US rail problems moving fuel, additives could sideline 10% of nation’s trucking fleet: STB hearing

Source: By Jordan Blum, S&P Global • Posted: Thursday, April 28, 2022

Widespread railroad service problems in the US could sideline 10% of the nation’s commercial trucking fleet because of fuel and additives supply disruptions, specifically for diesel exhaust fluid, renewable diesel and ethanol, executives said April 27 at a Surface Transportation Board hearing on urgent issues in the freight rail sector.

Shameek Konar, CEO of Pilot Travel Centers, said railroad disruptions from labor shortages and other problems have led to Union Pacific Railroad ordering Pilot to reduce its diesel exhaust fluid deliveries, which he said Pilot cannot afford to do, or face a shipment embargo. DEF is used to reduce emissions from diesel engines and is required in all commercial trucks manufactured since 2010.

“It’s an absolute disaster. Trucking is already so tight, and we’re having freight problems,” Konar said. “It will hurt our supply chains at a time when we cannot afford it. We want to be part of the solution, but the current situation is untenable for us.”

A single rail car of DEF carries 21,500 gallons, which can service 3,000 trucks for roughly 5 million miles of driving, he said, so every shipment is key. DEF is made from urea, so it is tied to the fertilizer industry, and fertilizer shipments via rail are suffering too.

These pre-existing railroad problems were exacerbated in late 2021 and early 2022 with the ongoing loss of railroad workers through attrition and hiring challenges. This has led federal regulators to begin considering an number of emergency measures, such as expedited complaint reviews, increased penalties, required data sharing for first- and last-mile shipments, and reciprocal rail switching rule changes to encourage more competition and shipping choices.

In response to Konar’s complaints, Union Pacific said in a statement that it is keenly aware of customers’ concerns and is taking aggressive measures to address them.

“We are removing Union Pacific-controlled cars to ease congestion and working with customers to reduce their own growing inventories, adding locomotives, hiring at an accelerated pace, and focusing on other steps to get our service back to where we and our customers expect it to be,” UP said in a statement.

STB Chairman Martin Oberman said that in recent years — and magnified more during the pandemic — railroads have cuts costs and jobs to improve profits. He said the top US railroads have reduced their workforces by 29% — the loss of 45,000 employees — in the last six years. Oberman said he fears “fuel prices going through the roof” when they already are so high.

Konar said renewable diesel shipments are stalling as well, especially to states like California that mandate more usage, and so are ethanol shipments. While some crude oil and refined products shipments are impacted by the rail disruptions, US motorists likely will soon feel the pinch even more heading into the busy driving season from the impacts of slowed ethanol shipments, which primarily move by rail from the Midwest to the rest of the country.

Emergency waiver for more ethanol

The White House recently announced an emergency waiver for more ethanol to be blended into gasoline during the summer. The waiver for E15 permits summertime sales of gasoline to be blended with 15% ethanol — instead of a typical maximum of 10% ethanol — in another bid to lower domestic fuel prices contributing to sky-high inflation. About 85% of US ethanol production — roughly 650,000 b/d — moves by rail, largely from PADD II in the Midwest.

The end result, Konar said, is both diesel and gasoline prices could rise further heading into the summer.

Also heading into the busy summer months, executives said they fear greater coal-shipment delays from rail problems just when power plants need to maximize electricity production.

John Ward, of the National Coal Transportation Association, said coal stockpiles at the end of 2021 were at their lowest levels since 1978 – and not improving. Many coal-fired power plants are idled or operating low levels trying to conserve for busy summer season, he said.

“We need to move coal and, right now, it’s just not happening,” added Ann Warner, of the Freight Rail Customer Alliance.

Rail replies

Railroad executives have responded that the issues are related to labor and utilization, and that they suffered more job losses than expected during the so-called Great Recession from the pandemic. They argued there are enough trains and rail cars, he said, and “rash” regulatory actions are not needed.

Last week, Union Pacific said it plans to hire about 1,400 people this year, while CSX, which operates mostly in the Midwest and East Coast, said it is hiring 30-40 people weekly. The additional challenge is that it takes months of classroom and on-the-job training to fill these train engineer and conductor jobs, especially in a low-unemployment environment of people seeking other jobs or wanting to work from home.

However, labor union leaders and trade groups pointed to more structural problems as well, and a focus on appeasing Wall Street investors rather than customers and consumers.

Multiple complaints focused on the railroad industry’s adoption of so-called precision-scheduled railroading, or PSR, in recent years. Under PSR, railroads use simpler routing networks with fixed schedules utilizing fewer employees and rail yards. There is a focus on using fewer, but longer, trains with more freight cars to save money at the risk of potentially poorer service, critics said. These longer trains can be two or three miles long.

Norfolk Southern Chief Operating Officer Cindy Sanborn said she thinks of PSR as “pretty simple railroad,” arguing that the model has substantially improved efficiency and reduced the need for total employees.

Oberman complained that Norfolk Southern’s employee headcount is down nearly 33% from early 2019, from more than 11,500 workers to almost 7,800 now — and that is after some incremental new hiring of late. Oberman said Norfolk Southern and others cut to the bone, eliminating any “cushion” needed in case of disruptions or demand surges.

“You wouldn’t send a team out on the field without a backup quarterback,” Oberman said, making a football comparison.

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