Railroads Prepare for Quick Turnaround

Date: Friday, April 24, 2020
Source: The Wall Street Journal

Idled by coronavirus, CSX and Union Pacific have kept workers on standby rather than let them go

After having a front-row seat to the economy seizing up, freight railroads are keeping their workers and locomotives on standby to quickly help get things moving again.

When that happens is anyone’s guess.

Railroads have retrenched during the coronavirus pandemic as they face a drop of around 25% in their near-term shipping volumes, which have been roiled by factory closures, declines in business activity and another sharp slump in coal shipments due to the oil-price rout.

CSX Corp. CSX 2.93% and Union Pacific Corp. UNP 1.77% have taken hundreds of locomotives offline in recent weeks, reduced the number of trains being run to better align with plunging demand and sent workers home.

That all could reverse quickly.

Instead of laying off or furloughing its transportation workers, CSX has worked with its unions to allow employees to take unpaid time off or switch to a schedule where they work one week a month. Benefits are paid under either choice.

The arrangement allows CSX to recall workers to service in as little as 48 hours, whereas returning from furloughs has a 15-day window.

CSX Chief Executive Jim Foote said that such a setup is needed because of the uncertainty around how long the downturn would last. If it knew there would be a prolonged slump, CSX could wait to figure out when it would need more workers to run trains.

“I don’t have the luxury of worrying about that in 12 months,” Mr. Foote said in an interview Wednesday. “I have to be thinking that it can turn around in two months.”

Union Pacific has set up a similar work status in lieu of furloughs so that the railroad can call back workers quickly.

Locomotives are also being parked but maintained so that they can get back to hauling more freight quickly. “They are in a state where within hours, we could turn them back on and put them out to the fleet if we need to,” Union Pacific Chief Operating Officer Jim Vena said on an earnings call Thursday.

Railroad executives say that an overhaul of operating strategies in the past few years has helped them contract operations quickly during the pandemic and set them up for a rebound. CSX, Union Pacific and other railroads have all been focused on running fewer and longer trains that stick to tight schedules while cutting costs and jobs to improve profitability.

“We have for a long time thought and worried about trying to build agility into our decision making and reaction time,” Union Pacific CEO Lance Fritz said in an interview Thursday. “We are way better at that today.”

As the pandemic hit the U.S., railroads have been able to cut costs further. CSX and Union Pacific both reported higher first-quarter profits as costs tied to labor and fuel expenses dropped faster than the decline in shipments and revenue.

They may not be able to cut costs enough to match the steeper shipping-volume declines in the second quarter, when overall shipping volume is down around 20% or more.

Both railroads withdrew most of their forecasts for the year, as the duration of the downturn remains unclear.

“Our collective belief at this point is it’s sharp and deep,” Mr. Fritz said. “It’s going to last for a while, and recovery is going to be some kind of ramp but probably not terribly steep.”

Mr. Fritz said Union Pacific has a lot of extra shipping capacity that can be filled if the economy were to rebound faster.

“If the economy were to snap back, we can respond to that pretty darn quickly,” he said.


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