US Class I Railroads To Feds: Don't Blame Us

Much of the congestion occurring at intermodal rail terminals are ultimately related to factors beyond the control of the Class I railroads, and the railroads are doing all that they can to improve terminal throughput, assert the CEOs of U.S.-based Class I railroads to the Surface Transportation Board.

The board had asked the Class I railroads in July to explain what they were doing to address the congestion occurring at intermodal terminals. STB also asked the railroads to describe how and when they assess demurrage when containers aren't being picked.

The railroads defended their responses, saying that although they do what they can to move containers out more quickly, the challenges facing other supply chain stakeholders — factors such as chassis and driver availability and labor shortages to support unloading at distribution centers — are affecting the railroads' ability to move containers in and out of terminals in a timely fashion.

"Clearing our network will take some time, and it will require the cooperation of all stakeholders of the supply chain. Clearing the congestion and keeping the network fluid will be vital non-railroad improvements to the inadequate takeaway capacity at our ramps that is the root cause of the congestion," said Union Pacific (NYSE:UNP) President and CEO Lance Fritz in a Thursday response to the board. "We are working hard to help our customers understand the problem and improve their operations."

Fritz continued, "Shippers and receivers are responsible for their decisions to overextend their capacity in shipping and receiving, which congests the supply chain. This overextension is beyond our control."

CSX (NASDAQ:CSX) President and CEO Jim Foote echoed similar sentiments in his Aug. 2 letter to the board.

"We work hard to optimize the movement of freight over our railroad and at the terminal, but we cannot be held accountable for the informed and calibrated decisions shippers are making to ship and that receivers are making as to their capability to receive. Nor can we be held responsible for the inefficiencies that exist in other parts of the supply chain," Foote said.

Rail intermodal terminals are not designed for, and are not physically capable of, long-term container storage for significant volume, Foote said. He explained that the throughput capacity of an intermodal terminal depends on the ability of receivers and steamship lines to maintain a relatively consistent flow of freight in and out of the terminal.

CSX has also sought to maintain open gates at its terminals and repositioned containers to off-site container yards when possible, Foote said. The railroad also communicates with East Coast ports daily to gauge current and projected flows, and it has engaged with customers on container dwell, he said.

BNSF President and CEO Katie Farmer said the backlogs at BNSF's (NYSE:BRK) intermodal terminals can also be seen on other places on BNSF's network, such as staging as many as 30 trains, holding around 7,500 containers, outside intermodal facilities because there isn't enough space in BNSF's hubs to get containers unloaded for pickup until the appropriate party coordinates the pickup of older containers for delivery to processing locations.

"We do believe that there is enough physical capacity present across the national supply chain to handle the current volumes," Farmer said in her response to the board last Wednesday. She noted that BNSF has moved "significantly more" intermodal containers and trailers in 2021 than it did during the intermodal industry peak year of 2018.

"The amount of chassis, port and rail terminal capacity, rail equipment and employee resources is sufficient to handle the current volumes, but only if all parts of the supply chain do their part. Operating 24/7 in all parts of the supply chain, not just rail, would generate substantial capacity immediately," Farmer continued.

Like the other Class I railroads, BNSF has been applying escalating storage fees to customers that take a long time to pick up their containers. The railroads say the fees are a way to encourage customers to move out their containers more quickly.

"As a railroad carrying containers between points where we are not the origination or the final destination of a load, BNSF has relatively few options to maintain the fluidity of our intermodal terminals if containers are not picked up by customers on a timely basis," Farmer said. "Unless BNSF can utilize the few tools we have available to incentivize timely pickup – including storage charges when containers are left in our yards beyond free time – rail operations will degrade and ultimately come to a halt. … Our collective customers benefit as well when there is accountability across all users for effective management of resource use across the supply chain. The increased demand we face makes it imperative for us and our customers that we implement those reasonable accountability measures to support fluidity and maximum utility of rail capacity."

The Class I railroads also said they would rather have smoother and more efficient terminal throughputs in the first place than assess demurrage.

"Consistent with KCS' policy of preferring to work with customers to avoid storage, rather than collecting storage fees, we have also been flexible with the application of storage charges, where warranted," said Kansas City Southern (NYSE:KSU) President and CEO Pat Ottensmeyer in an Aug. 3 response to the board.

On assessing storage fees, Norfolk Southern (NYSE:NSC) President and CEO Jim Squires said in his Friday response: "The purpose of Norfolk Southern's storage fee policies is to encourage prompt retrieval of shipments once they have arrived at one of our intermodal facilities. Our terminals are not designed or intended for extended storage or warehousing. Delays in pulling containers from our terminals results in congestion, which impacts the fluidity of our operations and the level of service we are able to provide to our intermodal customers."

To ease congestion at its international intermodal terminals, NS has taken measures such as metering traffic at origin to keep the flow of containers to inland destination terminals consistent with the ability of the drayage and warehouse communities to pull from those terminals, increasing the flow of inbound containers as "outgate" capacity improves, Squires said.

Other modifications have included making changes and upgrades to NS' Chicago terminal to increased stacked container capacity by 60% and lift capacity by 40%; working with the Western railroads to create steel-wheel interchanges in Chicago, alleviating pressure on the drayage community for cross-town interchanges; and developing an incentive program "that rewards customers who achieve at least 50% ‘dual missions' (that is, bringing one container out for every container brought in) at our Chicago and Kansas City terminals, which will encourage greater efficiency and help relieve pressure on driver availability and chassis supply," Squires said.

Midwest rail congestion affecting West Coast container flows: Maersk

The responses by the Class I railroads to STB come as ocean carrier Maersk said Friday that rail congestion in the Midwest is affecting container flows to and from U.S. West Coast ports.

In a Friday customer advisory, Maersk said the congestion in hubs such as Chicago and Memphis is causing "some major disruptions," with rail import dwell at Long Beach extending beyond eight days on average because fewer trips are heading back to the West Coast from the Midwest hubs.

The rail congestion is limiting customers' ability to return empty containers, compounding a broader container shortage, Maersk said.

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