In our click-driven world, the threat of a US freight railroad strike and President Biden’s intervention to prevent it have been the news for the past week. But there are two groups for whom the averted strike is still front and center: the 115,000 railroad workers who will be forced to work under the terms of the contractual agreement that the White House and Congress imposed on them after a few rails the unions rejected a deal negotiated by the administration, and the managers and owners of the railroads, who will return to running what, today, is a hugely lucrative and strangely monopolistic enterprise.
Much of the media coverage of the contract dispute has focused on the railroads’ refusal to grant their workers paid sick leave. But this intransigence was only one aspect of a larger parable of modern American capitalism. Set in one of the nation’s oldest and most expansive industries, it’s a story of deregulation, consolidation, downsizing, underinvestment and intensification of work practices. But above all, it is a story of financialization and prioritizing payments to wealthy shareholders over everything else, including serving the public interest.
During the shutdowns at the start of the coronavirus pandemic, the railways accelerated their job cuts and capacity reductions. When demand rebounded last year, many shippers faced chronic delays, cancellations and, in one case, a temporary suspension of service on key routes between the West Coast and Chicago. “Rail freight service is abysmal,” complained Rep. Peter DeFazio, chairman of the House Transportation and Infrastructure Committee, during a hearing earlier this year. “This appalling service is forcing shippers to recoup their over-costs downstream, and Americans are paying the price, with increased food and gas pump costs.”
The modern freight railroad industry dates back to 1980, when Congress partially dismantled a strict regulatory system that had been introduced in the late 19th century following a catalog of abuses by the companies of the first barons of the railroad, men like Jay Gould, James Hill, and Edward Henry Harriman. The Staggers Rail Act of 1980 – named after Democratic Congressman Harley O. Staggers, Sr. – gave the railroads much more freedom to manage their operations, including closing unprofitable lines and fixing their own freight rates, which the federal government had previously determined through the Interstate Commerce Commission. For a time, deregulation seemed to work as intended. Thanks to healthy competition in many areas, prices have fallen and shipments have increased. After decades of loss to trucking, the rail industry began to regain market share, which was good news for its workers and owners, as well as for the environment. (Rail transport is much less carbon-intensive than trucking.)
Similar to the decades following the Carter administration’s deregulation of the airline industry, the era of vigorous rail competition gradually gave way to consolidation and tacit collusion. After a long series of mergers, there are now only seven major Class I railways, down from thirty-three in 1980, and between them they control more than eighty percent of the freight market. “CSX and Norfolk Southern have a duopoly on traffic east of Chicago, while Union Pacific and BNSF have a duopoly on traffic west of Chicago,” said Matthew Jinoo Buck, senior fellow at the American Economic Liberties Project, in an enlightening article. for The American perspective earlier this year. “Canadian Pacific, Canadian National and Kansas City Southern handle a lot of north-south traffic through the Midwest.”
Rather than expand their operations for a greener era, the major railroads have done what unregulated or lightly regulated monopolies (and duopolies) tend to do: streamline their operations, downsize and charge fares well above their cost. According to the Surface Transportation Board, which replaced the defunct Interstate Commerce Commission in 1996, inflation-adjusted freight rates have increased 30% since 2004, and overall freight traffic – in terms of loads and tonnages – is down since 2006. In recent years, the industry has reduced its workforce by about a third. “Operating the railroads with so many fewer employees makes it difficult to avoid service outages, provide more reliable service and reduce poor on-time performance that doesn’t compete well with trucks.” Martin J. Oberman, the current chairman of the Surface Transportation Board, noted in a speech last year.
Meanwhile, industry profitability and shareholder payouts have soared. Between 2011 and 2021, according to Oberman, the major railroads spent $191 billion on dividends and stock buybacks, which was far more than the $138 billion they spent on capital investments in industry infrastructure. “Where would railroad customers, railroad workers and the public be if a significant portion of that one hundred and ninety-one billion dollars had been reinvested in expanding service and making service more predictable, reliable and punctual ? Obermann asked.
Much of the impetus for the cost cuts and layoffs came from Wall Street, where activist investors took stakes in the railroads and demanded change and higher profits. The process began over a decade ago when Children’s Investment Fund Management, a London-based hedge fund, invested in CSX, and it’s still ongoing. Earlier this year, Bill Ackman, a billionaire hedge fund manager who previously invested in Canadian Pacific, bought another stake in the company. Oberman described the pressure Wall Street is putting on railroads to prioritize cost reduction over investment and growth as “steadily increasing.”
Railroads say they have made up for their labor losses and capacity reductions with efficiency gains. In recent years they have introduced new technology and forced their remaining employees to accept new work rules under a system known as Precision Scheduled Railroading; as Buck explained, this “involved running faster, longer trains and skimping on service, spare capacity, system-wide resiliency, and safety.” It was largely because of this rudimentary new system that the railroads were so reluctant to give their workers paid sick leave. If a conductor or engineer becomes ill at short notice, the company must find a replacement to replace the absentee, which can be costly or difficult. Rather than compromise on paid sick leave, the railroads agreed to raise wages and limit contributions to employee medical plans. This position indicated how important maintaining an ultra-lean and ultra-flexible staffing system is to their new business model.
Far from rolling back Precision Scheduled Railroading, the new labor agreement that Congress has imposed formalizes some elements of it, including the introduction of “autonomous reserves” of workers, and will thus give managers more freedom in scheduling crews and replacement of absentees. Locomotive engineer Ross Grooters, co-chair of Railroad Workers United, an inter-union railroad caucus, explained the significance of the change on the Labor Notes website: “So instead of being on a [schedule] where you have several people in front of you and you know that you are, say, the tenth person on that list to be called and you know that the tenth train will arrive tomorrow – which again is very unpredictable – now all of a sudden you may be called out of the blue to go to work in fifteen minutes because they need someone to fill a train.
It’s the kind of detail that doesn’t make the headlines, but will affect the working lives of thousands of railroad workers and help keep profits and dividends flowing back to Wall Street. And this is surely only a precursor of other workers’ battles to come. Rail companies are already pushing to reduce train crews from two to one. With the rapid advances in autonomous control systems, it surely won’t be long before companies try to introduce unmanned freight trains. In Australia, autonomous trains already transport iron ore over hundreds of kilometers, for the mining giant Rio Tinto. In Wall Street’s relentless drive to increase profits and reward shareholders, there is no rest for workers and little space for larger considerations, such as building a transportation system. cleaner and more resilient. ♦
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