Automotive shippers should push the Surface Transportation Board for reform in railroad freight in the US, according to its chairman, Martin Oberman.
Speaking at ALSC Global 2023, Martin Oberman indicated that he was pushing for reform in the North American rail freight market “every minute of every day” in what he suggested was a market that lacked true competition. One of the ongoing results was underinvestment in capacity and in staffing levels, which although had grown recently, still remained below pre-pandemic levels.
That has contributed to poor service levels for sectors such as automotive, which has struggled from extended lead times and capacity shortages in rail services over the past year.
“One of the overriding reasons we have these issues in railroading is a lack of competition because you’re not going to build new railroads,” he said, pointing to the regional dominance of Class 1 railways. “I believe in a free market competition system, but for there to be a free market, there has to be a market, and most of the railroads don’t have any competition,” he said.
But he indicated that, although US-based carmakers had raised issues earlier this year to the Surface Transportation Board (STB) – an independent federal body with regulatory powers in key transport services in the US, notably rail freight – most did not seem willing to take the issue further.
“Until this spring, I hadn’t heard from the automotive industry at all, in the four years I’ve been on the board, but the shortage of autoracks was brought to my attention then,” he said. “At one point I heard GM had about 70,000 finished vehicles sitting in the desert because they couldn’t move them. The shortage of autoracks is the only complaint I’ve heard from the automotive industry.”
Oberman suggested that many companies across the US were fearful that rail companies could retaliate with missed shipments or targeted embargoes – although no OEMs have officially complained or confirmed the allegations. Oberman also admitted that they were not possible to prove.
“Rail customers live in fear of the railroads, the railroads deny it, but the largest rail customers like fear retaliation if they complain. It’s very easy for the railroads to flip a switch and the plant don’t get their cars delivered. It’s very difficult to litigate that. Often we’re told the problems and then we’re asked not to talk to the railroad or identify who complained. The don’t want to file [a lawsuit], and if they do, you know that that industry has been pushed to the point where it’s going to be out of business.”
GM has not confirmed any specific number of vehicles that were stuck in transit. Over the summer, the carmaker’s vice-president of global purchasing and supply chain, Jeff Morrison, told Automotive Logistics that vehicle logistics, including rail and ro-ro capacity shortages, had become a top global issue for him and GM chief executive officer, Mary Barra.
Oberman told delegates that, although the STB did not have powers to force railroads to invest or hire more staff, but it could take certainly measures to “open up access for many captive shippers across the country”, including opening up certain yards or tracks to other service providers if shippers raised complaints. ”We should have a little more authority, but I’ve been trying to do more with the little we do have,” he said.
Nick Little, director, Railway Education at the Center for Railway Research and Education, Michigan State University, said that he wanted Class 1 railways to become more customer orientated. He would challenge the railroads to think of themselves more as part of OEMs’ integrated supply chains, for example.
“It means understanding your customers, how your service fits into theirs, achieving their business goals, and where you can add value to their business model,” he said.
He pointed to the example of Precision Scheduled Railroading (PSR), which combines multiple types of freight in longer trains. In principle, this was the railways taken a “lean” approach to consolidating freight, but he felt it was not done with customer service in mind. “When done correctly, PSR would’ve been successful for the railroads and the customers, but instead it was done quite badly and was only successful for the shareholders.”
Oberman said: “The railroads have not treated these people as their partners, they’ve treated them at arm’s length to see how much they can squeeze out of them.”
Oberman added that there were some positive signals. He pointed to increases in hiring across the rail industry, and higher levels of investment. Most Class 1 railways have also recently changed management, with a number of chief executives putting more focus on employees and customers. He praised Joe Hinrichs, CEO of CSX, and a former Ford president who previously led logistics and manufacturing at the company.
However, Oberman still believes that there is a greater need to reform the way freight works in the US. “It all comes down to trust; trust in the numbers, and trust in the promise that you’re given,” he said. “The railroads can give the numbers accurately, but they’ve got to say their trip plan and stick to it. We know how many automotives need to get to a particular place, so why don’t we let that drive the whole supply chain and the rail freight industry.”
For more insights from ALSC Global 2023, click here.