baker, president of the American Short Line and Regional Railroad Association (ASLRRA): “We’re so excited about what [the CRISI grants] can do for short-line infrastructure and service and capacity and safety. We really just want to continue to double down on supporting that at the federal level.” CRISI stands for the Federal Railroad Administration’s Consolidated Rail Infrastructure and Safety Improvements program.
Baker continued, “There’s [also] an increasing level of interest in states on supporting short lines and what short lines can do for their freight networks and their industries. There’s more and more states that are putting together meaningful grant programs at the state level for short lines to help with infrastructure, almost like mini [CRISIs]. And then there’s also an increasing number of states … that have a version of the 45G tax credit. So, that’s an exciting development.” The federal 45G tax credit is available to short-line railroads for conducting track maintenance. Congress made the tax credit permanent in 2020.
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California’s transition from diesel locomotives to zero-emissions configurations
Freight railroads are also eyeing in 2024 how the federal courts will handle their challenge to an April 2023 decision by the California Air Resources Board that compels railroads to transition their trains operating in California away from diesel-powered locomotives and to zero-emissions power configurations by as early as 2030.
The new rules, which CARB says are aimed at reducing the emissions of locomotives operating in California, have two notable deadlines: Switch, industrial and passenger locomotives built in 2030 or after will need to operate in zero-emissions configurations, while locomotives built in 2035 or later for freight linehaul operations will need to comply with the zero-emissions configurations.
AAR, ASLRRA and others sued CARB in June, saying that interstate commerce makes the viability of CARB’s new mandate challenging.
“We certainly as an industry are focused on the evolution of power in our industry, and whether that’s battery electric, whether that’s hydrogen, whether that’s increased use of biofuels, our railroads are all deep into R&D and demonstration projects, even into revenue service,” AAR’s Jefferies said. “But our view strongly is that you can’t just flip a switch on this. It’s got to be done in a responsible, phased way, not losing sight of the fact that right now, rail is by far the most environmentally efficient way to move goods, and if you want to reduce emissions, let’s get goods off the highway and put them on the rail.”
Said ASLRRA’s Baker: “Ignoring for a moment the fact that we don’t think they are legally justified in making such a rule because we think it’s preempted by federal oversight, CARB’s proposal is an existential threat to many short lines in California. They want two things, neither of which is realistic. One, they want to say that by 2030, no locomotive operated in the state of California can be older than 23 years old, full stop. And if it weren’t such a threat, it would almost be laughable for short lines. There are many short lines who literally only have locomotives older than 23 years old. And they do that because they’re small businesses, running barely viable lines. In many cases they have to run as efficiently as possible to be able to stay in business and continue to serve small-town and rural America.
“We are very, very concerned that that idea could spread to other states and make a bad idea worse, and we’re also concerned about what the EPA may consider doing on a national basis. And so we’re very involved in conversations on all of those fronts. We want to make sure that the conversation on rail and environmental issues starts with how we’re a solution, not a problem.”
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2024 as next stage for intermodal collaborations
2023 saw a number of partnerships between rail carriers and others to grow intermodal offerings. Indeed, one of the year’s themes at rail industry conferences was forming collaborations to increase service options and ultimately take volumes from trucks.
This year could reveal how these partnerships — many of which seek to bolster connections between the U.S. Southeast and Mexico, or Mexico with Canada and the Upper Midwest — play out.
The partnerships, announced following the merger of Kansas City Southern and Canadian Pacific (NYSE: CP), include:
- BNSF (NYSE: BRK-B), JB Hunt (NASDAQ: JBHT) and GMXT’s plan to launch a Mexico-to-Midwest intermodal service.
- Another collaboration between BNSF and JB Hunt to provide a premium intermodal service.
- Canadian railway CN’s partnerships with:
- The Mississippi State Gulf Authority and Ports America.
- Norfolk Southern (NYSE: NSC).
- Union Pacific (NYSE: UNP) and Grupo Mexico’s Ferromex to establish the Falcon Premium intermodal service.
- UP’s expansion of intermodal service between the U.S. Southeast and Mexico.
- NS’ plan to expand intermodal offerings with Florida East Coast Railway.
- CSX’s partnerships with:
- Georgia Ports Authority.
- CPKC. CSX and CPKC are seeking to create a Southeast-Mexico corridor.
“There are a lot of exciting partnerships, be it between various railroads or between railroads and broader logistics companies, that are coming online. …,” AAR’s Jefferies said. “I think railroads are positioning themselves to compete in lanes that maybe weren’t deemed as competitive between rail and truck historically. But it’s really exciting. And the goal is not to get back to 2018, 2019. It’s to blow right through those numbers and reach new highs.”
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Federal action on rail safety
The rail safety bill currently in the Senate has yet to be debated on the Senate floor. The delegation from Ohio and Pennsylvania, as well as senators from other states, introduced the bill last spring following the February 2023 derailment of a Norfolk Southern train in East Palestine, Ohio.
Movement on the bill, as well as any similar legislation in the House of Representatives, may depend on recommendations that the National Transportation Safety Board will provide when it releases its final report on the derailment in the first half of 2024.
In the meantime, FRA has a number of safety-related proposed rulemakings that union leaders and other industry stakeholders are waiting to see.
FRA submitted its final rule on train crew staffing to the Office of Management and Budget this week. The rule could come out in March.
“We’re hoping it’s our year of safety,” said Jeremy Ferguson, president of the International Association of Sheet Metal, Air, Rail and Transport Workers – Transportation Division (SMART-TD). “There’s a lot of exciting things that are probably going to happen, but obviously [the election outcome] next November is going to be crucial to which way we go here.”
Unions leaders are watching FRA for rulemakings on hours of service for dispatchers, train crew certifications and train crew sizes. Train crew size is controversial, with unions calling for a minimum of two crew members for freight trains and rail carriers arguing that safety data doesn’t back requiring more than one.
There are also discussions at FRA related to track inspection and hotbox detectors and related wayside detection.
TTD’s Regan is calling for rules letting first responders know what commodities are being carried by trains passing through their communities should the workers need to respond to a train accident, and he is calling for standardizing the training and certifications of first responders.
“One of the issues that we always have to contend with is that we have a vast mix of career, full-time firefighters in this country in some areas, and in other areas, they’re almost entirely volunteer,” he said. “And there are oftentimes different training standards and different levels of certifications that happened between the two. … So, standardizing that is an important aspect of this.”
Regan said he and other union leaders will continue to push for the U.S. operations of the Class I railroads to sign on to a confidential federal tip line known as the confidential close call reporting system (C3RS). The tip line would help unions and others understand possible underlying safety issues at a railroad.
“I think that once we get a single railroad engaged in a confidential close call reporting system, I would expect the others to follow suit and get in line there,” Regan said. “But we can’t let that be it. And that’s where I think our focus is. Yes, we’re going to continue to push on C3RS, but we know that is a diagnostic tool more than anything. That doesn’t solve the underlying problem. It helps identify where there might be a breaking point. And so it’s up to us, collectively — members of Congress, regulators, unions — to make sure that the bare minimum is not enough here because that’s not going to solve the underlying problems.”
Addressing safety culture at the railroads seems to be happening in at least a piecemeal fashion. Ferguson noted that SMART-TD received a CRISI grant in 2023 to bolster safety education and training.
“We’re working closely with some of the Class I railroads on big changes as far as safety and culture goes,” Ferguson said, referring to CSX and NS.
Meanwhile, as stakeholders wait for a rail safety bill to be debated in Congress in 2024, ASLRRA’s Baker wants to ensure that short-line railroads would be excluded from some of the regulations, such as those pertaining to crew sizes, pre-departure inspections and locomotive inspections.
Baker would also like to see FRA grant programs such as the CRISI program continue to support rail safety projects, and he would like federal endorsement of the Short Line Safety Institute, a nonprofit that provides impartial assessments to short lines about how they can improve safety.
Short-line railroads “come with the original sin that it’s expensive to maintain them, and they don’t always have the traffic to really justify it,” Baker said. “And so that’s always been Congress’ and the federal government’s interest in supporting short lines. They want these lines to stay viable. And that’s what we want too, and the CRISI grants are just a huge help.
“The biggest cause of accidents is just old rail. It’s just worn out, beat-up rail that are ties that just degrade. … And there’s no magic to fixing that. We can do better and better on inspections, and people focus very, very hard on inspections. But the only way to really fix that stuff is to invest in the rail, invest in the track, invest in the infrastructure.”
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Labor contract negotiations
The U.S. operations of the Class I railroads and the rail unions will start negotiations for a new labor contract on Jan. 1, 2025, but preparing for those discussions will take place in the second half of 2024.
The last collective bargaining round, which officially started in January 2020, culminated in a negotiations impasse between two of the largest unions and the rail carriers, with Congress eventually intervening in November 2022 to compel both sides to support the labor agreement and prevent a strike by union members.
“We’re right back where we were basically last year at this time, so it’s going to get interesting quick,” SMART-TD’s Ferguson said. “There’s a lot of things that could happen. We’re hoping we see safety remain a priority for this nation.”
Brendan Branon, chairman of the National Railway Labor Conference and the National Carriers Conference Committee (NCCC), told FreightWaves in an emailed statement in November, “The railroads are committed to working with rail labor, delivering on their promises and maintaining railroading’s place among the best jobs in our economy.” NCCC represents the freight railroads at the bargaining table.
“We hope to extend that positive momentum throughout 2024 and into the start of the next bargaining round. The most recent national agreements provide that opening proposals can be served starting in November 2024 ahead of the January 1, 2025 amendable date,” Branon said. He noted the railroads and the unions in 2023 reached local agreements expanding paid sick leave to more than 90% of all unionized rail employees at NCCC rail carriers.
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Editor: Joanna Marsh