What a Difference a Day MakesWritten by David Nahass, Financial Editor
FINANCIAL EDGE, RAILWAY AGE DECEMBER 2022 ISSUE: The editorial staff at Railway Age follows the “old school” code of the postman emblazoned on New York’s City General Post Office. “Neither snow nor rain …” (you know the rest) keeps the RA team delivering the goods month in and month out.
The postman’s code originates in the writings of Herodotus in his description of an ancient Persian courier service (where let’s face it, there wasn’t much snow about which to be concerned. There wasn’t much electricity either, so maybe the gloom of night was a more relevant complement). Were one to read the original Herodotus, one might find him as the original advocate of the “next man up” strategy of professional sports teams that is frequently advocated today.
One must inevitably wonder what Herodotus would make of the situation between labor and the railroads as North American rail sits on a generational precipice of not “delivering the goods” due to the impending strike.
(UPDATE: There will not be a rail strike Dec. 9, and unionized rail workers will not gain from Congress an unfunded mandate of seven railroad-paid sick days annually. President Joe Biden signed H.J. Res. 100, the House- and Senate-passed resolution imposing the Tentative Agreement resulting from Presidential Emergency Board 250, into law on Dec. 2.)
It feels like a strike, backed immediately by a return-to-work order from the legislative branch (enforcing the Railway Labor Act), is inevitable for the first time in 31 years! But the cost in lost profitability, fluidity and efficiency is enormous.
What makes this all the more frustrating is that what seems to be the biggest of the remaining outstanding issues is providing more “emergency” paid sick days to workers. This issue was left behind by the Presidential Emergency Board (PEB), even though it was requested by the unions. The PEB excuse? The unions had never asked for this in prior contract negotiations. #headscratcher.
Workers in the field generally cannot “work from home.” This is the crux of the issue. More paid sick days require more workers and more expense, and can impact operations and service. All parties in the railway supply chain, customers and employees, understand why the economics of this issue matters.
The railroads have attempted to redirect the conversation to being about the largest short-term increase in compensation over the changing lifestyle of the American worker. The raise is important, the paid sick days are important, the opportunity to handle family or personal emergencies is important. (“Next man up?” Ha! Try, “Get back to work”!)
Unfortunately for the unions, consumer sentiment is generally unkind. While the other unions won’t cross the picket line, union solidarity is not a priority in people’s lives—less so when it impacts their pocketbook and weakens an already fragile supply chain. Supply chains stressed by low water levels in the Mississippi may feel additional economic strain. That’s one reason why a quick turnaround for the go-back-to-work order matters.
Many readers will see this article before the final strike decision, and there is plenty of time for change, but expectations are high for the message to be delivered to railroad management (who has, one would guess, more than eight days of paid sick leave per year).
“Economic trepidation makes consumers of rail assets more hesitant to place orders for new railcars.”
It’s your recession. Own it.
Generally, opinions about the likelihood of a recession in the U.S. range from absolute certainty to 50/50. It seems better than Europe, where the odds are even more likely. A recession will likely bring job losses, which will mean a weakening of consumer demand and a theoretical weakening of railcar loadings in 2023.
It could also lead to the furloughing of railway workers (Surprise! That was another big strike-related issue).
Economic trepidation makes consumers of rail assets more hesitant to place orders for new railcars, even when the replacement cycle has been exceeding the build rate. Based on 3Q22 ARCI numbers, quarterly new car orders were about 10,000 units. (Don’t be bamboozled by the 25,000 railcars listed in the ARCI data; 15,000 of those cars are for a GATX order announced in October, and they will be delivered between 2023 and 2028.)
That is the lowest quarter since 3Q21. It’s unfortunate news for an industry in need of some good news. As reported in last month’s Financial Desk Book, the critical mix of interest rate increases and low service performance from the railroads has led to continued increases in demand for existing railcars. The threat of a recession, by weakening the order book, might have the added effect of lengthening current high lease rates and low railcar inventory.
These same concerns can be made worse with consequential and collateral strike-related reverberations. A quick resolution would be the right circumstance to close out an issue that has been dominating the news cycle for some time.
Happy Holidays to readers of Railway Age and “Financial Edge.” A peaceful, safe and joyful end of 2022, and best wishes for a successful 2023.
Got questions? Set them free at [email protected]. But please save them until 2023!