Railroads and Risk


Railroads have been an important part of the US economy for nearly the past 200 years, moving enormous and vital amounts of oil, coal, grain, ore, chemicals and manufactured goods. This cargo is both raw material and finished products for dozens of industries all over the country. Without rail freight, much of the country would grind to a halt.

But despite how essential the railroad industry was and is to the country, all is not well. For years unions have struggled to make railroad carriers listen to their concerns; workers have become increasingly frustrated with poor working conditions, multiyear long furloughs, and wages that have been stagnant since 2019. Meanwhile, according to a speech by the Surface Transportation Board chairman Martin Oberman in September of last year, US railroads have spent about $196 billion of their profits on shareholder dividends and stock buybacks since 2010. Most unions would have long since gone on strike, but railroad unions cannot, not yet. Unlike most workers, railroad workers are regulated by the Railway Labor Act (RLA), which makes it very difficult for rail unions to go on strike.

In a process set out by the RLA, President Biden signed an Executive Order establishing a Presidential Emergency Board on July 15th to evaluate the views of each side and make recommendations to the president. If Congress does not intervene within 30 days of the board submitting its report, the railroad unions are legally allowed to go on strike. On August 16th, the board issued its report. There’s a lot in the report; one paragraph from page 32 is worth quoting in full:

The Carriers maintain that capital investment and risk are the reasons for their profits, not any contributions by labor. The Carriers further argue that there is no correlation historically between high profits and higher compensation, either in the freight rail industry or more generally. To the contrary, one of the Carriers’ experts maintained that the most profitable companies are not those whose compensation is the highest. The Carriers assert that since employees have been fairly and adequately paid for their efforts and do not share in the downside risks if the operations are less profitable, then they have no claim to share in the upside either.

Railroad workers do face risks, not to their stock portfolio, but to their wages, job, health, and safety. To understand the nature of this risk, some background on what rail workers actually do, and how the job has evolved over time, is needed.

Trains are composed of cars pulled by one or more locomotives. As loads of cargo or passengers are sent from place to place, cars are put together into trains and separated again. The process of securely attaching cars together is called coupling, and the part of the car involved is called a coupler. In the late 19th century, coupling often involved men standing between cars as they were moved together to operate the coupling. Since cars mass many tons, a moment’s inattention or a slip could result in a worker being caught between two couplers. A pair of couplers with tons behind it destroys anything in its way, and so maimed or crushed railroad workers were common. During the year ending on June 30, 1891, for example, 2,660 railroad workers were killed and 26,140 were injured; more than seven deaths per day. More than a quarter of these deaths, and a third of injuries, took place during coupling or uncoupling.

Braking was another widespread danger to the crew. When a train is going downhill or otherwise needs to slow down, the brakes must be applied. For much of the 19th century this involved crewmen, called brakemen, applying manual brakes on different cars. On freight trains this sometimes meant walking on the roof of the moving cars, in all weather, and jumping from car to car. Brakemen falling to their deaths or trains failing to brake in time to prevent a crash were frequent occurrences.

But in the late 19th century, new technology was invented, and became widely adopted by the railroads. Two new inventions were particularly important. A new model of coupler, the Janney coupler, came into widespread use. It allowed cars to couple automatically, and for uncoupling to take place from the side of the car, with the crewman safely out of the way. He only had to get between the cars after coupling to connect air hoses, part of the second invention, the air brake. The air brake works by hoses running the length of the train bringing compressed air to brake cylinders on each car. When the engineer in the locomotive pulls a lever, the brakes on each car are applied, slowing or stopping the train. Thousands of moving tons are controlled quickly and easily. If cars should become separated from the train, the brakes are automatically applied, bringing them to a stop.

Are these devices examples of innovation by the free market or the goodwill of carriers? Are they the work of businesses’ enlightened self interest to solve risks to workers that the market and rail companies themselves created? In short, no. In 1893 Congress passed the Safety Appliance Act, requiring all trains in interstate commerce to have these features. They could have been adopted earlier, voluntarily, but that would have cut into the carriers’ profit margins. With vigorous enforcement of the new law, these features were in common use by 1900, and deaths and injuries from coupling fell, even as the number of trains and railway workers continued to increase. It also gave the Interstate Commerce Commission (ICC), a federal body that had previously been created to regulate the rates railroads were allowed to charge for passengers and cargo, jurisdiction over railroad safety.

Unregulated railroad rates were another example of the free market in action. The railroads could and did raise or lower them as they wished in order to harm or favor enemies or friends. Supportive newspaper editors or friendly politicians could get cheap or even free passenger rates. Companies or people that helped rival railroads could be punished with devastatingly high rates. In the late 19th and early 20th centuries, when almost all passengers, cargo, and communication went by rail, this was enormous power. Subsequent legislation strengthening the ICC’s power to control rates helped control these abuses. Incidentally, the ICC also played a significant role the the civil rights movement of the the 1950s and 60s, banning racial segregation on railroads and buses.

Despite these improvements, problems and abuses on the railroad have not ended. In the past decade or so, major freight railroads in the US have implemented a strategy called “Precision Scheduled Railroading” or PSR. This involves larger trains, fewer spare railcars, fewer employees and the elimination of less profitable routes. These all lead to increased profits for investors. The metric the railroads like to talk about is Operating Ratio (operating expenses divided by operating profits); the lower the OR, the faster Wall Street makes money. Page 30 of the PEB report notes that the OR is the lowest it’s been since 1942. But this tunnel vision about lowering the OR leads to lower levels of safety and efficiency as well. Longer trains are harder to operate, leading to more derailments. Fewer spare cars and cut routes means less capacity to deal with disruption. Furloughing and firing workers compounds these problems. From 2016 to the date of the report, rail employment was down about 30%. But despite the COVID-19 pandemic and fewer workers, rail freight continued to move. By December 2021 81% of the pre-pandemic workforce was moving 97% of the pre-pandemic tonnage. This has played a significant part in recent supply chain disruptions. Workers have also faced pressure to skimp on safety inspections. The Federal Railway Administration says since 2012, Class I railroads (the largest railroads) have had higher rates of yard switching accidents, train accidents and equipment defects. Fatalities have gone up even as the number of train miles have gone down.

A focus on immediate profit can be dangerous to more than railroad workers and the economy, because railroads routinely carry huge quantities of dangerous materials through populated areas. On January 6, 2005, in Graniteville, South Carolina, human error caused a track switch to route a train onto the wrong track, leading to its derailment . The train’s contents included 240 tons of chlorine gas in three tank cars. This is more chlorine than was used in some World War I battles, such as the Second Battle of Ypres (168 tons) or the Battle of Loos (140 tons). Fortunately, while all three tank cars were badly damaged, only one actually broke open, releasing 60 tons of chlorine. This killed 9 people and injured more than 250.

On 6 July 2013, a combination of human error, a one man crew, and improper maintenance led to a runaway train and derailment in the middle of the Canadian town of Lac-Mégantic, in Quebec. The train had 72 tank cars, each containing 30,000 gallons (113,000 l) of crude oil. While not all of the cars broke open, and only about 1,600,000 gallons (6,000,000 l) of crude was spilled, the explosion and fire that resulted destroyed the downtown area and killed 47 people. Graniteville and Lac-Mégantic may be extreme examples of railroad dangers, but they show just how dangerous a modern train can be. Safe railroad operation requires well rested workers.

In January of 2022, BNSF, one of the largest railroads in the country, announced a new attendance policy called Hi-Viz. It punishes workers for not being on call almost all the time, at any time of day, or for being unable to work on a holiday, or too sick, or too tired to work. Workers can be asked to work at any time of day or night, with only a few hours warning. A federal judge ruled, however, that the problem was minor, and thus that the unions had no right at all to strike over the issue. Only major problems can be struck over, and only after a long process of mediation via the National Mediation Board takes place.

Another concern of the unions is wage growth. Rail workers’ wages have been frozen since 2019 amid ongoing negotiations. Despite slow wage growth before 2019 and none at all since then, CEO compensation has shot upward. For the duration of the 2015-2019 union contract, worker compensation increased by 13.8% in typical Class I railroads,  while CEO compensation rose by 111%. In addition, from 2004 to 2021 their stock prices rose 1250%, or 16% annually, well above the rest of the market.

Striking is made very difficult by the RLA, and for good reason. Major rail strikes broke out in 1877, 1894, and 1922. In 1877, 100,000 workers went on strike over wage cuts, paralyzing traffic in several states. After two months, state and local militias, together with the army, succeeded in violently putting down the strike. In 1894, 250,000 workers in 27 states went on strike over wage cuts, restricting most traffic west of Detroit. The army was again called out to put down the strike. In 1922, 400,000 workers went on strike over wage cuts once again. The army was not called out this time, but the deployment of some of the states’ National Guards brought the strike to an end with the aid of a major court order. Congress passed the RLA four years later, forcing unions to go through a long period of mediation overseen by a National Mediation Board before striking, limiting what they can strike over, and providing the carriers with another means of delaying the clock through the PEB.

The recent PEB report makes several recommendations, including a recommended wage increase that barely keeps track with inflation, resulting in a real wage growth near zero. Workers with little predictable time off are only given one extra day of paid leave per year, and the cap on workers’ monthly health insurance payments is removed. The longstanding issue of scheduling and attendance policy, which unions previously tried to strike over, is not dealt with at all, and is sent back for further negotiation and mediation.

The problems of no wage growth, PSR, and a draconian attendance policy have weighed on the unions for years, and they are more than ready to strike. One union, the Brotherhood of Locomotive Engineers and Trainmen voted resoundingly in favor of striking in July, with 99.5% in favor. With no progress on negotiations and great interest by the unions in striking, the National Mediation Board finally released the railroad carriers and unions from mediation required by the RLA. This set in motion a 30-day cooling off period, the convocation of the PEB, and then a final cooling off period for 30 days following the issuance of the PEB’s report; all as required by the RLA. After the last cooling off period ends on September 15th, the rail unions will finally be allowed to go on strike. Unless Congress intervenes, they almost certainly will.

A national rail strike would cripple the economy, causing supply chain problems with grain, coal, chemicals, crude oil and more. This would affect almost everyone in America, so Congress will have to act sooner or later. In the meantime, risk created by a railroad management that only cares about short term profits is borne by railroad workers, and perhaps soon everyone else in the country as well.

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