May 12, 2022

Chairs DeFazio, Payne, Jr. Statements from Hearing on The Surface Transportation Board’s Role in Resolving Freight Rail Conflicts

Washington, D.C. — The following are opening remarks, as prepared for delivery, from Chair of the House Committee on Transportation and Infrastructure Peter DeFazio (D-OR) and Chair of the Subcommittee on Railroads, Pipelines, and Hazardous Materials Donald M. Payne, Jr. (D-NJ) during today’s hearing titled, “Board Member Views on Surface Transportation Board Reauthorization.”

Video of DeFazio and Payne, Jr.’s opening statements can be found here and here

More information on the hearing can be found here.

Chair DeFazio:

The facts before this committee today are undeniable. Freight railroad service is abysmal. Shippers are being severely impacted by poor rail service, which forces them to shift to trucking, raw material delays that cause factory closures, and extra labor costs to load and unload once the rail cars finally arrive. This appalling service is forcing shippers to recoup their extra costs downstream and Americans are paying for it—with increased food costs and at the gas pump.

Sadly, the freight railroad CEOs blame poor service on everyone but themselves. They blame COVID, supply chain disruptions, their workforce, and their customers. The CEOs are not looking for change. They are bringing in record profits for their shareholders, and they are not going to do anything to mess with this “winning formula.”

I have been beating the drums about the dangers of precision scheduled railroading (PSR) for years, leading some to dismiss me as a grumpy old man. Today, this grumpy old man has been joined by the agriculture industry, energy industry, chemical industry, and other shippers who bemoan PSR and its impacts on their businesses. In fact, these shippers have even joined forces with the labor movement to demand a free and fair freight railroad market with the capacity to grow and meet demand.

I don’t have a lot in common with the big oil executives, but this quote from the American Fuel & Petrochemical Manufacturers testimony to the STB is spot on:

“Consolidation in the railroad industry has created a system of regional duopolies and the railroads understandable desire to maximize profits has come into conflict with railroads’ common carrier obligations. The Staggers Act was not intended to make the railroads attractive investment targets on Wall Street; rather it was designed to ‘meet the demands of interstate commerce and the national defense.’ PSR has interfered with those goals.”

PSR is a business model that cuts expenses to the bone even when that slows customer and volume growth. Freight railroads accept only the most profitable freight. They are not going to spend a dime on growing their companies unless the new customer is truly captured and highly profitable to the railroad. Any “surplus” asset is mothballed and worker furloughed, making it difficult for railroads to accommodate more business. PSR delivers short-term profits, while harming the long-term success of the freight railroad industry. 

You don’t have to take my word for it. Former BNSF CEO Matt Rose said it when he retired back in 2019:
“The Street—I’m talking about sell-side analysts—has been extremely aggressive with the publicly traded railroads. They’re saying that less is better.  Less capital is better.  Fewer market opportunities are better.  Fewer unit trains are better. It’s all about lowering the operating ratio.  I disagree with almost all of that.  I truly believe that every industry, every business, needs growth… I just don’t think you can shrink yourself into a virtuous-cycle model that works.”

I am pleased the Surface Transportation Board is taking this matter seriously but let me say for the record the Board is moving too slow. American businesses and consumers are needlessly suffering at the hands of duopolies, while these duopolies extract record profits. We have five witnesses before us today who are the regulators and this is occurring on their watch. The STB needs to act quickly and decisively to protect the railroad network, a vital asset to the U.S. economy.  

Your testimony asks for very little from this committee, suggesting you have all the regulatory powers you need. If that is true, and I am not sure it is, how did the current freight failures get this bad under your watch?
Some will argue this is a free-market problem to be resolved by the markets.  But that doesn’t work with duopolies. It is, in fact, the very reason the STB exists. 

Current law lays out your responsibilities in Chapter 101 of Title 49. These responsibilities include: 

  • “to ensure the development and continuation of a sound rail transportation system with effective competition among rail carriers and with other modes,”
  • “to meet the needs of the public and the national defense,” 
  • “to maintain reasonable rates where there is an absence of effective competition and where rail rates provide revenues which exceed the amount necessary to maintain the rail system and to attract capital,”
  • “to encourage fair wages and safe and suitable working conditions in the railroad industry,” and
  • “to prohibit predatory pricing and practices, to avoid undue concentrations of market power, and to prohibit unlawful discrimination.”

Your mandate is not to protect the freight railroads’ bottom lines or rail shippers’ bottom lines, but to ensure the rail network is operating efficiently, keeping costs low for Americans, maintaining reasonable profits for the railroads, and giving American manufacturers a competitive advantage worldwide. We need the STB to do more to meet those mandates.

Let me be crystal clear that if the STB doesn’t move more quickly to rise to the occasion, this committee will legislate. I urge my Republican colleagues to join me and shippers from the agriculture, energy and chemical industries (just to name a few) to bring sanity back to the freight railroad business. 

My goal is simple. I want freight rail companies to be successful, but that success should be defined by the amount of freight they move across the nation, the amount of GHG emissions they prevent, the safety of their employees and the communities they traverse and serve, and the economic advantage that timely, efficient, and affordable freight rail provides the American economy.  

I urge the STB to incentivize the railroads to act like railroads, and not Wall Steet cash cows. Stock buy backs and dividends cannot be the sole measures of success for freight railroads. The ability for Wall Street to extract massive capital out of the railroads will undermine the U.S. freight rail network. They are the only mode with continued decline in freight rail volume, a sure sign that the industry is unhealthy.

Congress cannot sit idle and ignore the current problems with the freight railroads. They are too important of an asset for our national economy.  The rail system is broken, and it needs fixing.  We need you to fix it, or we will.
Chair Payne, Jr.:

Good morning.

To continue this subcommittee’s work toward reauthorization of the Surface Transportation Board, today we have an opportunity to hear from members of the Board to determine what additional authorities are needed to improve rail service across the country. 

The STB is a unique independent agency that is the primary economic regulator of freight railroads, responsible for ensuring that the railroads honor their common carrier obligations.

Shippers play a critical role in the national supply chain by making the food we eat, ensuring the water we drink is safe, providing electricity, and providing building materials.

We held a hearing with stakeholders two months ago who sounded the alarm on rail service issues and to get their ideas for reauthorization.

Recently, the STB held two days of emergency public testimony on the meltdown of our nation’s freight rail operations.

The STB heard from many shippers, labor leaders, and even Transportation Secretary Buttigieg and Agriculture Deputy Secretary Bronaugh on the significant delays in transporting cargo by freight rail.
Chemical shippers are enduring 78 percent longer transit times and service days have been cut nearly in half.

Agriculture producers such as soybeans and rice have seen a particularly sharp decline in the quality of freight rail service. 

The National Grain and Feed Association recently wrote to this subcommittee explaining that, and I quote, “the current inability of several Class One carriers to provide reliable rail service to their customers is impacting farmgate commodity prices and elevating food prices for customers.”

Increasing prices for our food, gas prices at the pump, turning on our lights, having safe drinking water—these are all impacted by increasing delays in freight rail service. 

Quite frankly, this is unacceptable.

The timely and efficient movement of goods remains of paramount importance to a strong economy.
I understand that the Class I freight railroads’ explanation of the decline in service is due to several factors, including workforce shortage. 

What is maddening, is that the very workforce shortage contributing to the decline in service is a result of the Class Is implementing precision scheduled railroading, or PSR.

By the end of last year, the Class I Railroad workforce was cut by nearly a third compared 2015. 

Those cuts began years before the pandemic hit, and—despite knowing it takes a number of months to return qualified workers to the rails—the railroads doubled down by cutting again in 2020. 

I have been concerned to hear from workers and their unions about employees being overworked and rushed on the job. 

Now, those worsening working conditions, years of job insecurity, and the months required to properly train workers before they can return to service, have come home to roost in the form of severe hiring challenges the railroads currently face.

All of this is why the STB held the emergency hearing.

Last week, the STB unanimously acted to require the largest railroads—UP, BNSF, CSX and NS—to develop service recovery plans to improve service and metrics to measure progress, including goals and measures for rail service performance and employment training and hiring levels. 

Stakeholders have also proposed new authorities such as expanding the STB’s ability to assess fines or allow for reverse delay charges that shippers can charge carriers.

I look forward to hearing Board member views on stakeholder proposals and their own proposals.