AAR President and CEO Jefferies addresses myriad topics at RailTrends

With the supply chain remaining front and center, as it relates to the overall economy and goods movement, there was no shortage of things to address for Ian Jefferies, President and CEO of the Association of American Railroads, at the RailTrends Conference hosted by Progressive Railroading and independent railroad analyst Tony Hatch earlier this month.

At the outset of his kickoff session, Jefferies observed that, in addition to the supply chain situation, there are a trio of concurrent factors which directly relate to the freight railroad sector, including: the Infrastructure Investment & Jobs Act being signed into the law, actions by the Surface Transportation Board (STB), and the Federal Railroad Administration “keeping things interesting, he quipped.

“Supply chain is a major focus right now,” Jefferies said, adding that his testimony earlier this month before the House Transportation & Infrastructure Committee’s hearing, entitled “Industry and Labor Perspectives: A Further Look at North American Supply Chain Challenges,” ran for five hours, in addition to testimony from leadership at other key Washington, D.C.-based freight-focused organizations, including the American Trucking Associations, and Transportation Intermediaries Association, as well as the AFL-CIO and various U.S. ports, among others.

“When looking at what is going on with the supply chain, it is either Biden or Evil corporate greed’s fault,” said Jefferies. “Neither is true, and our industry is doing everything it can every day to keep goods moving and get goods out of the port for our customers and communities across the country. Over the first six months of 2021, the industry moved more intermodal containers than any other six-month period in the entire history of railroading. To me, that says a lot but honestly it is a little concerning in that intermodal has dropped off. In talking to our West Coast members, they have capacity coming out of the ports right now.   

On the international side, the AAR’s top executive explained there is absolutely capacity, and rails have room to run and capacity to grow and take more trucks off of the highway, which he noted is the goal, as well as to win more traffic

And on the industrial products side, he said the industry is above 2020 and ticking just above 2019 volume levels by 0.3% through the last data set.

“Things are getting back to equilibrium and hopefully can crank up the economy a little bit more,” he said. “There has been a pretty significant decline in auto movements on rail due to the semiconductor shortage. Overall, I think the industry is performing at a solid level, there are opportunities to grow more and grow intermodal and pull more trucks off of the highway.”

As for the myriad supply chain challenges across all modes, Jefferies gave the sector a huge amount of credit on supply chain issues.

The reason for that, he explained, was that in looking at some of the statements made in July and into late summer, there was a lot of finger-pointing going on at the rail industry as “the problem,” in the form of sentiment along the lines of railroads not getting containers out of their intermodal yards and not being able to handle the traffic.  

As a counterpoint, he noted that across industry members both inside the Beltway and on the advocacy sides and out in the field, in marketing and operations departments, people have done a terrific job of educating the market, the media, and regulators on what is actually going on and why the industry is dealing with some of the charges that it is, and the steps it is taking to alleviate those challenges.  

“We have significantly more containers coming into the yards than our partners were able to pull out so what did we do? We opened up additional capacity in existing yards, we opened up dormant yards, started providing incentives to have our containers picked up off-hours and on weekends and in some cases increase the number of rebates available for goods to dwell,” he said. “What happened was, especially in the Chicagoland area, was that we were able to work off a lot of that backlog and are managing fluidity pretty well. Chicago terminals writ large have been at green status for all but eight days this entire year, which was entirely weather-related and Chicago volumes are up 11% annually while maintaining green fluidity status. We are doing what we need to do to keep goods moving hence the reason we take on additional capacity and take on additional [freight] to our lines.”

Addressing the recently-signed infrastructure bill, Jefferies said he was pleased to see it signed into law, noting that over the past two years, the railroads and Washington developed a very deliberate strategy for how to manage the pros and cons of an infrastructure bill.  

And he did not hesitate to point out that freight railroad networks are privately-owned and financed, and not “dancing for nickels or government handouts, unlike some other sectors.

“We firmly believe you need a healthily invested, and fully functioning and integrated supply chain infrastructure network, because we cannot excel if our partners cannot excel,” he said. “The bill has multiple billions in competitive grants so we can work with our public partners on projects like CREATE that will position us to put our private dollars to work on projects and partner with states and localities that we operate in to do a lot of good in communities and make a lot of progress.”

A component within the bill not receiving as much attention, he observed, is the amount of opportunity to partner with the government for the development of emissions reductions and next-gen locomotives—battery-, electric-, and hydrogen-powered locomotives and general activity to reduce emissions, with a lot of opportunities over the next five years coming out of the Department of Energy for some of these efforts.

“It is a really strong bill and shows that being bipartisan is the way to go and is how you get things done,” he said. “At end of the day, it is a good bill for the railroad industry

Conversely, though, he lamented the structure of “pay-fors” related to the nation’s highways, which could be viewed as budget gimmicks.

“Before this bill there were $140 billion in general fund transfers to our nation’s highways and that has completely created a competitive imbalance with our biggest competitors in the trucking industry operating over a heavily-subsidized network….and we are paying for our own,” he said. “I am still disillusioned by the lack of courage to develop a way to sustainably pay for a highway system by the user. Give ATA credit, they advocated for an increase in the gas tax. We firmly believe the only way to go forward is a weight/distance fee, for not only miles driven but also the weight of the vehicle as more and more vehicles get away from combustion engines; a gas tax is not going to cut it. A small ray of sunshine is the first cost allocation study since 1977 to dig into who is driving the cost to maintain the infrastructure we are driving on. That will be helpful in setting the stage for the next time around.”  

Shifting gears to the STB, Jefferies touched upon the multi-year topic of forced access, also known as competitive, or reciprocal, switching.

As defined by the STB, reciprocal switching is a situation in which a railroad that has physical access to a specific shipper facility switches rail traffic to the facility for another railroad that does not have physical access. And the second railroad compensates that railroad that has physical access in the form of a per car switching charge, with the shipper facility gaining access to an additional railroad.

In order for the proposed reciprocal switching to come to fruition, the STB said that a shipper must show that the arrangement is “practicable and in the public interest” or “necessary to provide competitive rail service.” 

“The STB Chairman [Martin Oberman] is very interested in exploring it under the guise of competition,” he said. “It is something that has been hanging around the Board for quite some time, the last STB action was in a 2016 NPRM (Notice of Proposed Rulemaking). To say the record is stale is an understatement, given that a lot of the data used to support that proposal is from 2011. Think where industry and economy were then or even two years ago and where we are now. This should be the beginning of the process and discussion and we are happy to have this debate. We think the facts are on our side—why on earth would a regulator be considering any sort of proposal that would knowingly undermine fluidity in the railroad network no matter how you stretch it.”

Instead, he observed, the industry and the STB should be focused on ways to maximize goods movement and also fluidity—not taking steps to clog the network up and force traffic off of one railroad onto another.  

“It just does not make sense; we will make those arguments and bring those strong arguments and strong data,” he said. “At the end of day, I am confident we will end up in a good spot.  

This is an enormous issue and I am pleased the STB did not just take the 2016 rule and try to proceed with that and they are instead reconvening hearings and both sides will make their best arguments and bring their best witnesses and we will have that debate.”

What’s more Jefferies pointed out that only one of thew five STB Board members had a seat in 2016 and dissented on the proposal for competitive switching, noting it is time to step back and see where we are, with the AAR looking forward to forcefully engaging on that topic.

Looking at the FRA, Jefferies noted it has been an “interesting” first 11 months with the new Administration, pointing out how it is not surprising that labor has influence there.

And he added that the AAR has been disappointed in the lack of interest in data-driven, safety-enhancing technological deployment from the FRA. As an example, he highlighted how all Class I railroads have some sort of autonomous track inspection program either through piloting or through a vendor.

“That allows railroads to be consistently inspecting track as a train is moving along… instead of having someone walk down line, shutting it down and physically looking at the track to see if there are defects,” he said.