By Grace Renderman, Associate Editor
Short-line and regional leaders are striking a hopeful — but cautiously optimistic — tone on the state of the freight-rail industry as 2022 enters its final months.
American Short Line and Regional Railroad Association members gathered Oct. 26 in Milwaukee for the organization’s annual Central and Pacific Region Meeting, where attendees listened to speakers talk about several topics ranging from cybersecurity and safety to hazardous material incident responses to switching operations.
During a panel discussion, three short-line industry executives — OmniTRAX Inc. CEO Dean Piacente, Iowa Interstate Railroad Ltd. (IAIS) President and CEO Joe Parsons, and Twin Cities and Western Railroad Co. (TCWR) President and CEO Mark Wegner — rendered their opinions on some ongoing and future challenges. Moderated by ASLRRA President Chuck Baker, the discussion focused on workforce recruitment and retention, record-high inflation, Class I service reliability issues and intermodal growth opportunities.
“Our world is full of double-edged swords. The optimistic among us have observed that when the labor agreement is done, maybe that turns down the tension in the room,” Baker said. “We’ll see how that one plays out. I hope it’s glass half full.”
Class Is’ service issues impact short lines
Since many short lines work hand-in-hand with Class Is, the large railroads’ ongoing service reliability struggles and the ways they’re addressed by the Surface Transportation Board are having major consequences as to how small railroads conduct their business, especially when it comes to reciprocal switching, Wegman said. Much of that impact is up to the STB, which is led by Chairman Martin Oberman.
"There’s a new sheriff in town, and his name is Marty Oberman,” Wegman said. “It’s a political situation. But our hope is that common sense can somehow prevail.”
Wegman referred to the reciprocal switching debacle that has been on the STB’s plate for years. The board is considering a notice of proposed rulemaking that, if enacted, would require railroads to establish switching agreements under certain circumstances, such as a shipper wanting to switch to a different railroad. Proponents of the rule say it would help rail customers access a greater range of options and remove regulatory barriers, while opponents lament the complexity and economic impact, a la lengthening the time it would take for cargo to get from Point A to Point B.
From left: Dean Piacente, CEO of OmniTRAX; Joe Parsons, president and CEO of Iowa Interstate Railroad; Mark Wegman, president and CEO of Twin Cities and Western Railroad; and Chuck Baker, president of ASLRRA. Grace RendermanThe STB also has their hands full with regulating the proposed merger between Canadian Pacific and Kansas City Southern. Whether or not additional or revamped federal regulation is a good thing for the industry is up for debate, but any action or inaction from federal agencies will have unintended consequences, Parsons believes.
"It’s very hard to put some sort of broad, sweeping regulation out there and carve out the short lines,” he said. “There’s a good possibility we’re all going to get sucked into whatever black hole occurs, from a regulatory perspective.”
There’s a significant amount of uncertainty about freight demand and rail-car availability in the short term — even in 2023 forecasts — making quantification of resource and product allocation difficult, Piacente said. Despite that cloudiness, OmniTRAX has continued to make significant gains in its relationships with the Class Is, he added.
"They’re pretty much friends, but also the source of lots of frustrations,” Piacente said. “OmniTRAX is fortunate that we have quite a few ex-Class I folks working for us. We have excellent relations with our Class I partners and we’re able to advocate for our customers when we need more resources.”
Hunting for new opportunities
One way for short lines and regionals to work more closely with Class Is is to explore more intermodal and transloading opportunities. But the costs and space required to have large-scale facilities or sites can sometimes be prohibitively high, Piacente said.
Before committing to building an intermodal terminal or transloading facility, short line leaders should conduct extensive research into location, customer demand, cost and other factors, he recommends, adding that “everybody wants an intermodal terminal, but they don’t know what it takes to do intermodal.”
Short lines in particular need to be more aggressively pursuing intermodal and transload opportunities, because not doing could be a costly mistake in the long run, Parsons believes. Shippers don’t want to wait for a new facility or site to be developed, so short lines that don’t offer those options tend to be losing business, he said. While transload sites of any size can be successful anywhere if there’s access and demand, a short line needs to be patient as carload volume grows, Wegman noted.
"A carload a month, two carloads a month … that takes time,” he said. “I’m grateful that we’re long-term thinkers and we’re willing to do that.”
TCWR is slated to open a new transload site in second-quarter 2023, Wegman stressed.
The pains of inflation, retention
The panelists also addressed a major business-growth impediment: inflation, which has reached record highs this year in the United States and Canada. Rising costs are crimping short lines’ ability to complete capital projects and retain both union and non-union employees.
Although the $1 trillion Infrastructure Investment and Jobs Act will provide some financial relief for railroads in the coming years, inflation is expected to continue for quite some time. A number of quarterly 2023 outlook reports consistently predict a 7% to 9% inflation rate throughout 2023, Piacente said.
The global supply chain — which still is recovering from the pandemic-induced squeeze on shipping — also reflects inflation in the form of skyrocketing price tags on many commodities, he added.
With a tight labor market and some unions threatening to strike as national contract ratification votes and negotiations continue, railroads have to continually find ways to attract new hires despite economic pressures, the panelists noted.
When it comes recruiting new workers, hindsight is 20/20, Parsons said. Although IAIS never had to lay off any employees due to the pandemic, the regional did stop hiring — something the railroad’s leaders now regret, he noted.
“We now know the challenge coming out of this … is trying to go out and recruit talent,” said Parsons.
