Market Overview

US Rail Headcount Reaches New Low

US Rail Headcount Reaches New Low

In September, the U.S. operations of the Class I railroads employed the fewest number of workers in years, according to data from the Surface Transportation Board.

The railroads had 136,865 employees on their rosters in September, which is the lowest monthly total in 2019 and the lowest total since January 2012, which is the earliest monthly data that FreightWaves has available.

September's total is 7.6% lower than September 2018 and down 1.7% from August 2019.

Train and engine (T&E) employees, which is a category that can be more responsive to rail demand, was also at its lowest level in 2019, at 57,115. This total is 8.8% lower than September 2018 and 2.35% lower than August.

September's slump in headcount comes as U.S. rail volumes have trended downward all this year amid a weaker industrial economy and U.S. trade uncertainty. Year-to-date, U.S. rail traffic through September 30 totaled 20.25 million carloads and intermodal units, a 3.9% decrease from the same period in 2018, according to data from the Association of American Railroads.

Similar to past periods when rail volumes down, the Class I railroads looked at their headcount levels as one way to trim costs. Almost all of the Class I railroads have also deployed some form of precision scheduled railroading, an operating model that seeks to cut costs as a result of streamlined operations.

Norfolk Southern (NYSE: NSC) said earlier this month that it reduced its T&E employees by 14% in the third quarter compared with the same quarter in 2018, which has resulted in its lowest headcount level ever for T&E employees.

"A big part of that [headcount decline] is structural. There have been reductions associated with volume and then you could moderate that as volume goes up or down," said Norfolk Southern's Chief Financial Officer Cindy Earhart during her company's third-quarter earnings call on October 23. Earhart was referring to headcount in 2019 falling by 3,200 compared with 2018. 

As Norfolk Southern heads into 2020, company initiatives will result in headcount falling even further, Earhart said. 

But even if rail volumes eventually improve, the focus on improving efficiencies as well as automating certain operations and processes could result in a future in which rail volume growth might not necessarily correlate with headcount growth.

For instance, Canadian Pacific (NYSE: CP) said during its third-quarter earnings call on October 23 that it expects the company's rail volumes to improve in 2020.

Meanwhile, the railway's headcount will be flat to slightly higher, CP executives said.

"When we guided in terms of headcount, well, we're not going to a one-for-one volumes… we'll be able to take on [volume] growth…[and] bring it to the bottom line by adding cars to existing traffic as opposed to adding a huge amount of headcount on the non-T&E side," said Nadeem Velani, CP's chief financial officer.

Image by Michael Gaida from Pixabay

Posted-In: Freight Freightwaves Railroads Industry TrainsNews Markets General


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