U.S. Class I railroads remain optimistic that hiring initiatives and operational changes should bring about improved service for the remainder of the year and into 2023, according to top executives’ remarks at a recent investor conference.
“We’re in pretty smooth sailing for the rest of the fall, and I expect continuous improvement in terms of increasing car velocity, improved utilization of crews and improved car-per-carload metrics,” said Union Pacific (NYSE: UNP) President and CEO Lance Fritz at a recent conference sponsored by investment firm Cowen.
UP’s recrew rate, or the rate at which the railroad needs more than one crew to move a train over a single crew district, has dropped from plus-11% in April to about 7% and 7.5% now, Fritz said. UP also anticipates graduating 1,400 new crew members by year’s end.
Norfolk Southern (NYSE: NSC) has also experienced crew shortages in the past year but “we’ve addressed it with an untold urgency” with over 900 conductor trainees in the pipeline, according to Alan Shaw, NS’ president and CEO.
“There’s a lot of optimism about our outlook,” Shaw said. “There’s a lot of momentum around our service recovery. And I can feel it when I’m out in the field talking to our craft employees, when I’m talking to our operational supervisors. I can see it in the building, and I can feel it when I’m talking to our customer base as well.”
Shaw said additions to the company’s leadership, an accelerated crew hiring schedule and NS’ new operational plan for its intermodal segment are among the factors helping to improve service.
Ensuring that the number of trains and locomotives heading inbound into terminals is roughly equal to the number of trains and locomotives heading outbound has provided NS a big lift in its service metrics in the first half of July, according to Shaw.
“What we really strove to deliver … is more simplicity and more balance to our network,” Shaw said.
Meanwhile, CSX is moving closer to its 2019 headcount of 7,000 employees, according to President and CEO Jim Foote. The railroad currently boasts a workforce of over 6,800.
“We’re gradually improving service metrics,” Foote said. “Velocity shows it. Dwell shows it. On-time performance shows it. It’s a grind. It’s been really tough, but we’re continuing to show progress.”
One area where CSX is seeing increased activity is through the East Coast ports, with importers seeking to move more volumes there from the West Coast because of labor uncertainties and congestion particularly in California.
“The Port in Savannah — those guys did an amazing job of positioning themselves to be there to help,” Foote said. “As trade begins to make the East Coast ports … it just becomes more conducive for more inland freight” to move via CSX through Atlanta, Chattanooga [Tennessee], our new CCX terminal [northeast of Raleigh, North Carolina], New York and New Jersey.
As service metrics improve, that optimizes opportunities to grow volumes on the U.S. rail network, the executives said.
“The third-quarter volume to date is looking pretty good now,” Fritz said. “Volumes across all three business teams [representing UP’s bulk, industrial and premium segments] have been impacted in the second quarter and early third quarter by actions we took to regain fluidity in the network. But those impacts are less and less every day and we can see that in volume growth. We’re seeing good strong demand in most of our commodities [such as demand for metals and minerals, industrial chemicals, automotive vehicles and parts, grain and coal.]”
While macroeconomic uncertainties could temper consumer activity, the railroads still anticipate volume growth because there remains underlying demand for rail service, the executives said.
“Clearly, consumers are under pressure,” Fritz said. “We can see that in consumer sentiment surveys where they’re hitting lows for recent history. [But] having said that, they’re still sitting on a lot of powder. They’re still in a healthy condition on average in regard to their personal balance sheets. And then on the more positive side, we’ve really got some relatively easy comps year over year, and we’ve done a hell of a good job on business development to secure and win new business, really across the spectrum of markets.”
Said Foote: “You just have to read the headlines every single day about … what’s going on [inventory-wise] with Walmart, Target, Amazon … They’re all talking about slower growth. But again, we’re still anticipating that we’re going to have a reasonably good end of the year with consumers sitting on how many trillion dollars in cash. … Things are slowing, but the disposable income is still relatively strong. Gas prices are coming down.”
As the railroads look to future hiring initiatives, relying on the older “furlough model,” in which they put certain types of workers on a leave of absence on a seasonal basis, may no longer be applicable given the emphasis on establishing work-life balances for a greater number of employees.
NS plans to use the recent pandemic-related changes in labor dynamics as an opportunity to size up how it handles volume downturns, according to Shaw. This includes figuring out how the implementation of technology and automation and use-of-work rules governing operations figure into workers’ responsibilities and crew availability.
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