Yes, a Rail Shutdown Can Occur

Written by Frank N. Wilner, Capitol Hill Contributing Editor
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Razors cut two ways, as is evident among Wall Street analysts who encourage share-price haircuts for railroads not lowering operating ratios, but themselves fear from railroads a different sort of trimming—loss of access to senior officers and financial data should these analysts have the audacity to suggest the likelihood of a nationwide rail shutdown.

The railroads’ rationale for pressuring Wall Street wizzes to downplay the probability of a rail strike or management lockout initiating a nationwide rail shutdown—instead preferring they say the event is “unlikely”—is that shutdown chatter unnerves shippers and drives those with non-rail options to other modes well ahead of the conjectured event. 

There is, indeed, a likelihood of a nationwide rail shutdown as early as mid-September if rail labor and management do not voluntarily settle sooner. 

Even a tentative settlement before mid-September doesn’t assure uninterrupted rail service, as the rank-and-file of all 12 unions engaged in collective bargaining with most Class I freight railroads and many smaller ones must ratify a tentative deal, meaning if even there is no nationwide rail shutdown in mid-September, one could occur a month or two later—even in 2023 depending on congressional actions, as will be explained.

It is the member ratification process that matters most, as what occurs at the bargaining table often resembles a kabuki dance. In their communications with members—ever mindful that public displays of tough personas reap reelection votes—labor leaders have cultivated bitter rancor over carrier profits, stock buybacks, executive compensation, Precision Scheduled Railroading and other issues not subject to collective bargaining. They also have forged among members high expectations as to wage increases and a freeze on the employee share of soaring healthcare insurance premiums. 

The consequence, echoing in locomotive cabs, switch yards, terminals, trackside shanties and Internet chat rooms, is a war cry—with each whoop serving as new accelerant—to “strike” and “shut-’em down.” 

Moreover, if nagging congressional dysfunction subverts House and Senate agreement on preventative legislation or a back-to-work order should a rail shutdown occur, then it’s Katy bar the door—unless President Biden finds in his Executive authority constitutional power to seize the railroads and take charge of labor-management relations as was done during World War I. During the 1950s Korean conflict, President Truman found another successful option to prevent a rail work stoppage—a threat to draft into the Armed Forces rail workers who engaged in a strike.

As for President Biden, whom Politico described as the “most labor friendly President the U.S. has ever had,” and who himself promised to be “the most pro-union President,” actions of previous Presidents in no way foretell what Biden may do. Indeed, he may find himself between that proverbial rock and a hard place should there be an economy-jolting rail strike accompanied by labor entreaties that he be “hands-off” just weeks before mid-term congressional elections.

So, what might we expect in the weeks ahead? First, let’s review what has occurred.

The Railway Labor Act (RLA), which governs labor-management relations in the railroad and airline industries, provides that collectively bargained agreements establishing wage rates, benefits and work rules never expire, but may be amended periodically. This latest round of collective bargaining to amend contracts began in November 2019 with the two sides exchanging desired amendments to be effective Jan. 1, 2020, with actual bargaining following. Typically, settlements when reached are retroactive to the date agreements came open for amendment.

The COVID-19 pandemic and labor’s initial refusal to bargain virtually delayed negotiations. Consistently during subsequent virtual and face-to-face bargaining sessions, labor negotiators insisted that the sides were so far apart in their contract-amendment demands that even government guided mediation by the National Mediation Board (NMB) couldn’t bridge the gap. 

Arguably, the Democratic majority on the three-member NMB, which controls the mediation timetable, was motivated to end the process prematurely, setting in motion a time-clock leading to a possible nationwide rail shutdown by mid-September.

Were the allegation true, the logic is that a similarly labor-friendly Democratic majority in the House and Senate will further tilt the playing field toward labor should Congress be put in a position to end a rail shutdown legislatively by imposing a third-party contract settlement. Learned assumptions are that Republicans will regain control of both chambers following November elections, which drove labor’s desire to end mediation prematurely. Notable, however, is that Congress, in the past, has created a second PEB, which, in this case, would push strike or lockout threats into 2023.

With labor declining binding arbitration following its release from mediation, President Biden established a three-member Presidential Emergency Board (PEB) that, under RLA provisions, has 30 days until August 15 to make non-binding settlement recommendations. PEB No. 250, whose members have top-drawer credentials and reputations for neutrality, commenced its work on Sunday, July 24, initiating an expected week-long listening session during which labor and management will promote the economic soundness of their contract amendment demands.

The PEB will then craft non-binding recommendations, followed by a final 30-day cooling off period during which labor and management will make a final effort at a voluntary settlement based on those recommendations. Here is where the risks of a nationwide rail shutdown lurk. Let’s first review the three most problematic issues separating the parties:

WAGE DEMANDS

There has been limited public discussion of carrier offers and labor demands. The issue is significant as labor represents the single largest (some 20%) railroad expenditure. 

On Jan. 19 and May 18, two labor unions posted on their respective websites a wage demand of 40% over five years that, compounded, would total 47%. At the first PEB listening session July 24, as reported by the AFL-CIO Transportation Trades Department, that labor demand was scaled back to 31.2%, when compounded, over five years. The TTD also published what it says is a carrier wage offer of 17%, when compounded, also over five years. The National Carriers Conference Committee, representing rail management, declined to confirm its offer.

Historically, PEBs, in weighing wage demands and making settlement recommendations, consider market forces; inflation adjusted wage growth over time; job skills required of, and demands imposed on, employees; and recent agreements bargained in other large industries and those bargained at commuter and passenger railroads. 

In 2011, for example, PEB No. 243, which current PEB No. 250 Chairman Ira F. Jaffe also chaired, said in its Report to the President that it was “unpersuaded” by arguments that an “appropriate measure of fairness” is the profitability of carriers or productivity improvements flowing from capital investment, new technology and improved operating plans. 

Notable is that while labor, in its narrative before PEB No. 250 is emphasizing recent price inflation, labor’s past narratives to PEBs, during periods of low or non-existent price inflation, were that such measures of the economy should not be considered. Labor has also has argued before past PEBs—during periods when carrier profitability trailed almost all other American industry—that profitability doesn’t matter when negotiating wage increases.

HEALTHCARE INSURANCE

The relatively low dollar level of employee contributions toward railroad-provided healthcare insurance is also highly contentious. 

Labor seeks to extend a freeze (since 2016) on the current employee contribution of $228.89 monthly that applies regardless of family size. Carriers are paying some $1,600 monthly as their share. Carriers seek to increase the employee share of healthcare insurance and to create tiers by which those employee premiums increase as does family size. By contrast, the Federal Employees Health Benefits Program currently collects from government workers $459.96 monthly for a family plan, with the government’s share at $1,243.95. 

It is the combination of wages and the employer share of healthcare benefits—which Congress terms “platinum level” because rail workers pay less than 10% of their total healthcare insurance costs—that places rail labor compensation ahead of 94% of the domestic workforce. 

TRAIN CREW SIZE

As advances in technology have freed individuals from chopping wood and shoveling coal for home heating; caring for and harnessing horses required for travel; and handwashing linens, clothing and dishes, so has technology reduced human tasks required on factory floors. Robots on automobile assembly lines are one example. 

On railroads, personal computers, voice mail and email eliminated typing pools and many other clerical positions; mechanized maintenance-of-way equipment reduced pick-and-shovel work; end-of-train devices and other technology allowed the caboose to be retired; train brakes once applied by brakemen climbing atop moving boxcars are now applied from the locomotive cab; and other technological advances have replaced functions once assigned locomotive fireman, switch tenders, oilers and flagmen.

So it is that the technology of Positive Train Control (PTC), designed to reduce human-factor caused train accidents—a $15 billion investment by railroads that unions lobbied Congress and federal safety agencies to require—has replaced traditional conductor tasks. 

Carriers assert that functions historically performed by conductors, such as calling out signals and recording directives from dispatchers, are incorporated into PTC. Other technology protects against engineer incapacitation, while duties performed when a train is stopped can be completed by ground-based conductors. 

Labor is resisting reassignment of conductors from the locomotive cab—where, unlike in aircraft, there is only one set of controls—to ground-based positions on 60,000 rail route miles equipped with PTC even though such reassignment will provide predictable and consistent work schedules, a guarantee against furlough and provide career-long income protection. 

Although negotiations regarding the future role of conductors are, by court order and previous binding arbitration, proceeding railroad-by-railroad and not the subject of this round of national bargaining, carriers allege a lack of good-faith bargaining. 

If railroads are to compete successfully with motor carriers on the cusp of operating driverless trucks using GPS, laser and other computer technology, a national crew size rule is essential, say rail negotiators. With the collapse of bedrock coal traffic, goes the carrier narrative, growing intermodal traffic (containers and trailers) is crucial to railroad survival, headcount retention and the ability to pay even existing wage scales. 

The alternative to one-person crews on PTC equipped routes, say railroads, is a wage reduction for those conductors insisting on remaining in the locomotive cab. 

Notably, in January 1991, PEB No. 219 considered a similar carrier demand, but shelved it in favor of a recommendation for binding arbitration that led to a voluntary settlement reducing train crew size—in an era preceding design and implementation of PTC. As a result, crew size dropped from as many as five to just one conductor and one engineer. PEB 250 will be revisiting this carrier demand for wage adjustments in lieu of progress toward establishing engineer-only trains.

REASONS FOR A RAIL SHUTDOWN

A first reason a nationwide rail shutdown may occur is if the two sides are unable to reach a voluntary settlement based on PEB recommendations. Given how rail labor leaders have brought their political base to a fever pitch, it may be difficult for some to compromise based on PEB recommendations. If there is no settlement, labor may strike or carriers may lock out their employees, although neither has occurred in three decades. The previous nationwide lockout occurred in June 1992; the previous nationwide strike occurred in April 1991. 

If a strike or lockout occurs, Congress can act to end it—even in anticipation of a shutdown—but congressional dysfunction or political collusion with labor or management can delay a back to work order and extend the length of a shutdown. 

Congressional dysfunction could be an objection by a single maverick senator (known as a filibuster), which then requires 60 votes to bring the legislation to the Senate floor. Over the past 18 months and on several occasions, Democrats in the evenly divided Senate (but in the majority owing to the Democratic Vice President’s tie-breaking vote) have been unable to coax a simple majority vote, much less the 10 needed to overcome a filibuster. 

Back-to-work legislation to end a shutdown also can be delayed or blocked if labor-friendly or management-friendly lawmakers craft a legislative “rider” mandating labor-sought two-person crews or management-sought engineer only operations. House and Senate floor debate, even if successful in uncoupling the rider, can extend a shutdown. So not only is a nationwide rail shutdown likely, but its length is uncertain if a shutdown occurs.

A second reason a nationwide rail shutdown may occur is that while a voluntary settlement is binding on all carriers at the negotiating table, it is not binding on rail labor. A tentative agreement inked by labor negotiators must then be ratified by each of the unions at the bargaining table. The ratification process typically stretches 60 days, with a joint agreement to maintain the status quo while ratification votes are completed. If rank-and-file on one or more unions rejects the tentative agreement, those unions can strike. As for those who ratified tentative agreements, don’t expect their members to cross picket lines. Doing so is not conducive to physical health. Federal licensing of locomotive engineers and conductors preclude use of replacement workers (“strikebreakers”) or large scale assignment of management.

A third reason a nationwide rail shutdown may occur is if a union selectively strikes a single railroad, causing carriers to lock out nationwide. A 1992 nationwide lockout occurred after the International Association of Machinists struck only CSX, resulting in all Class I railroads declaring that a strike against one is a strike against all as rationale for a nationwide lockout. The lockout was ended 48 hours later when Congress ordered binding arbitration to settle the dispute. 

Notably, CSX is negotiating wages and benefits (but not healthcare insurance) separately with its two operating-craft unions—the Brotherhood of Locomotive Engineers and Trainmen and the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART). Neither side currently has authority under the RLA to strike or lockout.

A fourth, but most unlikely, reason a nationwide rail shutdown may occur would be if rail labor successfully asks labor-friendly President Biden to signal he will not sign into law a congressionally passed back-to-work order.    

The bottom line, as the Wall Street crowd is wont to say, is whether there will be a nationwide rail shutdown in mid-September or later. 

For the answer, we went to that charming rogue handicapper, Nathan Detroit of “Guys and Dolls” fame (“I’ve got the horse right here, his name is Paul Revere; and here’s a guy who says if the weather’s clear, ‘Can do, can do.’”). Nathan’s prediction: “A better than 50% likelihood of a nationwide rail shutdown and a better than 50% likelihood of none.” 

The parimutuel window is open until PEB No. 250 issues its report on or before Aug. 15, at which time the parties will first react publicly.

The 12 rail unions bargaining with carriers are: the American Train Dispatchers Association; Brotherhood of Locomotive Engineers and Trainmen; Brotherhood of Maintenance of Way Employes; Brotherhood of Railroad Signalmen; International Association of Machinists; International Brotherhood of Boilermakers; Mechanical Division of International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART); National Conference of Firemen & Oilers; International Brotherhood of Electrical Workers; Transport Workers; Transportation Communications Union (including Brotherhood Railway Carmen); and Transportation Division of SMART (including Railroad Yardmasters of America).

Class I carriers represented at the bargaining table by the National Carriers Conference Committee (NCCC) are BNSF; Canadian National; CSX (although it is negotiating wages and work rules separately with SMART-TD and BLET); Kansas City Southern; Norfolk Southern; and Union Pacific. Canadian Pacific is negotiating separately with all its unions. Many smaller railroads also are represented by NCCC.

Frank N. Wilner

Railway Age Capitol Hill Contributing Editor Frank N. Wilner is author of “Understanding the Railway Labor Act,” published by Railway Age sister company Simmons-Boardman Books. He has been Assistant Vice President for Policy at the Association of American Railroads, a White House appointed (President Clinton) chief of staff at the Surface Transportation Board, Director of Public Relations for the former United Transportation Union and its SMART-TD successor, and a president of the STB bar association.

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