US jobs growth bypasses railway workers

US jobs growth bypasses railway workers

US employment growth has bypassed the railroad industry, a provider of good wages for blue-collar workers across the country.

Headcount at the largest US freight railroads was down 4 per cent on year to 141,000 in June, a lower number than in the financial crisis, government data show. The sum is set to fall further this year as managers streamline operations under pressure from investors.

Last week Union Pacific Railroad, the largest listed US railroad, said it intended to cut payrolls by 10 per cent in 2019 as it reported a record second-quarter profit of $1.6bn.

At CSX, whose web of tracks lies east of the Mississippi river, employee counts were down 5 per cent on the year in June after a 14 per cent reduction last year. Executives seek another 2.5 per cent reduction between now and 2020.

The Norfolk Southern Railway, which reports results this week, has outlined plans to eliminate more than 500 positions this year.

The prolonged cuts stand in contrast to robust hiring in the US labour market, where non-farm payrolls rose by 224,000 in June.

Railroad jobs are becoming more scarce as managers try to boost profit margins, in some cases to placate activist shareholders. Most operators have in the past two years embraced principles known as “precision scheduled railroading,” which entail rigid timetables, longer trains, thousands of idled locomotives and less labour.

Driving trains, maintaining right-of-way and dispatching cars are largely unionised jobs that do not require a university degree. The average employee at a large freight railroad earned $87,100 in wages and $38,300 of fringe benefits in 2017, according to the Association of American Railroads.

The slackening rail employment picture has drawn scrutiny from Congress. A House transport subcommittee last month conducted a hearing on the state of the workforce. Lawmakers questioned the consequences of lower staffing.

“While worker productivity has never been better and Class 1 railroads have enjoyed multibillion-dollar profits for many years, employment levels are headed in the other direction with thousands of rail employees furloughed,” Dennis Pierce, president of the Brotherhood of Locomotive Engineers and Trainmen union, told the subcommittee.

Precision railroading was evangelised by Hunter Harrison, a renowned manager who introduced it first on Canadian railways. After he was hired in March 2017 from Canadian Pacific Railway to run CSX, he swiftly began transforming the 21,000-mile network.

An acolyte continued to execute his vision after Harrison died in December 2017. Last week the Jacksonville, Florida-based company reported an operating ratio — operating costs as a percentage of revenue — of 57.4 per cent, its best for any second quarter.

CSX’s headcount was 21,541 in June, down by almost 10,000 since 2014.

“The whole objective [of precision railroading] is to remove all of the unnecessary touches and handling and steps throughout the process of moving freight. And as you remove those steps, it means that you require fewer people to do it,” CSX said.

Union Pacific, Norfolk Southern and Kansas City Southern — the other big listed US railroads — have since taken precision methods aboard. An S&P index of the four most valuable railroad stocks has risen 56 per cent since Harrison’s arrival at CSX, more than double the increase of the broader US stock market.

In its latest quarter, Union Pacific said it had curtailed operations at two rail yards in Illinois and one in Texas and stored 2,150 locomotives.

“We’ve taken a lot of work out of the network, and it’s being reflected now on our manpower,” said Lance Fritz, Union Pacific chief executive.

One outlier is BNSF, a subsidiary of Warren Buffett’s Berkshire Hathaway. Headcount has hovered near 42,000 over the past few years at the railroad, which competes with Union Pacific and Kansas City Southern in the central and western US.

BNSF’s former executive chairman, Matthew Rose, questioned the merits of precision railroading before he retired this year. Mr Buffett has more recently sounded open to the concept.

“If we think we can serve our customers well and get more efficient in the process, we will adopt whatever we observe,” Mr Buffett told the company’s annual meeting in May.

In a blow to efforts to preserve jobs, a regulator in May scrapped a proposal to require a minimum number of crew members on each train. Labour unions had sought at least two, but the Federal Railroad Administration found no evidence multiple workers made trains safer.

Further, the agency said any requirement would “unnecessarily impede the future of rail innovation and automation.”

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