KANSAS CITY — The March Logistics Managers’ Index (LMI) released in early April was at an all-time low of 51.1, down four percentage points from February and just above the 50-point level, above which indicates growth and below which indicates contraction, the Council of Supply Chain Management Professionals said in its quarterly Supply Chain report. Logistics managers responding to the LMI monthly survey noted an all-time low in transportation prices, with that portion of the index down five points from February at 31.1. The transportation utilization index was at 50, posting a gain for the first time in 2023. The LMI researchers said it was the “slowest rate of growth we have ever tracked in the 6.5 years of the index, but it is still growth.” For rail, the lack of a new contract for West Coast port workers is a major concern for all types of freight.
From compounding performance complaints to last fall’s potential labor strike, which threatened to shut down rail transit nationwide at a cost to the economy of $1 billion per day, to the recent derailment of a train carrying toxic substances in Ohio, North America’s railroads have been managing a myriad of issues, which has impacted its relationship with grain shippers. But a consistent inability to predict service was the No. 1 complaint voiced by most shippers, Surface Transportation Board (STB) member Michelle Schultz told attendees at the recent National Grain and Feed Association convention in La Quinta, Calif.
“We heard from many stakeholders about just how bad service had gotten,” Ms. Schultz said, recounting some examples from affected shippers who shared their experiences during a two-day hearing on rail service challenges in April 2022. “One member had to spend $3 million on secondary freight to keep animals fed and another had to stop selling feed because a loaded train sat at origin for one week because of lack of crew.”
After the hearing, Ms. Schultz said the board issued an order requiring rail carriers to report service metrics and head counts on a biweekly basis. STB members also met with the chief executive officers of Class I carriers to develop service recovery and labor development plans. She said these efforts have been productive, but labor difficulties continued to distress the industry.
Weeks before the 2022 Christmas holiday season, President Biden signed a Congress-approved bill lawfully prohibiting rail workers from issuing a universal work stoppage. For at least two years prior, railroad companies and union leaders, representing over 115,000 rail employees, had been embroiled in varying degrees of labor disputes about workers’ schedules and paid sick leave benefits as the two entities negotiated a new five-year labor contract. Fueling the acrimony was the fact US freight companies posted record profits due to exponential pandemic-driven demand amid labor shortages. As a way to mitigate demand, railroads utilized embargoes to restrict cargo volumes. Companies traditionally have imposed embargoes during times of unforeseen disasters, but they also have imposed them as a way to manage congestion on the rail during times of labor shortages. Ms. Schultz shared one embargo example at the NGFA convention.
“By the first week of December 2022, (Union Pacific) had more than 1,000 embargoes in place for the year and there were 141 active embargoes,” Ms. Schultz said. “By way of comparison, in 2017 UP had only implemented 27 embargoes. I understand the extreme difficulties being embargoed places on a shipper. You’ve got to assign manpower to deal with the issues, choose which shipments to delay, decide which receivers are going to be told they’re not getting their shipment and then try to move some traffic by truck if you can, and it just injects so much unnecessary difficulty and uncertainty as well as increased cost.”
It’s unknown if labor difficulties were related to the Feb. 3 derailment in East Palestine, Ohio, where a Norfolk Southern train carrying toxic substances overturned, leading to the town being placed under a state of emergency with temporary evacuation orders for its residents, but adoptions of efficiency strategies, like precision scheduled railroading, has reduced time for equipment inspections and trains being required to haul longer and heavier carloads.
But challenges often may lead to opportunities, which is the case in the East Palestine derailment. Both senators from Ohio are leading a bipartisan effort to pass The Railway Safety Act of 2023, which would fortify safety procedures for trains carrying hazardous materials, establish requirements for wayside defect detectors, create a permanent requirement for railroads to operate with at least two-person crews, increase fines for wrongdoing committed by rail carriers, and more.
STB data as of March 29 showed train speeds for grain across the seven major US Class 1 railroads were up 2% from the previous year, and unfilled grain car orders at 11-plus days past due were down 66% from the same period a year ago, but origin dwell times had risen 26%. The number of grain carloads originated year-to-date (through March 18) totaled 349,082, up 3.2% from the same period last year, according to data from the Association of American Railroads. Despite the annual increase, weekly grain carloads have been declining since late January, according to data from the STB, likely due to record snow and rain totals in parts of the United States, the USDA said.
The STB on March 15 announced its approval of the merger between Kansas City Southern Railway (KCS) and Canadian Pacific Railway Ltd. (CP). The decision went into effect April 14, and the joined railways will be renamed the Canadian Pacific Kansas City (CPKC). It will be the first railroad to provide single-line service that stretches across Canada, the United States and Mexico, offering shippers the opportunity to expand their market reach. Even after the merger, CPKC will be the smallest Class I railroad with a network a few thousand route miles shorter than the next smallest Class I carrier.
Since the two railroads first filed their merger application on Oct. 29, 2021, the STB has received nearly 2,000 comments, held a seven-day public hearing and analyzed the merger’s potential environmental impact. Several conditions are attached to the merger decision, including an unprecedented seven-year oversight period, but the STB concluded the merger would improve rail safety, be more efficient and help reduce carbon emissions by siphoning 64,000 truckloads from the roads to the rail each year. Additionally, the merger is expected to add 800 new union-represented operation positions in the United States.
This article is an excerpt from the April 18 issue of Milling & Baking News. To read the entire feature on transportation and distribution, click here.