Rail/Intermodal
The Department of Transportation laid out several steps it believes all railroads should take to improve safety in the wake of the derailment and fire that occurred on Norfolk Southern in East Palestine, Ohio, earlier this month. Among the steps encouraged by the department that could be followed by formal rule-makings are requiring electronically controlled pneumatic brake systems for all high-hazard flammable trains and an accelerated phase-out of older DOT-111 tank cars.
The industry and regulators have previously looked at mandating ECP brakes for all or some subset of U.S. rail traffic, but have not found the benefits to outweigh the costs of implementing the technology. ECP braking would allow all of the brakes on a train to be applied at the same time rather than sequentially as occurs with the air compressor-fed brake systems in use today. The change would theoretically improve a train’s stopping distance in an emergency.
The DOT-111 change would accelerate an existing phase-out date of 2029 for Class 3 flammable liquids service that was put in place after the Lac-Megantic derailment disaster of 2013. The change would only apply to Class 3 flammables because crude oil shipments in DOT-111’s have already ended and ethanol is scheduled to end in the next few months under the same set of deadlines.
Many shippers have already moved away from DOT-111 tank cars, but there are some shippers that continue to use them, particularly for refined fuels shipments into Mexico because their lease rate is significantly lower than the newer DOT-117 tank cars that are built to a higher safety standard. Several hazardous materials tank cars were involved in the recent NS derailment.
Other changes encouraged by DOT include requiring two crewmembers in the cab of the locomotive; additional automated inspection portals while maintaining existing manual inspection requirements; and providing additional paid sick leave to operating employees.
The two-person crew rule had been a Biden administration priority before the derailment and something carriers have vociferously opposed. They have contended that the policy should be subject to collective bargaining and that it would create a structural cost disadvantage relative to truckload carriers. The derailment provides cover for the administration to implement this priority even as it works to facilitate autonomous trucks on the nation’s highways.
Carriers have been working to create automated inspection portals over the last several years as a way to use technology to get better, more frequent inspections of railcars and tracks. Carriers had hoped to use the portals on an increasing basis and to reduce labor costs by being able to redeploy human inspectors to specific problem areas, but the department guidance would require the carriers to employ a belt and suspenders approach of the new portals along with the existing inspections.
Paid sick leave became a flash point in last year’s labor negotiations between carriers and their operating employees, and the administration is adding the issue here despite it not being at all related to the recent derailment as another way to expand what it hopes will be a nationwide paid sick time mandate.
Rail Employment
Rail carriers’ employment levels took a step backward in the January figures that were released last week with most of the Class I carriers seeing a decline in the number of operating employees on their rolls. BNSF and CSX were the largest outliers with each continuing to grow its headcount and hopefully continuing to improve its service levels.
Declining employment at other carriers despite full hiring classes and pipelines suggests that attrition is higher than expected either among existing employees or new hires. It also suggests that some number of operating employees left the active ranks after receiving their back pay lump sum payments last month. If that trend continues, it could dent service performance going forward.
Volume
Intermodal volumes remain weak, well below 2022 levels and their five-year averages. Until there is a resolution to the west coast port labor contract and a tightening of the competing truck market it is unlikely there will be significant improvement in intermodal traffic levels.
Overall rail carload traffic is holding at average levels. Metals and chemicals volumes provide reason for optimism and provide a large part of the momentum behind economically sensitive freight volumes. Metals traffic suggests there is demand in construction and automotive markets while chemicals traffic serves as an input into many other mechanical and industrial processes across the economy.
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