The TRAINS Newswire of Jan.11th,2023[ by Bill Stephens] has story that seems to indicate that The Surface Transportation Board, is about to take ‘Uncle Pete’ to its’ ‘woodshead’. .
Apparently, The Foster Farms (from last month. is again,running out of feed for their chckens). AMTRAK has some large issues with UP’s handing of their Sunset Ltd.(late, over 90% of time?),not to mention there are a number of other’s, lining up to complain, about their service ‘failures’. FTA: "… If Amtrak trains are the canary in the freight railroads’ coal mine, they’re giving plenty of warning about the state of UP’s overall operations and the service it provides.
Yes, like the other three big U.S. railroads, UP has experienced crew shortages, as it’s become harder to hire conductors amid the tightest job market in decades. But CEO Lance Fritz admits UP was already running too lean when crew shortages cropped up. So when harsh winter weather raked the railroad in early 2022, UP coagulated and never fully recovered…"
Seems to building up to lots of weeping, and gnashing of teeth; when the STB’s hearings take place. The pursuit of a 55% O.R. and P.S.R. will likely get the blame? Should be some interesting comentary? [:-^]
I would opine that Fritz’s “running too lean” comment definitely ties back to PSR, etc, although I’d bet the financial folks won’t admit it.
The other side of the issue - not finding people who want to work, should indicate to UP (and the other railroads) that they need to rethink how they schedule crews.
Wait until UP has to roll over its debt issues for stock buybacks at higher interest rates than the original issue. They won’t be able to get the OR low enough to offset the increased interest expense hit to the bottom line.
They have laddered maturities of debt - some coming due each year - so it will not happen all at once, but it is coming.
The push to the 55% OR precedes the PSR push. G-55+0, IIRC, means the goal of an OR of 55 with no injuries. It started about the time PSR was being extolled by EHH at CN. It was kind of a PSR-lite regimen. That was bad enough, but it wasn’t enough for some major interests that started buying into us.
Once PSR came to town, then the big cuts started. Just when it seems that they can’t find anything to cut, and say they are going to pivot to growth, they find some way to cut somemore.
They think that they can keep getting away with business (or lack thereof) as usual. I feel they will get a rude awakening when they will discover that their clout with the government doesn’t equal the clout that all their major customers have. The problem will be that any reregulations will affect the entire industry.
UP management decided to inflate the stock price by borrowing heavily to do stock buybacks. That only works when interest rates are low. Their interest expense will be climbing heavily over the next decade as laddered maturies need to be refinanced at higher rates.
Capacity expansion to attract more traffic pretty much stopped when they stopped double tracking the Sunset Route. Blair Cutoff work between Missouri Valley and Fremont stopped dead in its tracks about the same time.
Debt issuances have not been invested in assets that can grow the company. Debt has been used to finance stock buybacks which give the stock a one-time temporary boost that will be paid for into eternity. As interest payments rise and take more cash, capital spending will drop. It will take 10 years to make a significantly noticeable impact because UP is so large, but look how long it took the Pennsy and NYC to get to the point of bankruptcy, for example.
NYC and Pennsy went bankrupt because of a declining traffic base and lack of pricing power to raise rates on remaining rail-captive customers.
UP has pricing power right now to captive customers, but if service levels continue to deteriorate and the common carrier obligation is not being fulfilled in the eyes of Congress, reregulation will result in a loss of pricing power.
For a number of years now UP has said they have returned more than 100% of free cash flow to shareholders. They have done that through a combination of dividends from earnings but the majority of it has been via borrowing for share buy backs. All that is, really, is pulling future profits and free cash flow to the present day, so future levels of both will be lower than they otherwise will be as the interest on the debt will have to be paid into infinity.
In 2010 UP’s long term debt was $9.003 billion. Revenue was $16.965 billion and net income was $2.780 billion. The operating ratio was 70.6%.
The whole decade of the 2010s was a decade of Federal-Reserve-B
How far back though? EHH became CEO of CN back in 2003 leaving in 2009. He immediately began his quest to “PSR” the network. I was noticing changes as early as 2004 when trains started to be combined and other traffic annulled.
If railroads are so focused on cutting employees, is it really true that they can’t find new people to hire? Or are they just saying that as an excuse for cutting so deep that it is hurting service?
It does not ring true for the industry to be complaining to the world that they can’t hire enough people to move the trains while, at the same time, they are on a mission to cut labor by laying people off.
A lot of comment here is that they are not able to hire because they have made the working conditions so bad, and potential new hires are driven away by that.
I would say the reason they can’t hire is that they don’t actually want to hire. But they have to pretend otherwise, or else they will be held responsible for failing to meet shipping demand due to a lack of labor. So the supposed lack of new people willing to work is a ruse to cover up what is actually an unwillingness to hire new people.
Maybe the Government will have to step in and show the railroads how to hire new people, so they have enough to do the job.
Transportation jobs (rail and trucking) are not considered desirable by the upcoming generation since the nature of the work interferes with the lifestyle they want. They seem to view work as a nuisance that they need to provide income.
In general, young people don’t have a problem with working. There are plenty of us on the railroad and other things like farming, the oilfield and other supporting fields in ‘traditional’ blue-collar jobs.
People, not just young people, have a problem with doing nothing but working. And that’s what the Class I’s and other big corporations with hiring issues are trying to squeeze out of their employees. And the work environment continues to become ever more stressful and toxic. All in the name of ‘sweating the assets’, to use one of Hunter’s favourite sayings.
Don’t worry, labour doesn’t contribute to profits. They should be able to manage fine without us.
I’ll second that… There’s no problem with the work ethic of today’s young people. The transportation industry has always been alot of hard work for young and old, but young people coming up today are more educated and less likely to put up with unsatisfactory conditions; in part, perhaps, because they don’t need to…the market is such that they can pick and choose for whom to work for, and that will likely be the case for some years to come.
Agreed. The one I’ve taken most issue with is “fast paced”, especially in the context of safety and risk management. I’ve always preferred “slow and deliberate”… for load securement, hooking/unhooking stuff, moving about on heavy equipment etc… slow and deliberate is the better setting…and check it… check it again… and then check it yet again…
I’ll add one to your list… “paid weekly”… sounds too much like “paid weakly”…
The borrowing money to finance stock buybacks is one of the worst features of the stock market. A big part of the problem is that most stock is now owned by institutional investors, who generally are focused on making a good quarterly report. With a stock buyback, they get their money and they don’t have to worry about the company going bankrupt afterwards.
They can’t hire because three of the class ones’ make it into the top tiers of the lists of the worst companies to work for. I think one list had us at the #1 worst for a few years running.
It’s also hard to get people to apply when they keep saying they want to eliminate those positions in the near future.
At least in my area, they aren’t getting very many people to come to hiring sessions. When I hired out,
UP management decided to inflate the stock price by borrowing heavily to do stock buybacks. That only works when interest rates are low. Their interest expense will be climbing heavily over the next decade as laddered maturies need to be refinanced at higher rates.
Capacity expansion to attract more traffic pretty much stopped when they stopped double tracking the Sunset Route. Blair Cutoff work between Missouri Valley and Fremont stopped dead in its tracks about the same time.
Debt issuances have not been invested in assets that can grow the company. Debt has been used to finance stock buybacks which give the stock a one-time temporary boost that will be paid for into eternity. As interest payments rise and take more cash, capital spending will drop. It will take 10 years to make a significantly noticeable impact because UP is so large, but look how long it took the Pennsy and NYC to get to the point of bankruptcy, for example.
NYC and Pennsy went bankrupt because of a declining traffic base and lack of pricing power to raise rates on remaining rail-captive customers.
UP has pricing power right now to captive customers, but if service levels continue to deteriorate and the common carrier obligation is not being fulfilled in the eyes of Congress, reregulation will result in a loss of pricing power.
For a number of years now UP has said they have returned more than 100% of free cash flow to shareholders. They have done that through a combination of dividends from earnings but the majority of it has been via borrowing for share buy backs. All that is, really, is pulling future profits and free cash flow to the present day, so future levels of both will be lower than they otherwise will be as the interest on the debt will have to be paid into infinity.
In 2010 UP’s long term debt was $9.003 billion. Revenue was $16.965 billion and net income was $2.780 billion. The operating ratio was 70