Union Pacific, CSX hiring rapidly to solve rail service woes despite attrition

Top US railroads Union Pacific and CSX said they are rapidly hiring new employees -- despite attrition setbacks -- to help solve service problems as the industry struggles to deliver petroleum products, coal, agriculture and more in a timely manner.

CEOs said July 21 they are hopeful the hiring challenges can improve even more when and if a new labor union deal is struck in the coming months with underpaid and overworked employees. The White House on July 15 appointed a Presidential Emergency Board to prevent a strike this week of roughly 115,000 railroad workers and to help negotiate a compromise for pay raises and other benefits.

"All parties are anxious for a reasonable agreement. Our employees are long overdue for a wage increase," Union Pacific CEO Lance Fritz said July 21 during an earnings call. "We're ready to put the uncertainty behind us and look forward to a resolution in the near future."

In the meantime, Fritz said the worst of the ongoing rail service woes should now be in the past.

"The second quarter was a tough one as we limited (rail) car loadings and increased expenses to recover network fluidity," Fritz said. "We understood that the actions we took to improve fluidity would impact our financial performance. Those actions were necessary to increase the speed of our recovery and be in a better position to handle customer demand. The improvements we've made since mid-April gives me confidence that we'll grow volumes as we continue to improve service in the third and fourth quarters. There's more to be done, but we're moving in the right direction."

UP said its "energy and specialized shipments" rose 2% in the second quarter from the year prior, although its petroleum products volumes remained down.

Likewise, CSX said its total freight volumes are up from strong demand, even though average rail car velocity is down 21% as the industry works through its service problems.

In June, the US Surface Transportation Board, or STB, sharply criticized alleged deficiencies in the rail service recovery plans of the nation's major railroads and ordered them to provide better information as the industry "crisis" struggles to deliver products on time.

Railroad shipping customers have repeatedly warned that the problems will trigger even greater fuel spikes — from shortages of ethanol to diesel exhaust fluid — to power disruptions from coal delays to greater food supply shortages.

Hiring goals

Union Pacific has a goal of hiring 1,400 new employees, including about 250 hired last year. In 2022, UP has completed training for 486 employees with another 504 currently in training.

Fritz acknowledged UP and the rail industry failed by not anticipating all the employee losses during the pandemic to attrition and illness.

"We ran the network tight, and we did not recognize the stack up of risks that were in front of us with COVID continuing to impact crew availability," he said. "When you run tight, you just don't have a lot of opportunity to recover quickly. We got into trouble and inventory grew on us, and we had to take some pretty significant measures to fix that, and we did in the second quarter."

The top US railroads had reduced their workforces by 29% — the loss of 45,000 employees — in the last six years.

Railroad executives have responded that the issues are related to labor and utilization, and that they suffered more job losses than expected during the so-called Great Resignation from the pandemic. They argued there are enough trains and rail cars, and "rash" regulatory actions are not needed.

Norfolk Southern railroad said July 21 it just increased its beginner conductor trainee pay to a minimum of $25 per hour.

Likewise, CSX said it could return to its pre-pandemic employee level of roughly 7,000 train and engine workers as quickly as the end of September. Nearly 700 new workers have been added this year. But the service problems continue in the interim, said CEO James Foote.

"What remains constant is that right now, as we have seen this entire year, there is more demand for rail service than what we are able to satisfy," Foote said. "Our ability to hire and retain new workers, which is vital to improving our service and growing the business, remains challenged. We are not alone in facing this problem. The labor market is tight, prospective recruits have many job options, and the pandemic has had a profound effect on employees' work and lifestyle preferences. Our hiring process has been steady but slow."

And Foote acknowledged even surprising attrition issues with some newly hired workers quitting shortly after completing training.

"It's been somewhat of a surprise to all of us, the number of people that have dropped out after going through all of the classroom training, all of the on-the-job training, and then working a few months and deciding that they don't like railroading as a profession," he said.