The Barometer: Freight Rail and The Economy: www.davemcevers.com: Paperless Public Magazine

Coupled with workforce reductions, railroad operations have slipped at a faster rate. Rail companies strive to operate at or near 100% capacity and therefore 100% efficiency. Ideally, all of their operational rail cars and locomotives are in service, moving goods around the country, and generating profits for the companies. Rail cars, and especially locomotives, are expensive. Companies own most of their equipment and have unbreakable long-term leases on the rest. Union Pacific had placed 48,000 cars in storage by the end of 2008, and taken 1200 locomotives offline. At a low-end, estimated cost of $1.4 million per locomotive, there are billions of dollars of capital investments depreciating in storage. Industry wide, Class I Railroads are looking to pigeonhole 30 to40 percent of their rail car fleet and 15 to 25 percent of locomotives. Fewer and shorter trains equate to fewer goods driving commerce, and the goods that actually are moving cost more to do so. It’s a double whammy for which we could obviously do without.

Amazingly, politicians and economists won’t even whisper the word “depression.” As a generally accepted interpretation, read what www.howstuffworks.com says about The Great Depression.

Capital investments were cut, and maintenance was deferred to the greatest extent possible. Locomotive sales plummeted during the early 1930s, and most railroads had long "dead lines" of locomotives collecting dust in storage yards. Unused engines and cars tied up substantial amounts of capital, had costs associated with bond interest, and weren't earning any money to pay these costs. One third of the nation's railroads went into bankruptcy during this period, and the cruel realities of railroad economics spelled the demise of many companies in the 1930s.

While most economists agree that we are not yet in a depression, comparisons from then to now are eerily familiar.

“We are a demand-driven business,” says Steve Forsberg, General Director of Public Affairs at Burlington Northern/Santa Fe (BNSF), the nation’s second largest railroad. “In general, rail volumes are down, and that reflects an overall downturn in the American and Global Economy.”

There is no better illustration of the slowdown than Bailey Yard, the most active freight rail yard in the world. Conveniently located in North Platte, Nebraska, the Union Pacific complex handles more than 10,000 cars per day and fuels and services over 8,500 locomotives per month. Total volume at Bailey Yard was down 12% by the end of 2008.

“When the yard slows down, that’s when you know it’s bad,” states a worker who sorts and builds trains at Bailey Yard. “Lot of these guys in here will be laid off by spring, if things keep going they way they are.”

He has a beer at Brother’s Tavern, a “Railroad Bar,” according to bartender, Ron Reed. Brother’s is located directly across from Bailey Yard.

“Our business won’t be too bad,” said Reed. “When the guys are laid off, lot of them come here to have a beer. They just stay longer when they don’t have to work.”

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Photo by Dave McEvers

Ed Hassebrock: Conductor: Norfolk Southern.

Union Pacific

Bailey Yard

-2850 Acres

-8 Miles Long

-10,000 Cars Per Day

-325 Miles of Track

-3500 Workers

Conductor Ed Hassebrock doesn’t mind the twelve hour shifts at odd times. The weather conditions don’t bother him; no matter how unbearable they may be to the rest of us. He doesn’t even mind being on call 24 hours a day. If he gets that call, he has 90 minutes to report to the Norfolk Southern yard in Decatur, Illinois, a 60 minute drive from his home in Nokomis. It’s a good job. According to the Association of American Railroads, the average wage for an employee of a Class I∞ Railroad was $69,367 in 2007. Throw in some pretty good benefits and the total compensation package came to $97,401. It is also an important job. Railroads are the backbone of the American economy, and we would be crippled and underdeveloped without them.

“I love my job,” says Ed. “The only bad part is being away from home and keeping a happy family life. Most of the time there are no set days off, so it’s hard to plan ahead for anything. We work nights, weekends, holidays, and everything in between.”

That was before Ed was laid-off for the first time in his career at Norfolk Southern. He runs on a freight line between Decatur, Illinois and Moberly, Missouri. The yard has both local and over the road runs that predominantly haul automobiles or car parts and other auto industry related equipment.

“We haul auto parts and cars. The economy has our end at almost a standstill because of lack of auto sales,” says Ed.

An accurate representation of the whole economy, news from the rails is bad, and there is more coming. All seven of the Class I Railroads reported reductions in workforce and operations by the end of 2008, an economic year most of us would rather forget. With the smoke still clearing and the damage becoming apparent, railroads reel from lack of demand in a demand-driven business. Union Pacific, the nation’s largest railroad, had laid-off, furloughed, failed to replace, or just plain cut 3,150 workers by the end of 2008. The numbers are similar across the board:

‘We work nights, weekends, holidays, and everything in between.’

Ed Hassebrock: Conductor: Norfolk Southern

He was laid off on January 25th, which happened to be his birthday.

He may be waiting awhile. Norfolk Southern cut 858 jobs by the end of 2008, and Forsberg confirmed an additional 500 cuts at BNSF, on top of the 2000 losses by the end of 2008. At CSX, the third largest railroad, Director of Corporate Communications, Garrick Francis, said, “We saw an acceleration of the recession in the late fourth quarter of 2008 that has continued into the first quarter of 2009. We will continue to adjust our resources in order to meet current demand.” If current demand trends continue, UP, CSX, and BNSF will not be the only companies to “adjust their resources.” Demand conditions indicate that the trend will continue to reverberate across all seven of the Class I Railroads.

And so, as Ed studies for his fire exam and spends time with his kids, as railroaders sip their beer at Brother’s Tavern, and as Cami holds callers 5 times each hour while the train goes by, I stroll along the tracks and try to think happy thoughts. I, like many others, was captured by the nostalgia and mysticism of trains as a young boy, and finding a sliver of good news in my research was going to make me feel better.

Happy Thought #1: The Railroads Helped Pull Us Out of The Great Depression

Some railroads made it through The Great Depression. Like most businesses that survived the era, they were kick started by The New Deal and driven by World War II. Through modernization and maintenance improvements, they began a steady incline for decades to come. These improvements took a great deal of capital investment from both the government and the companies. Though this model would undoubtedly work again, I’m not comfortable with relying on war to pull the railroads and the economy out of this mess.

Happy Thought #2: Coal Baby Coal?

“Our Energy Traffic Segment (coal) remains steady,” said Francis (CSX). Coal amounts for about 40% of all rail freight in the U.S. Continued steadiness on coal shipments represents a convenient crutch on which the railroad industry can lean in these hard times.

If railroads are the backbone, then coal is the bone marrow. Just six months ago, the green movement was poised to make great strides. We were on our way to electing a new President with bold environmental and alternative energy initiatives. Today, with the picture of the Gore/Obama environmental goals still fresh on our minds, dirty coal is essentially keeping our heads above water. The Gulf has oil, and we have coal. Whether we like it or not, coal will remain our lifeline for much longer than we had originally anticipated. With coal infrastructure already in place to mine, ship, and burn, the green industry is going to have to take a back seat for awhile.

With even the “good news” sounding bad, The American Economy is obviously in deep trouble. The unemployment rate rose to 7.6% by the end of January, and there are guys like Ed Hassebrock who wonder when things are going to get better. We root for Ed because he is a cool guy with a cool job. We root for Ed because he is a good father and represents the core American values that we heard so much about from both sides of the Presidential campaign. We root for Ed because when Ed goes back to work, the economy will be rolling again. Ω

* All numbers shown are obtained from corporate quarterly earnings reports and then personally confirmed and/or amended by each company’s public information officer. See list and contact information below. Unavailable numbers in this chart exist, but did not meet the two standards of the above criteria. Kansas City Southern did not cooperate.

**Statistics from The Association of American Railroads www.aar.org Source Document .pdf

Totals January 1, 2008

∞U.S. Class I Railroads are line haul freight railroads with 2007 operating revenue in excess of $359.6 million. There are 7 Class I Railroad operating in the US. Association of American Railroads. Source Document .pdf

Cami Beck of Flagstaff, Arizona can’t tell the difference. Her office sits adjacent to the railroad tracks in downtown Flagstaff at one of the busiest rail crossings in the country. According to the Federal Railroad Administration, the number of trains running through Flagstaff peaked at 132 in July of 2008. That number had dropped to 107 as of the writing of this article.

“Hundred-thirty, a hundred, it doesn’t make much difference to me. I’m right on top of the tracks, and it’s all day long. You get used to it.”

To Ed Hassebrock, it makes a difference. He was laid-off on January 25^th, which happened to be his birthday. As a backup plan, he is studying to be a firefighter, but Ed would rather be back on the rails.