Just two weeks after Congress and the Biden administration stepped in to avert a crippling freight railroad strike (GM Dec. 2, p. 1), a major US carrier was forced to defend its increased use of embargoes in a sometimes contentious US Surface Transportation Board (STB) hearing in Washington on Dec. 13-14.
Union Pacific (UP) executives were asked to explain why the railroad’s use of embargoes to control congestion has increased from a total of 27 in 2017 to more than 1,000 to date in 2022, according to STB data. The agency said it has received numerous reports that the embargoes are hampering shippers’ operations and adding to supply chain problems.
In an effort to boost profitability, UP adopted the Precision Scheduled Railroading (PSR) operating model in 2018. PSR had come under scrutiny in recent years as shippers believe the model’s focus on efficiency – achieved through leaner operating crews, shorter dwell times, simplified routing networks, and maximum asset utilization – has resulted in poorer service.
In 2018, the year of its PSR adoption, UP’s use of embargoes jumped to 140, climbing to 251 in 2020 and 662 in 2021, STB said. Through October 2022, UP accounted for 79% of embargoes issued by the Class I railroads this year, with 98% of them attributed to “congestion,” STB said.
STB Chairman Martin Oberman suggested a direct correlation between the sharp drop in UP employees since 2018 and the increased use of embargoes. According to STB data, the number of train crews employed by UP went from roughly 18,000 in 2018 to about 13,000 currently, and that includes a recent surge in hiring to rebound from the pandemic.
UP executives defended their record at the hearings, according to the Associated Press, arguing that embargoes are targeted, temporary, and do not place an undue burden on individual businesses. “We only use embargoes when necessary, and when no longer necessary, we end them,” UP CEO Lance Fritz said.
Several industry representatives who testified the hearing disagreed, however. “Embargoes disrupt operations, impose significant costs on rail customers, and prolong the nation’s supply chain problems,” said Jeff Sloan, American Chemistry Council (ACC) Senior Director of Regulatory Affairs. “And they are yet another manifestation of the chronic service failures that have plagued the US rail network for more than two years.”
Sloan said the ACC is concerned that UP and other railroads will increasingly turn to embargoes to manage long-term congestion problems. “It is particularly troubling that some of these underlying conditions were created or exasperated by the railroad’s own management decisions, including actions to cut jobs, mothball equipment, and delay infrastructure investments,” he said.
Sloan urged the STB to adopt several policy reforms, including establishing permanent reporting requirements to track how well major railroads are performing for their customers; instituting minimum standards for the delivery of efficient, timely, and reliable rail service; and finalizing rules to improve access to competitive rail service through reciprocal switching.
Mike Seyfert, President and CEO of the National Grain and Feed Association (NGFA), also testified at the hearing. “We have no doubt UP is working hard to improve rail service, but we fear UP’s significant use of embargoes for so-called congestion that is largely the result of UP’s actions may be unfairly placing the cost burden of its rail service recovery on their rail shipper customers,” he said.
The STB in April conducted a freight rail service hearing that included testimony from a wide range of customers claiming economic harm due to inadequate rail service (GM April 29, p. 1). Both The Fertilizer Institute (TFI) and the Agricultural Retailers Association (ARA) submitted testimony highlighting delays of spring fertilizer shipments. The board subsequently ordered the four largest rail carriers, including UP, to submit service recovery plans.
“First and foremost, I do want to assure the board that we have listened,” Bradley Moore, UP’s Vice President of Customer Care and Support, told the STB on Dec. 14. “We’ve heard feedback. We’ve heard concerns. And we are going to work through that feedback diligently.”
Seyfert noted some improvements in UP’s service since the April hearing, but said shipping challenges continue for NGFA members and other industries.
“Embargoes due to congestion should only be permitted when the railroad is not the cause of the congestion it claims is the basis for an embargo,” Seyfert said. “Liberal declarations of embargoes and the metering of service should certainly not be embedded into a rail carrier’s business model.”