PEB provides wage increase guidance to railroads, unions

A man inspects a railcar carrying an intermodal container.

The Presidential Emergency Board has given the White House and stakeholders a 124-page report listing recommendations on how the freight railroads and unions can work toward a new labor agreement.

The report’s guidance could be used to serve as a foundation for a labor contract between the freight railroads and their unions.

A new labor deal has been in the works since January 2020, but the negotiations have failed to progress. A federal mediation board took up the negotiations but released the parties from those efforts earlier this summer. A three-person PEB, created and appointed by Joe Biden, became involved in the process and conducted hearings over the past month.

Following the board’s report, released late Tuesday, all parties will now engage in a 30-day cooling-off period during which both sides will look at the recommendations.

Among the recommendations in the report, which can be found on the National Mediation Board website, are annual wage increases that would run for five years, starting in 2020. Per the National Carriers Conference Committee (NCCC), the group bargaining on behalf of the freight railroads, wages would increase by 24% during the five-year period from 2020-24, with a 14.1% wage increase becoming effective immediately.

“The recommendations also include five annual $1,000 lump sum payments, adjustments to health care premiums and limited changes to work rules,” NCCC said. “A portion of the wage increases and lump sum payments would be retroactive, resulting in more than $11,000 on average in immediate payouts to employees.

“These recommendations, if implemented, would include the most substantial wage increases in decades — with average rail worker wages reaching about $110,000 per year by the end of the agreement. When health care, retirement and other benefits are considered, the value of rail employees’ total compensation package, which already ranks among the highest in the nation, would average more than $150,000 per year.”

Diverging wage increase proposals from both sides

Wage increases and changes to health care benefits have been sticking points for both sides since contract talks began in January 2020.

In crafting the recommendations, the PEB noted the “wide divergence of proposals, both in percentage terms and in absolute dollar terms. When one considers all of the proposals that had significant monetary effect and which are capable of being costed, the parties’ proposals in this proceeding are separated by more than $9 billion.”

According to the board, the parties presenting wage proposals asked it to consider numerous factors, including the history of negotiated wage changes; cost of living adjustments; issues surrounding recruitment and retention in the current labor market; shifting working conditions as a result of precision scheduled railroading and workforce reductions; the rail carriers’ profitability; and economic projections of the freight rail industry.

The recommended wage increases split the difference between the railroads’ offer and unions’ request, according to a Wednesday research note from Susquehanna Financial Group transportation analyst Bascome Majors.

Although the wage proposal favors the railroads in the early years of 2020 and 2021, it then calls for higher than historical increases for the remaining years, according to Majors. The wage increases for the early years would be retroactive.

“We see manageable low single-digit EPS [earnings per share] risk to U.S. rails in 2023E [estimates], but investors should recalibrate 2-3% labor inflation, and rail customers should expect price increases, hopefully coupled with better service,” Majors said. “Lastly, labor can legally strike Sept. 16 and pressure from Congress could catalyze an agreement.”

Majors also noted the emergency board declined to address train crew size, recommending instead the parties negotiate the issue locally.

“There are significant questions about whether the board has the authority to address [the] crew consist [makeup of a train crew] process at all,” PEB said. “The matter is clearly one that, while of great importance, has time and time again been recognized to be a local issue under the [Railway Labor Act].”

In response to the report, Ian Jefferies, president and CEO of the Association of American Railroads, said that should the railroads and unions agree to the board’s recommendations, the terms would lead to the largest general wage increase in nearly 40 years.

“While the Biden PEB’s recommendations markedly exceed the rail carriers’ proposal, they provide a useful basis to reach a resolution,” Jefferies said. “In the interests of all rail stakeholders, now is the time for railroads and their unions to reach a contract. The industry is prepared to propose agreements based on the PEB’s recommendations to provide our employees with long-overdue pay increases and avert rail service interruptions.”

The Transportation Trades Department of the AFL-CIO was not available for comment.

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