Latest freight railroad layoffs and Wall Street pressure renew concerns about safety and service
OMAHA, Neb.– The latest rail layoffs this week, combined with an investment fund’s ongoing campaign for control of Norfolk Southern, are renewing concerns among unions and regulators about the impact any cuts could have on safety and service.
Concerns about the lean operating model that major freight railroads have been embracing for several years while cutting roughly a third of their workforce are not new. It relies on fewer, longer trains that require fewer locomotives, workers and rail cars. The railways have defended their approach as a sound strategy to make the most of their resources without compromising safety. But the industry has acknowledged that services had suffered especially in 2022 after rail cuts were made too deep during the pandemic.
All major freight railroads – and the Ancora Holdings investors targeting Norfolk Southern – have repeatedly emphasized their commitment to improving safety, especially after last year’s disastrous derailment in East Palestine, Ohio. Efforts to impose new safety rules on the industry have largely stalled since that crash, although the industry itself has taken several steps, such as installing hundreds of additional track detectors to help detect mechanical problems.
But Surface Transportation Board Chairman Martin Oberman told an industry meeting this week that he believes Wall Street’s focus on boosting short-term profits, stock buybacks and dividends is undermining safety and service. And he said recent investor pressure on Norfolk Southern and Union Pacific could prompt any railroad CEO to hold off on investing in the long term.
“Any campaign, proxy or otherwise, that threatens to undo recent efforts to rebuild the railroad’s resilience and move toward significant long-term growth would be a major setback,” Oberman said. “It would undermine safety and be the opposite of good business, the opposite of meeting the common carrier obligation, and the opposite of meeting Congress’s imperative to serve the public.”
Ancora claims Norfolk Southern is misrepresenting its plans to regulators and investors as the railroad’s board tries to drum up support for CEO Alan Shaw and his strategy to keep more workers available during a recession so the railroad will be better prepared for the eventual recovery of the economy. shipments. The investors say their picks for CEO and operations chief aim to improve safety without widespread cuts, though their plan does call for reducing Norfolk Southern’s workforce through attrition as they streamline operations over the next few years.
“Our proposed CEO, Jim Barber, believes that the health and safety of the company’s constituents is the foundation for long-term success. Our proposed COO, Jamie Boychuk, has helped CSX dramatically improve customer service and achieve no work-related fatalities for approximately two and a half years,” Ancora said in her latest letter to the NS board on Friday. “They are committed to it confident that the health and safety of the people and communities of Norfolk Southern are Norfolk Southern’s highest priorities.”
Three major railroad unions have joined the battle for Norfolk Southern, urging investors to support Shaw’s strategy and his efforts to improve safety since the Ohio derailment.
BNSF laid off more than 360 mechanical workers this week — just days after Warren Buffett told shareholders of his Berkshire Hathaway conglomerate, which owns the railroad, that he was disappointed in BNSF’s profits — even though that railroad said it simply tried to move workers to the busiest terminals. . Union Pacific has also laid off several hundred employees since appointing Jim Vena as CEO last summer after a hedge fund pressured the railroad to change management. UP says most of these cuts were a normal seasonal movement, while major construction projects typically slow down due to winter.
The BNSF layoffs prompted a letter from the Transportation Trades Department labor coalition urging the Federal Railroad Administrator to step up inspections because unions believe these latest cuts — even if relatively small compared to the railroad’s more than 37,000 employees — will make it even more difficult for the railroad to make required repairs and inspect locomotives and railcars.
“BNSF employees are being pushed beyond their capabilities, and with these additional cuts, there are significant concerns that there will be additional safety deficiencies,” the unions wrote. “We are seeing this verified in real time with exhausting and unsafe overtime mandates. It’s time to end the system that puts profit above all else.”
The head of the nation’s largest railroad union, Jeremy Ferguson, added to these concerns in his own letter addressing Buffett’s pursuit of profits at workers’ expense. Ferguson, who leads SMART-TD, said that instead of “working harder to grow, earn new customers or expand the relationships with the customers they have,” BNSF is taking the easy way out to improve profits by “handing out pink slips and furloughs because the executives and shareholders need to be furloughed first and foremost.”
BNSF spokeswoman Kendall Sloan said the railroad’s furloughs were not a widespread effort to cut costs. Instead, they should simply help the railroad ensure there are enough workers in areas where volume is growing in the network that crosses the western United States, if workers accept incentives to move to other jobs.
“We believe that any suspicion that BNSF is shifting its priority away from safety is inaccurate,” Sloan said. “We take safety into account in every decision we make.”
Amit Bose, head of the Federal Railroad Administration, said Union Pacific’s furlough since Vena took over “makes me question UP’s commitment to safety.”
But Vena responded in a letter of his own on Friday that “Union Pacific will never compromise the safety of our employees or the communities in which we operate.” He said Bose’s comments were misleading because he was lumping the layoffs of seasonal workers together with the furloughs of fewer than 100 mechanical workers last fall after shipping volumes declined.
The latest federal safety statistics for all of 2023 released Friday paint a mixed picture, with derailments nationwide down slightly while accidents along main tracks between intersections rose 8%. But Association of American Railroads spokeswoman Jessica Kahanek said the trade group believes the “data clearly shows a positive trend line,” even though there is still a need for improvement.