NEW YORK — At a major industry gathering that drew what several seasoned attendees believe was the largest in years, the size of the crowd did not alter the hand-wringing message that has reigned supreme in so much discussion of the U.S. rail industry : We should be much bigger and better.
It is a common theme that the rail industry has not been able to capture the market share of the trucking sector significantly and that it is time to change that.
This year at Progressive Railroading’s RailTrends conference in New York, it was once again Adrienne Bailey, partner at Oliver Wyman’s consulting firm, a division of Marsh McLennan (NYSE:MMC), who highlighted the industry’s shortcomings but also opportunities.
Bailey said she didn’t want to be called “Dr. Doom” in the industry, a nickname she well earned in her speech at the RailTrends conference a year earlier.
Her outlook this year was what the rail industry needs to do to increase its freight market share, which various sources put at around 28%. This proportion has not improved significantly over a longer period of time. Bailey tried to focus more on opportunity and shake any reputation as a naysayer.
Bailey’s plan had four main planks. One was “acknowledging the need for transformation” and also recognizing that it would take time. “Anyone who thinks the railroads can do it in less than three years, I would disagree,” she said. “This is a long-term program. We need an operational transformation. We are not booting back to previous levels of service.”
Another part of the four-step plan would be to “use the downturn as a runway.” A slowdown in freight volumes, which could relieve a market where railroads are primarily consumed in maintaining their levels of service, should not be viewed as an opportunity to cut costs, Bailey said. Rather, it should be seen as an opportunity to “give some breathing room” to improve service over the long term that will last when the market picks up again.
Mentioning several equity analysts, Bailey indirectly indicated that their short-term focus is a problem in the rail industry. That was an important part of the plank to “prove the value of growth.”
“We need to more clearly articulate the benefits of growth versus focusing on the operational metric,” which Bailey says now “can distract management from value creation.”
The message needs to be that “providing a better sustainable service will win back market share,” Bailey said. If that message can be carried home, she added, analysts will be asking more questions about security and service growth rather than focusing on OR.
The last point was the need to “promote a constructive regulatory environment”. Plans for action under that broad goal, Bailey said, include getting more waivers for the use of new technologies and convincing governments to “attribute to rail the public benefits” it offers.
These benefits—greater fuel efficiency, higher safety levels than trucks, and a host of environmental benefits—were discussed in the fireside chat opening RailTrends with leaders of two key railroad lobby groups: Ian Jefferies, president and CEO of the Association of American Railroads, and Chuck Baker, the president the American Short Line and Regional Railroad Association.
Baker said the “sentiment” surrounding railroads this year has been negative, indicating a “bad year”.
“Railroads are not the bad guys. Not only are we not the bad guys, but we have a wide range of benefits for the politics of the good guys,” he said, citing rail’s usual litany of positive energy and environmental concerns.
“We think we have a good story to tell,” Baker said. “And it’s a frustrating feeling when we feel like some people in Congress and in the communities are mad at us. We prefer to talk about victory, the victory we bring.”
Jefferies said his organization has been trying to convince Biden administration officials that rail is an ally in some of their macro goals, such as jobs, infrastructure investment and environmental benefits.
“We’re in perfect agreement on that,” he said. “But the challenge is when you get into the agencies and there’s a disconnect from the ultimate goals.”
In the background of the fireside chat is the reality of the slow drudgery pending approval of a new national railroad employment contract. Of the 12 unions that were involved in contract negotiations with the rail freight company, seven unions have ratified their collective agreements. Three are back at the negotiating table after their members voted against ratifying their agreements. Members of the two largest unions – those representing train conductors and locomotive engineers – are now voting on whether to ratify their agreements and those vote results will be published next Monday.
Baker and Jefferies made no predictions about how the remaining negotiations will play out after the US narrowly averted a national railroad strike in September. However, depending on the outcome of the ongoing votes and negotiations, another strike is possible.
Jefferies said he viewed the deal as a “massive win” for Labor, highlighting some of its key features: maintaining health insurance, “the biggest wage increase in 50 years, and I’m thrilled with the seven unions that have ratified it.” . They get an average of $16,000 in checks,” a reference to the one-time bonus in the union-railway deal.
But Baker said there was still work to be done after the treaty was ratified and industrial peace was achieved. “I’ll say once that’s completed, we really need to fix that relationship,” he said of management-worker interactions. “It’s not sustainable to be in a relationship where we sense their hostility.”
The irony is that Baker’s member companies, the short-distance railroads, are not part of the negotiations with the working class. But he said the short lines should be broadly consistent with what’s in the contract, although there are non-monetary benefits to the short lines that may make employment there attractive. “You go to sleep at home every night,” Baker said, to give an example.
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