Derailment, safety, partnerships among rail’s big issues in 2023

December 21, 2023

2023 seemed to kick off quietly for U.S. freight railroads: The industry had seen the resolution of the labor contract impasse between craft unions and U.S. Class I railroads in December 2022, while rail service was steadily improving after some struggles earlier in the year.

However, the February derailment of a Norfolk Southern train in East Palestine, Ohio, brought an unanticipated and sometimes harsh spotlight on rail safety, with congressional lawmakers and other public officials scrutinizing the industry’s safety record and calling for reforms to bolster safety standards.

Other unanticipated events, such as partnerships that arose in the intermodal space following the finalization of the merger between Canadian Pacific and Kansas City Southern, also played out throughout the year.

Here are some of the key events and happenings in the freight rail industry in 2023:

Government, general public raise concerns about rail safety

About 20 cars involved in the Feb. 3 NS train derailment contained hazardous materials. Several days following the derailment, public officials and NS decided to vent five tank cars containing vinyl chloride out of concern that the cars could explode because of chemical reactions happening inside them.

That decision, which resulted in a large plume of smoke over the incident site, rattled the community and raised questions about the handling of hazardous materials at the site. While the Environmental Protection Agency has been monitoring the site and NS (NYSE: NSC) has pledged to invest in the community and in safety measures on its rail network, the derailment pointed a spotlight on rail safety, prompting mainstream news outlets to question how their communities would handle a similar situation.

As a result of the derailment — which is still being investigated by the National Transportation Safety Board — the U.S. Department of Transportation and the Federal Railroad Administration recommended a number of safety measures or issued advisories related to how rail operations might have been handled in East Palestine. Members of Congress, including the Senate delegations for Ohio and Pennsylvania, drafted a rail safety bill. That bill is still awaiting action although it passed the Senate commerce committee in May. The rail industry and industry stakeholders also addressed ways they are seeking to bolster rail safety.

Unions and rail carriers reach sick leave agreements but other union concerns remain

The labor contracts agreed upon in December 2022 — under the supervision of Congress and President Joe Biden — involved more than 30 railroads and 12 rail unions, according to the National Railway Labor Conference, the group representing the Class I railroads at the bargaining table.

While the final agreement addressed general wage increases and medical leave, it did not address sick leave, which was a sticking point for the unions. That exclusion caused the unions to threaten to strike, but Congress and the White House intervened. A three-person advisory board appointed by Biden had also earlier in the year recommended that sick leave agreements be arranged at the local level.

As a result, 2023 saw a number of sick leave agreements between individual unions and rail carriers. A few agreements also dealt with work schedules.

However, other issues that the unions keep track of are ongoing. Those include whether federal regulators will require freight train crews to have at least two people operating a train and whether FRA and the freight railroads can agree on terms that would establish a federally supported anonymous tip line to report safety concerns.

The downturn in rail volumes also brought into question whether the railroads would consider furloughs, with Union Pacific (NYSE: UNP) deciding to furlough some workers in the second half of 2023. The industry had used furloughs historically to address seasonally related changes in maintenance or to cut costs when volumes are lower.

Final decision on reciprocal switching looms

The Surface Transportation Board appeared to get closer to reaching a decision on reciprocal switching.

Reciprocal switching is a process that grants a shipper access to the network of a second Class I railroad at an interchange, with the idea that the shipment would continue on the network of the competing Class I railroad because of lackluster service on the originating Class I railroad.

The board first heard the calls to allow reciprocal switching in the U.S. more than a decade ago when the National Industrial Transportation League brought the issue before the board in July 2012.

In September, STB had issued a notice of proposed rulemaking calling for reciprocal switching as a remedy that shippers could use to address deteriorating rail service. A comment period followed and was extended. While some shippers appreciated that there was movement on the issue, they also wished the proposed rule had addressed more thoroughly plans to increase rail competition, particularly for shippers with limited options.

A final rule could come out in 2024.

The board’s actions on reciprocal switching reflect what stakeholders see as one of the most active boards in years. The heightened activity — much of it coming from concerns over subpar rail service in 2022 — was due in part to the leadership of STB Chairman Marty Oberman. But Oberman surprised rail observers this fall, saying that he would not seek another term as board member. Stakeholders will be watching not only who will replace Oberman as chairman but also who will be nominated to fill his spot on the board.

CARB sees future in zero-emissions locomotive configurations

In late April, the California Air Resources Board issued new rules, effective in various stages starting in 2030, that would require zero-emissions locomotive configurations for trains operating in the state in place of diesel locomotives.

The new rules, which CARB says are aimed at reducing the emissions of locomotives operating within California, have two notable deadlines: Switch, industrial and passenger locomotives built in 2030 or after will be required to operate in zero-emissions configurations, while locomotives built in 2035 for freight linehaul operations will need to comply with the zero-emissions configurations.

The new rules also limit locomotive idling to 30 minutes except for certain circumstances, such as maintaining air brake pressure or providing heat or cooling to the locomotive cab, and they require locomotives operating in California to register with CARB and annually report on their activity, emission levels and idling data. These two conditions would go into effect in 2024.

Following CARB’s issuance of the rules, the Association of American Railroads and the American Short Line and Regional Railroad Association sued the agency, saying it is asking the rail industry to use technology that has neither been sufficiently tested in prototype and is not commercially available in today’s market. Short-line railroads have argued that modifying existing locomotives or purchasing new ones could be cost-prohibitive for companies. That suit is in the federal courts.

Intermodal partnerships follow CP-KCS merger

After years in the making, the merger between Canadian Pacific and Kansas City Southern was finalized in April, with the company now calling itself Canadian Pacific Kansas City, or CPKC. CPKC touted itself as having single-line service that spans Canada coast to coast, traverses the U.S. Midwest and reaches several points in Mexico, including the Port of Lázaro Cárdenas on Mexico’s Pacific coast.

While CPKC launched daily intermodal service shortly thereafter, other Class I railroads also appeared to start making plans to increase volumes among the U.S., Mexico and Canada.

Indeed, all the Class I railroads seemed to have new intermodal offerings. Canadian rival CN (NYSE: CNI) announced a Falcon Premium service with UP and Mexico’s Ferromex, and it unveiled a domestic intermodal service with NS in September. Meanwhile, BNSF (NYSE: BRK-B) and J.B. Hunt (NASDAQ: JBHT) unveiled plans for a new customized intermodal offering, and those two companies plus Mexico’s GMXT also announced intentions to develop a Mexico-to-Midwest intermodal service. And CSX (NASDAQ: CSX) and CPKC are seeking to establish a new rail corridor between the U.S. Southeast and Mexico.

These new partnerships even appear to be ushering in a new period of consolidation between the railroads themselves and the railroads and other transportation carriers, industry leaders remarked in November.