Senate Commerce Gets An Earful of Rail

Written by Marybeth Luczak, Executive Editor
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U.S. Senate Committee on Commerce, Science, and Transportation Chair Roger Wicker (R-Miss.)

The U.S. Senate Committee on Commerce, Science, and Transportation on Oct. 21 convened a hearing on the state of the U.S. passenger and freight rail network. Railroad, shipping and union representatives provided testimony, which included the impacts of COVID-19, legislative considerations for surface transportation reauthorization, and Amtrak’s ongoing struggles. Senator Roger Wicker (R-Miss.) is Chair of the Committee. Following are highlights from the presenters, with downloadable PDFs of their full written testimony.

William Flynn, President and CEO, Amtrak

Flynn covered Amtrak’s response to the pandemic as well as the steps taken to manage revenue loss, as ridership and revenue are down 80% compared with a year ago.  

“Our latest projections are that in FY 2020, Amtrak’s revenue from ticket sales will be $1.242 billion, which would be only 53% of what it was in FY 2019,” he said. “For FY 2021, we are projecting only 9 million passenger trips and $598 million in revenue, down from over 32 million and $2.354 billion in FY 2019, respectively, and these assumptions rely on an effective and widely-distributed vaccine becoming available by the middle of next calendar year.”

Flynn also reported that Amtrak recently updated its forecast and now anticipates needing up to $4.9 billion in funding “to avoid more drastic impacts on our infrastructure and national rail system, including an additional reduction of 2,400 jobs beyond the cuts we have made already.” (After cost-cutting and other measures, Amtrak had already “implemented a voluntary separation incentive program in which 521 agreement-covered and management employees elected to participate” and reduced nearly 100 management positions and furloughed approximately 1,950 of agreement employees.)

“Over the course of this month, we are temporarily reducing service on most long-distance routes from daily to three times per week,” he noted. The exceptions are the Auto Train; Silver Meteor; and Cardinal and Sunset Limited, which already operate three times per week. Flynn said that Amtrak will decide in February whether to restore daily service on each affected long distance route for the summer and beyond.  

He also said that Amtrak’s commitment to the future of the long-distance network is reflected investments such as: taking delivery this year of the last 15 of 130 Viewliner II cars to replace older equipment; an order for 75 new Amtrak Long Distance Charger 4,200 horsepower (ALC-42) diesel locomotives to replace older power; track upgrades across multiple long-distance routes, including major upgrades on the Southwest Chief route and improvements to Chicago-area tracks used by the Cardinal; and installation of PTC and other “safety enhancing investments” on portions of eight long-distance routes.

To provide viable long distance service, Flynn said that Amtrak needed “increased funding for essential long distance capital investments, particularly equipment” and “the ability to enforce our statutory right to dispatching preference over freight trains and gain reasonable access to our host railroad network.”

Flynn also asked the Committee to include the House’s INVEST Act, “which proposed robust funding levels and addressed some of the most serious challenges to intercity passenger rail,” in its version of a reauthorization bill.

DOWNLOAD FLYNN’S FULL WRITTEN TESTIMONY:

Paul Tuss, Executive Director, Bear Paw Developing Corp. and Member, Montana Economic Developers Association

Tuss testified that Amtrak’s Empire Builder, which served 121,429 riders at 12 Montana stations in 2019, “has proven to be a lifeline” for residents.

“Unfortunately, regardless of the significant ROI the Empire Builder has demonstrated in years past, daily service on the route has been eliminated as of October 19,” Tuss said. “Our real concern at this juncture is that the current reduction in service [from daily to three times per week] will become permanent, and Amtrak in our state and elsewhere will be a less reliable and more inconvenient travel option for Americans.”

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Frank Chirumbole, Vice President Global Supply Chain, Olin Corp. on behalf of the American Chemistry Council

Frank Chirumbole

Chirumbole reported that Olin ships more than 47,000 railcars annually from its manufacturing locations in North America, each of which is captive to a single railroad. During the pandemic, he said, service “has not been perfect, but the company is “grateful that private and public stakeholders have generally worked cooperatively in good faith to balance public safety, while ensuring continued production and delivery of essential products.”

He also reported that “Olin is aware that the STB and FRA have been in communications with the Class I railroads in recent weeks over service disruptions” and that “many stakeholders have expressed concerns about service problems arising as a result of the railroads adoption of major operational changes and cost-cutting to implement Precision Scheduled Railroading. We must ensure that the U.S. freight rail network is safe, reliable, and resilient. Communications and transparency are critical to resolve service issues as they arise and prevent more widespread issues. Olin supports continued close oversight and pledges to work with all stakeholders, private and public, to help ensure railroad service reliability.”

In addition, Chirumbole noted that “the need for meaningful protections for captive shippers against unreasonable railroad practices and rates is fundamental and paramount.”

“Olin supports the final adoption of Final Offer Rate Review (EP 755) which is one of the most important reforms the STB can make in the near term; it will help create a more level playing field for negotiations with the railroads,” Chirumbole said. “Also, the Board has recently approved new streamlined ‘market dominance’ determinations (EP 756) in rate cases, designed to help remove some unnecessary complexities from the process. Olin supports these new rules and expects the Board to further refine the test to make it more responsive to stakeholder needs in a follow-up rulemaking.”

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Randy Gordon, President and CEO, National Grain and Feed Association

Gordon told the Committee that his association includes more than 1,000 grain, feed, processing, exporting and other grain-related companies that operate more than 7,000 facilities nationwide and handle more than 75% of the U.S. grain and oilseed crop.

“The sectors of U.S. agriculture that constitute NGFA’s membership largely remained open and operational throughout the COVID-19 pandemic,” he reported. “The one significant exception was the ethanol sector, which idled capacity significantly in response to the precipitous decline in fuel consumption resulting from shelter-in-place rules issued by states and localities. That, in turn, disrupted the availability of distillers grains, a co-product of ethanol, as a feed ingredient for livestock and poultry producers.”

In Gordon’s testimony on freight rail service, he said: “In surveying NGFA’s 31-member Rail Shipper/Receiver Committee in preparation for this hearing, members reported that rail service to the agricultural sector generally appears to be acceptable at this time, although several trouble spots are beginning to emerge as harvest gets underway in earnest, which is when demand for rail service typically begins to increase.

“Several members noted that oilseed processing facilities in the Midwest last month curtailed production because of a lack of inbound soybeans by rail, although that situation has improved recently. More recently, NGFA members report an increasing number of trains not meeting their trip plan schedules or having loaded trains not being pulled from facilities in a timely manner because of a lack of locomotives and crews—both in the East and West. NGFA also has received reports of significant service problems with one Class I carrier serving mills in the Southeast attributable to both a lack of crews and locomotives. An increasing number of missed switches by carriers also have been reported by NGFA member companies operating in the West.

“For this fall and winter, there is nervous apprehension within our industry about whether railroads will be able to keep pace with the combination of what NGFA anticipates will be a very robust demand for rail service and the vagaries of winter weather. This apprehension is fueled by two major factors. First, whether carriers will be able to redeploy quickly enough rail crews that were furloughed and locomotives that were stored during the COVID-19 transportation downturn. And second, the ongoing implementation of the so-called Precision Scheduled Railroading railroad operating model by six of the seven Class I carriers.”

In his testimony covering concerns about the current rail environment, Gordon’ said: “While NGFA believes rail will remain an essential transportation mode for the agricultural sector, many of our member companies believe agriculture is at a tipping point concerning the extent to which rail service is reliable, cost-effective and reflects true competition as that term generally is defined in other markets.”

He cited these factors at work: limited rail-to-rail competition, “with duopolies existing in the East and West,” and the adoption of PSR.

He explained: “NGFA recognizes the need for carriers to efficiently utilize equipment and human assets to earn sufficient revenues to invest in their networks, cover capital costs and obtain reasonable profits. But the concern with PSR among rail customers is the practice of carriers to drive their operating ratios—the cost actually spent running the railroad—to perhaps unsustainably low levels to impress Wall Street investors and reward shareholders at the expense of customers.”

“For the sectors of agriculture comprising NGFA’s membership,” he said. “PSR has resulted in increasingly arbitrary, abrupt and disruptive changes to operating plans, service schedules and the type of rail service offered.”

Additionally, Gordon said, PSR “has resulted in railroad crews and customer service personnel being reduced more quickly and sharply, and locomotives being placed in long-term storage, both of which hamper rail carriers’ ability to respond when demand for service returns.”

In his testimony on rail policy priorities, Gordon said: “NGFA wishes to raise two specific policy matters the Committee may wish to explore with the STB with respect to its future rail regulatory framework.”

“First, we believe there is a pressing need to clarify what the railroads’ common-carrier service obligation means in the current rail environment that is characterized by reduced rail competition and PSR-related operational changes that raise serious concerns about whether carriers are indeed providing ‘transportation service upon reasonable request.’”

“A second topic that NGFA believes Congress should consider is to give higher priority to the importance of rail-to-rail competition within the Staggers Rail Act’s Rail Transportation Policy,” he said.

“Finally, there is one more significant factor that needs to be acknowledged. And that is the reluctance of most rail customers to formally challenge the behavior of their rail carriers at the STB, a court or in private-sector arbitration, even when justified, because they have no alternative competitive transportation mode and, therefore, don’t want to strain the working relationship with their railroad.”

DOWNLOAD GORDON’S FULL WRITTEN TESTIMONY:

Kent Fountain, Chairman, National Cotton Council

Fountain provided the Committee with an update on the pandemic’s effect on the cotton industry: “We have all seen the headlines of iconic American brands like Brooks Brothers, J Crew and J.C. Penny filing for bankruptcy, and the effect is being felt throughout the cotton industry. Cotton textile mills have seen orders drop upwards of 90% since retail stores were shuttered and cotton merchants have had additional interest and carrying costs as mills around the world slowed production or closed due to a lack of orders, and in some cases canceling their purchases of U.S. cotton. At the grower level, the financial situation has worsened as prices have fallen since the beginning of the year. I urge the Senate to pass a COVID relief bill that not only addresses the needs of producers but also includes explicit direction to USDA to assist cotton textile mills and merchants who have been devastated by this pandemic to ensure that this critical industry remains in America.”

“International trade is extremely important to the U.S. cotton industry,” Fountain added. “International intermodal rail carriers must maintain the integrity of containers moving together from interior ramp of receipt to port of loading, in order to reduce shipment splits and rolls that directly impact foreign mill customers’ production cycles. Once on the water, split and rolled shipments create costs, risks, and complexity for cotton shippers. We request that international intermodal rail carriers work with ocean carriers to implement uniform and consistent standards on inland, vessel, and documentation cutoffs.

“For rail-serviced cotton warehouse locations, cotton shippers need the railroads to provide consistent and sufficient information to prevent railcar ‘bunching’ on delivery at the destination warehouse, mill, or intermodal facility.

“Finally, the U.S. cotton industry supports the principles raised in the Federal Maritime Commission’s Interpretive Rule regarding cargo availability and reasonableness when determining the validity of fees like demurrage and detention. We request broader consideration of these themes throughout interior intermodal shipping systems. In particular, there is a serious need to address the contractual models that deny shippers choice in intermodal equipment utility, while also subjecting them to associated fees.”

DOWNLOAD FOUNTAIN’S FULL WRITTEN TESTIMONY:

Ian Jefferies, President and CEO, Association of American Railroads (AAR)

Jefferies testified on the freight rail industry’s relationship with its customers and passenger railroads, the industry’s COVID-19 response, and other issues important to railroads.

He noted: “Railroads know they must continue to earn their customers’ business and are constantly working to further increase productivity, reduce costs, invest in their networks, and improve service for their customers.”

Among his comments on freight and passenger rail partnerships, Jefferies said: “AAR, on behalf of its freight railroad members, is participating in the Federal Railroad Administration (FRA) rulemaking which is developing metrics and standards for measuring the on-time performance (OTP) of Amtrak trains in part with the goal of managing passenger rail travel so that the traveling public gets a reasonably reliable service. But for any measurement and standard to be effective, all parties must ensure that it is based on updated schedules that reflect current and variable conditions on the rail network.

“Ever since Amtrak’s creation, host freight railroads have worked with Amtrak to establish rules and procedures governing their interactions, including schedules, and have ultimately formalized those agreements in bilateral operating agreements. However, some of Amtrak’s schedules are now decades old and have not been updated to reflect current network conditions. Additionally, Amtrak’s schedules were not designed, as FRA recognized in its notice of proposed rulemaking, with the proposed new measurement and standard in mind. As a result, using existing schedules could cause misleading measurements of on-time performance and unrealistic expectations for all stakeholders, including, most importantly, for the traveling public.

“Freight railroads agree that a sensible OTP metric and standard would create certainty for Amtrak, host railroads, and, of course, the traveling public. Freight railroads will continue to work cooperatively with FRA, Amtrak, and others to ensure that the new metrics and standards are appropriate, realistic, and fair to all parties.”

Among his comments on regulating rail rates and service, Jefferies said: “Transportation policymakers in this Congress and future Congresses have a critical role to play. I respectfully suggest that policymakers should take steps that make it easier—and, just as importantly, refrain from taking steps that make it harder—for railroads to meet our nation’s current and future freight transportation needs.

“Railroads also commend this Committee for recently advancing the nomination of Robert Primus to be a member of the STB. Railroads look forward to working with Mr. Primus, Ms. Shultz, and the other current STB members to support and strengthen the freight rail industry’s ability to serve its customers and reinvest for the future.”

Commenting on COVID-19, Jefferies said: “In testimony to this Committee on June 3, 2020, I stated that freight railroads established three main goals in their response to the COVID-19 pandemic.

“First and foremost, railroads want to keep their employees safe. Teleworking is now available for those employees who are able to work remotely, and social distancing, rigorous cleaning protocols, and the use of protective devices are now ubiquitous on railroads to protect those employees that must be on-site as part of ongoing operations. Access by visitors to rail facilities has also been sharply curtailed, and railroads are communicating regularly with their employees about health and safety protocols. My understanding is that the number of COVID-19 cases among rail employees has remained relatively low.

“The railroads’ second imperative is to continue to provide high levels of safe, reliable service to their customers. I am aware of no instances in which Class I railroads have had meaningful business interruptions due to pandemic-related crew shortages. Virtually every railroad customer has adjusted its operations because of the pandemic, and freight railroads have partnered with them every step of the way. Thanks in part to this cooperation, America’s freight railroads today are, by and large, running more fluidly than ever before.

“Railroads are also making special efforts to expedite shipments of goods that are in short supply or urgently needed, and these efforts have not gone unnoticed by our customers and our regulators.” Jefferies noted that at the STB’s recent National Grain Car Council, “a representative of Archer Daniels Midland expressed their appreciation for the railroads’ response to the pandemic.”

“Railroads’ third and final imperative is to continue to preserve their financial stability so that they will be able to meet our nation’s freight transportation demands into the future,” Jefferies said. “As discussed above, this is not a new focus but an ongoing effort to become the most efficient freight transportation provider. One way that railroads have done this, starting before the pandemic, is by re-examining and continually focusing on improving their operating practices, and the result has been a more resilient rail network that is better able to adapt to market changes.”

In his testimony on surface transportation reauthorization, Jefferies said: “The recently-passed one-year extension of the FAST Act provides Congress with additional time to forge a longer-term reauthorization addressing critical transportation issues.”

Among those issues: restoring the Highway Trust Fund to a user-pays system; maintaining or increasing funding for the Section 130 program; furthering the efficiency and fluidity of the nation’s freight transportation system by supporting programs that improve “first” and “last” mile connections; and making permanent the short line infrastructure tax credit that provides incentives for non-Class I railroads to invest in freight railroad track rehabilitation.

In his testimony on technology and innovation, Jefferies said: “In formulating a mode neutral regulatory framework that encourages the realization of the benefits of emerging technologies, railroads urge Congress to adhere to several principles.

“First, regulatory barriers must be overcome in ways that are more enduring than waivers. Congress should direct DOT to make permanent long-standing waivers whose value has been proven through successful implementation or to issue final rules if equivalent or improved safety has been demonstrated. Limited short-term waivers from existing regulations do not give industry sufficient confidence to invest in new technologies.

“Second, to the greatest extent possible, railroads and equipment manufacturers should be permitted to continue to create voluntary standards for safety technology. No one has a greater stake in the success of new safety technologies than railroads and their suppliers, and market pressures already incentivize them to create and implement safety technologies that work.

“Third, new regulations governing automated operations in the transportation sector should be performance-based, rather than prescriptive. Performance-based standards would give industry discretion to experiment with new ways to improve safety, while the FRA would still oversee goal-setting, ensure that measures and data are accurate, and impose sanctions if railroads failed to meet their safety targets. Rail employees, customers, and the public-at-large would still be fully protected.

“Fourth, regulation of automated operations and other technologies should occur at the federal level to avoid a patchwork of state and local rules that would create confusion, inhibit the deployment of new innovations, and undercut the efficient functioning of the national rail network.”

DOWNLOAD JEFFERIES’ FULL WRITTEN TESTIMONY:

Dennis Pierce, President, Teamsters Rail Conference

Pierce discussed the impact of COVID-19, urged the Committee to provide aid for Amtrak and commuter railroads, and addressed what the union believes are the negative impacts of Precision Scheduled Railroading (PSR) and advanced technologies.

“On the freight side, traffic plummeted as significant portions of the country—and the world—shut down to manage the explosion of COVID-19 cases in the early months. Record numbers of Teamsters Rail Conference members and their co-workers were furloughed in response to the cratering of demand. This was on top of historic furloughs that occurred prior to the pandemic, which were a function of the industry’s current business model. In recent months, traffic has rebounded sharply—evidence of a V-shaped recovery—but recalls from furlough have been minimal and continue to lag. Thus, while railroad employment levels were a leading indicator of the COVID-19-related recession, they are a trailing indicator of the recovery.”

Pierce addressed Personal Protective Equipment (PPE). “Some railroads have been diligent about providing appropriate PPE, but others have been less successful,” he said. “We believe the root of the problem lies in the fact that the appropriate Executive Branch agencies have not yet established mandatory PPE guidelines. This failure continues to place our members and their families at risk.”

Discussing the passenger side, Pierce said, “the decline in ridership was even more precipitous than the plunge in freight rail traffic. Thanks to your support of the CARES Act, Amtrak and the commuter rail carriers were able to stabilize workforce levels through the end of the fiscal year. Today, however, these passenger and commuter railroads are on the brink of another crisis and find themselves in the opposite position than the freight railroads.

“Ridership levels have shown only a very small uptick, as millions of Americans continue to work from home and few vacationing Americans are opting to take public transportation as the Pandemic continues. Amtrak has made plans to cut long-distance service by half or more, and projects furloughing about 10% of its workforce, including nearly one-fourth of its Passenger Engineers corps, including all Student Engineers. Commuter agencies also are looking at reductions in service, and in employment.

“That combined is why there is an urgent need for additional emergency funding. On October 1, the House passed the CARES 2 Act, which includes $2.2 billion in additional emergency funding so that Amtrak can maintain service at Fiscal Year 2019 levels and prevent these furloughs. It is only a matter of time until ridership returns in a significant way, and we believe it is imperative that this temporary emergency support be provided because not doing so risks Amtrak and commuter agencies losing thousands of furloughed workers, and then being unable to provide service at levels needed to meet the increased demand that is anticipated next year.”

Pierce also addressed technology and operations:

“Finally, and several decades after the National Transportation Safety Board first recommended the implementation of anti-collision technology, the industry is approaching full compliance with your mandate that key routes have a working Positive Train Control system. However, instead of using this technology as a safety complement to crews, the railroads want to use it to replace crew members, even though the technology cannot, and is not designed to, do many of the things the second crewmember does.

“BMWED members of the Teamsters Rail Conference face a similar challenge. Railroads are actively testing and deploying various track inspection technologies, in several cases aided by waivers from existing track safety standards that have been granted by the Federal Railroad Administration (FRA). Once again, however, instead of using these technologies to assist the expert track inspectors represented by BMWED, the railroads are trying to eliminate their jobs.

“On top of this, over the past few years, the Class I railroads have begun implementing a new business model called Precision Scheduled Railroading that has turned the industry upside down. The focus of PSR is to reduce a railroad’s operating ratio. While PSR’s across-the-board and ruthless cost-cutting has produced historically low operating ratios, it also has produced historically high unemployment rates in the industry.”

Pierce added that: “PSR has led to deferred maintenance and the closing of many repair shops. It has created a constant state of chaos as operating crew bases are relocated to reduce the number of crews needed to operate long-distance trains, and two- to three-mile-long trains are becoming far too prevalent.”

Pierce suggested that upcoming surface transportation reauthorization include “a requirement that the Government Accountability Office conduct an investigation and produce a report like the one envisioned in Section 9502 of the TRAIN Act portion of H.R. 2. Specifically, the GAO should study changes in freight railroad operating and scheduling practices as a result of the implementation of the PSR model.

“There are two additional provisions, which have already been introduced in the Senate, that we believe also should be included in the surface transportation reauthorization bill. One is Senator Markey’s ‘Safe Freight Act,’ S. 1979, which lies with this Committee and has 15 co-sponsors. This bill would put a halt to the industry’s attempt to eliminate jobs with a technology that cannot—and is not designed to—replace safety-critical train crew members, and in a manner that is wholly consistent with current crewing practices.

“The other is the bipartisan S. 2652, the ‘Protection of American Jobs in Cross-Border Rail Operations with Mexico Act’, which also lies with this Committee. As you know, earlier this year the United States-Mexico-Canada Agreement entered into force. But the USMCA, or NAFTA-2, is fundamentally unfair to American railroad workers.”

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