NRC Event Highlights and Thoughts for 2022 (Tony Hatch, ABH Consulting)

I am just back for a day from NRC in Phoenix to chilly Lombard, IL for MARS – a great enough conference to make me see if there is indeed life on MARS (www.mwrailshippers.com). At the National Railroad Construction & Contractors event, there were 1000+ in attendance (!) and the emphasis was on network operations yielding some great intel on Capex, labor, ESG, and DC-relations ... The only thing lacking was the planned FRA presentation, which was a BIG miss on their part given the discussion. I am sure their ears were burning ...

• Union Pacific’s CEO Lance Fritz was the keynoter and showed an even greater than usual command of the subject matter:
  • 2022 will be Year One of the renewal of Total Safety Culture at UP – Lance has been frustrated by the flattening out of the curve on safety improvements (this is an industry-wide issue and kudos to UP for honesty and in seeking to address it).
  • Labor – this is a big issue for the industry in what, under the umbrella of shortages and the Great Resignation, is proving to be a good time for Big Labor. The National rail-labor negotiations have been going on since 2019 (Lance noted that therefore there has been no wage increase since that time), bogged down by the pandemic of course.
    • Labor is using the economic and political environment to try to stall on automation, just when trucking is being subsidized in its efforts; UP and the industry seek to sue data as a counter (see TTCI, below).
  • Lance noted that ~70% of the US-Mexico cross-border rail business is UP-based and will seek to protect that (naturally) in discussions with – and about – CPKC.
    
    
    
• The FRA’s rather last-minute decision to drop out at NRC (OK, there is a pandemic) meant that I couldn’t ask about their seeming drift away from research and regulatory cooperation to a more confrontational stance (mirroring that of the STB it seems). This can be seen in the difficulty getting approvals on new technology, especially inspection tech (one Class One panelist said testing-to-approval was a “1940s-like” process and “a nightmare.”  The big fear is mandated 2-man crews, despite the data (and the coming of AV trucks) after the mandated PTC rollout.
  • Another sign of the changing relationship is the forced removal of TTCI. This is an exaggeration of course, but the DOT initiated an RFP for the lease renewal of the rail testing facility in Pueblo, CO that was the decades-long best example of FRA-AAR cooperation. NOTE – the RFP request was during the previous administration, although the awarding of the contract to a defense contractor (?) came under the current one. TTCI has found a new, nearby modern facility and will relocate and modernize – but what a sign o’the times!
    
    

• The “Signals Panel” (with CSX, UP, KSU, and Watco) yielded some gems, including that while we have just “barely scratched the surface” of the opportunities afforded by PTC, on the cost side PTC requires both a more educated workforce and much more upkeep – and this at a time when, as CSX noted, they are having a very hard time finding such workers.
  • There is a growing expectation that a new form of PTC could be in Canada in the next 3-5 years!
  • It became increasingly clear to me that in the battle for Capex $, signaling often loses to track, but that signaling could be just as big a capacity-enhancer as sidings ...
    
    

• Sustainability – kudus to the NRC and to the rails for having a large and excellent “Sustainability Panel.”  Lance led off the conference with ESG talk, and this panel, er, sustained the dialogue ...
  • Tying on to efforts on locos we have seen notably the Wabtec presentation at RailTrends in November, KSU noted that 95% of their carbon footprint came from locos; they also discussed their Carbon Calculator, while UP noted their Climate Action Plan announced just last month – this is not a fad ...
  • Special kudos to UP on the panel for acknowledging that the current ~4:1 fuel (thus emissions advantages that rail enjoys over truck is ... temporary. Rails too often appear too self-congratulatory on this issue rather than concerned.
  • UP noted that beyond trying to be good corporate and community citizens, shareholder demands are driving ESG.
  • As are customer demands as the rails fill out supplier survey forms for their shippers.
    
    

• Also heard at the NRC:
  • The Jim Vena decision to bow out of the CN CEO race was widely thought to be a tactic, not a final move – there were many former colleagues in Phoenix, part of the great CN Diaspora ... it also should be noted that at the NRC, which as noted initially is an Ops-driven event, there was much support for a COO running a railroad, and for one running CN ...
  • The ASLRRA’s Chuck Baker joined two colleagues in getting named to the NRC Hall of Fame; Chuck ran NRC prior to heading the short line group and looked resplendent in his new Gold Jacket, which I am sure he’ll wear to the Ravens playoff games.
  • Bar-talk on ESG didn’t always match up to the leaders' ESG talk, on the S part, I should note.

Also:

• Rail traffic ended the year poorly as we know. The AAR’s RTI noted that for December, North American carloads were down slightly (0.7% - 11/20 showed increased) while intermodal dropped a lot (-8.7%), so the total was down 4.8%. This compares (badly) to Full Year numbers of carloads +5%, IM+4%, and totals +4.5%. The recent week shows the December trend isn’t done (US volumes down 7% as carloads were up 2% and IM down fully 14%).
• Truck tonnage (note) was up 2.5% in November.
• Rivian plans to build an EV-pickup plant on the CSX.
• Amtrak announced its support of CPKC, which will play in DC ...

Anthony B. Hatch 
abh consulting
http://www.abhatchconsulting.com 
abh18@mindspring.com
Twitter @ABHatch18