March 08, 2022

Chairs DeFazio, Payne, Jr. Statements from Hearing to Discuss the Surface Transportation Board Reauthorization’s Role in Improving Rail Service in the U.S.

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, “Stakeholder Views on Surface Transportation Board Reauthorization.”

Video of DeFazio’s opening statements can be found here.

More information on the hearing can be found here.

Chair DeFazio:

Thank you to all of our witnesses for being here today. Something must really be wrong when rail labor, railroad shippers, and Amtrak have similar concerns about the way the freight rail industry is operating. To say I am concerned is an understatement.

The Surface Transportation Board is heavily focused on ensuring economic vitality of the railroads when it should be supporting a balanced national freight rail system that serves its customers well. Forty-two years after the Staggers Act, and 27 years after Congress replaced the Interstate Commerce Commission with the STB, the balance of power has swung too far. Wall Street is extracting wealth from the deregulated railroads at the expense of poor service to railroad customers and on the backs of railroad workers. 

This change has been driven by activist investors on Wall Street who demand ever-increasing quarterly profits through ever-decreasing operating ratios. The railroads have been forced to lay off nearly one third of their workforce since 2015. Railroads have also parked locomotives and closed rail yards causing a number of shippers to temporarily close plants and facilities due to erratic rail service.  Meanwhile, as the rail workforce strains under pressures to do more with less, the shrunken employee count contributes to unreliable shipper service, worker fatigue, and low morale.

All the while, the same investors on Wall Street have demanded stock buybacks and nonstop returns on investment. The pandemic exacerbated the effects of pressure that began years ago to cut, cut, cut. Now, after years of shrinking footprints and workforces, the Class I railroads find they’ve cut too far. They are reopening facilities they previously closed to save costs and desperately trying to rehire workers who have seen the industry change before their eyes. The Class I railroads have left themselves so little cushion that they have been unable to adjust for winter in Chicago, flooding in the Midwest and Southeast, and wildfires in the West. Weather events like these occur every year—and are getting worse due to climate change—and yet they are consistently used as an excuse for degrading service.

Our national policy goal to reduce the transport sector’s carbon emissions cannot be achieved if the freight railroads are cutting service to less lucrative shippers. We need the freight railroads to be serving more customers at a time when the overall volume of goods transported across the country is skyrocketing. 

Railroads consistently tell us how, if 25 percent of the truck traffic moving at least 750 miles went by rail instead, annual greenhouse gas emissions would fall by approximately 13.1 million tons. I agree with their stated goal: to encourage modal shift so that freight railroads can truly be part of our climate solution. They talk a good game. They consistently highlight what we want to hear: rail is three to four times more energy efficient than truck. But they can’t really be a part of the solution if Wall Street is pushing the Class I railroads to consistently focus on increasing short-term profits instead of expanding long-term service.

According to the Surface Transportation Board, outside of coal, the railroads have lost market share to trucks for the past 15 years. They are instead cherry picking only the most profitable routes and working to make the less profitable routes as unappealing as possible, thus shifting that freight to trucks. 

I’ve spent my career raising concerns about the greed on Wall Street and its detrimental impacts to Main Street. The challenges in the freight rail industry remind me of what happened at Boeing with the 737 MAX where a storied company, with a proud workforce, changed direction to focus more on the bottom line than on safety, and warnings from employees were ignored. This committee is sounding the alarm today. Activist investors out to make short-term profits with the railroads have gotten nearly $200 billion in stock buybacks since 2010, and I am concerned about the long-term viability of America’s freight railroads.  

My goal is to foster a healthy freight rail market that boosts the overall economy and reduces carbon emissions. Wall Street’s goal is to get wealthier—no matter the impact on our economy, environment, transportation system, or workforce.

The pendulum has swung too far. I hope we can course correct before it is too late.  I look forward to hearing the testimony of our witnesses today.
Chair Payne, Jr.:

Good morning.

As we approach the reauthorization of the Surface Transportation Board, today is an opportunity to hear from stakeholders and to determine what, if any, additional authorities are needed to improve rail service across the country.

The STB is a unique federal agency that is the primary economic regulator of freight railroads.

Among other powers, it can set maximum rates that freight railroads can charge shippers in response to complaints, and has the exclusive authority to approve mergers between railroads.

Shippers play a critical role in the national supply chain by making the goods being transported across the country.

For instance, in my district alone, there are shippers who produce everything from plastics to orange juice, automotive components, and other critical goods that are used by Americans every day.

Shippers rely on the STB to resolve disputes with railroads, and it is critically important that STB has the tools necessary to keep cargo moving.

I, myself, have asked the STB for help with the railroads on behalf of small shippers in my district, especially those who are minority and women-owned and may be not as large as their competitors, that need a level playing field to bring rate case challenges before the STB.

Currently, those who wish to bring rate challenges in most cases must use an archaic method of creating a hypothetical railroad to prove that a rate charged by a railroad is unreasonable.

This methodology is time consuming and expensive, with the STB’s Rate Review Task Force concluding in April 2019 that many small shippers find rate cases too complex and costly to pursue.

This is further evidenced by the fact that since 1996, there have only been 51 rate cases brought before the STB and zero in the last three years. 

Based on the stories we will hear today of the frustration shippers have with their railroad service, zero official complaints does not mean everything is fine.

Rather, there is a barrier to smaller shippers being able to bring these challenges.

I have made it a priority of my Chairmanship of this subcommittee to remove barriers that minority and women-owned businesses face in the rail sector.

Having an archaic rate challenge process that primarily benefits the railroads does not sound right to me.

I commend the STB for beginning to take action to make other options available and will be exploring legislative options to make STB oversight more accessible.

Another issue that I am concerned about is the use of Precision Scheduled Railroading, or PSR, by freight railroads.

This practice claims to make railroading more efficient by running fewer trains, but I have significant concerns that it reduces safety by cutting the number of workers and creating very long trains that can stretch for a mile or longer.

According to the STB, at the end of last year, the Class I railroad workforce was nearly a third less the size it was in 2015.

This reduction in workforce came, largely before the COVID-19 pandemic struck, and its weakness was on display at a very inopportune time.

Instead of having a robust and flexible workforce to absorb supply chain disruptions, PSR apparently created its own worker shortage when workers were needed the most.

In 2019, this committee held a shippers roundtable where shippers expressed concerns that PSR could impact service reliability and ultimately question railroads’ ability to meet common carrier obligations.

Chairman DeFazio and I have requested a GAO study on the effects of PSR. I am eagerly awaiting the results of the study.

These are only a few of the issues that will come up at today’s hearing.

One other specific issue I would like to hear more about is feedback on the STB’s efforts to enforce Amtrak’s legal right to access so we can develop more intercity passenger rail corridors as we discussed in this committee in December and Amtrak’s preference on railroads so that Amtrak trains can run on-time.

It is my hope to hear from witnesses about all the things the STB is doing right and how Congress can further enhance its authorities to ensure that freight railroads are meeting their legal obligations.

I thank the witnesses for being here today and I look forward to their testimony.