This Is What the Pandemic Did to the U.S. Rail System

When you say more than a little bit or it's been a while, I mean, we did do the semiconductor episode like the other week, which I kind of file under the shortages and bottlenecks. Um, yeah, Brella, But I guess it's true. It is true. We haven't done a transport episode in a while, and there are some big

ones that we haven't addressed just yet. And I'm thinking specifically of palettes and barges, but of course the biggest transport mode that we have yet to talk about and the issues taking place there, it has to be rail

and it's come up quite a bit. When we were talking to um Jeans Siroca that the head of the part of Los Angeles, for instance, Whenever we've been talking about gridlock in transport, generally we do tend to touch on rail and some of the issues there, but we haven't talked about it in depth yet, right, so we kind of have taken this, you know, end to end approach. We talked about factory issues that originate in Asia. We talked about the ship you know, there's the bottomnecks at

the ports. I think latest I saw there's like seventy two ships just waiting to be undocked right now at the Port of Los Angeles. Then the trucks. Talked a little bit about barges. Although we need to talk a lot about talk a lot about more, but we have not talked about rail. And so if we're going to be leadist in our discussion of of you as logistics, we have to talk about the rail part of the equation. Yes, indeed,

I'm looking forward to this one. I am too. I'm very excited, and we have the perfect guest for it. We're going to be speaking with Ian Jefferies, President and CEO of the Association of American Railroads. Ian, thank you

so much for coming on odd lots. So look, anyone who's picked up the newspaper or you know, read the news knows about all the disruptions, particularly around ship, particularly around sports, particularly around trucking, particularly about the lack of containers specifically, what do you just start by giving us the very big picture overview and then we'll drill deeper, but the very big picture overview in how pandemic related

disruptions have affected h the flow of rail. Well, first of all, thank you Joe and Tracy so much for having me on this morning. And you've hit on based on on what you listed, you've hit on a lot of key, key issues and key sectors of the supply chain. So I'm thrilled to be able to add to that conversation.

I think when you look at what we're seeing in the supply chain right now, which as you know, is an incredibly sophisticated, integrated complex process getting goods from Asia into the US, into the heartland of the the US UM and then throughout, what we really are looking at now is something that really began about this time last year, even you know a little earlier in the summer midsummer, where once the economies of China and the US started to for lack of a better term turned back on.

You saw a pretty dramatic influx of goods, and I think it's a combination of a variety of things. Um, if your houses or anything like mine, you've got to

know the the Amazon delivery person really well. We saw such a massive surge of e commerce as a portion of our economy, and not only that, given the the rush to acquire goods, um consumer goods from from the stores, the physical stores across the countries as well, combined with the shutdowns we saw in factories throughout throughout the US, throughout Asia, you saw really strong snap back in in

production and demand on the international side. And so really about last summer, i'd call it last July last August, we saw pretty dramatic uptick in international intermodal traffic and that has really sustained itself and continued through this year

to present day. And I think we're expecting to see it into at least Q one, if not Q two of next year, based on comments that are our CEOs of meeting the public space and so what we're seeing is there are certain parts of the supply chain where where there are some choke points and where there's there's

there's one choke point. The supply chain is only as strong as as its weakest link, or it's as it's uh as its most inefficient point, and that that tends to tends to come up the whole situation, and so Rail is navigating that. UM. I can tell you in the first six months, we moved more intermodal products, which is that container traffic, which consumer goods, either e commerce or brick and mortar store. We move more traffic in the first six months of than we ever had in

our history during that same time period. So we are moving a colossal amount of traffic, and we're really the middle piece of the supply chain, the middle miles we are navigating. I would call um some challenges on on both the port side and and then the offloading side. UM with our our partners, but taking steps as others are to to continue to work through this, to to get back and get right sized and get equilibrium and

get this thing running as efficiently as possible. That was a great overview, and I want to dig in a little bit more into what role Rail actually plays in the sort of transport and logistics network overall. But before we do, can you maybe give us a little bit more color on the contestion issues that you're facing right now. Are there some numbers that you could throw out? So, for instance, Joe and the intro mentioned more than seventy ships waiting off the you know, off l a port.

I'm wondering if there are similar statistics for rail and how those might differ from normal times. Yeah, absolutely so. So our our primary role when it comes to the West coast ports is is, you know, containers are loaded onto to our trains and brought into the middle of the country, much of them. So think about the key gateways up and down the Mississippi River, up and down

the center of our country. Primary be in Chicago. Approximately of rail freight move through Chicago, but also Memphis, New Orleans, St. Louis, Kansas City, So those are primary gateways. But let's take Chicago for example, and what we are seeing is in a lot of the international intermodal guards. So those are those are the locations that that freight is offloaded from the train, put into a parking slot, and picked up by a truck for that last mile delivery to a

warehouse or to a or to another location. So when the train brings into containers, that's referred to as in gating, and when the containers are picked up, it's referred to as outgating. And I can tell you that the in gates in certain locations are dramatically exceeding the outgates. In other words, we have many more containers coming in that are getting picked up and taken out, and so you

can understand how that begins to back things up. And so one of our railroads had over twenty intermodal trains. So think about that. That's twenty trains with approximately we'll call it or take two containers on it. So what is that for thousand containers sitting outside the Chicago terminal waiting to get into the yard to unload, but can't do so because the outdates aren't aren't being picked up, so local trucking isn't able to um able to get that out. That just goes to show you how quickly

things can start backing up. I know they've made significant progress and driving the number of trains waiting down, but

it's it's sort of akin to the boat's waiting. The ship's waiting off the coast of the ports of l A and Long Beach, and that causes conververberating effects because when you have trains sitting waiting to get into the yard, those are trains that should be unloading and should be on their way back to the West coast ports, but can't because our our partners in the supply chain are shipping partners don't have the capacity or ability to to pick up the containers and get them out of the

yard to create the space needed to unload. And so it's kind of a it's seven operation for the railroads, and any part of that that that gums up that seven operations starts to have reverberate and consequences back to the network. Just that stat is extremely useful in striking how much of that capacity constraint is it? Okay, with with I don't know what the term is. I mean with ships they talk about, Okay, how many births there

are at the port at any given time. How much is it the sort of like physical space to unload or load a given uh, twenty cars uh? And how much versus how much is it uh the labor And how much is a labor itself contributing to some of the constraints and the slowness of these turnaround time? So I would I would say it's a combination depending on

where you are. There are certain situations where railroads are highering additional employees, going through the process of highering additional employees, but there are variety of other situations where where manpower employee numbers are are not the issue in the least. And what we're seeing again is so so if it's a labor issue, it might be a shorthaul trucker shortage issue,

or it might be a warehouse worker issue. Um again, because if there are breakdowns and those pieces of supply chain that directly impacts the ability of a shipp or to to get their goods, get their boxes out of the yard, to create space for additional boxes, and so I can tell you railroads have taken a number of steps that are far out of the norm than they normally would, which is literally creating additional capacity within their yards,

paving over tracks in certain areas to allow for additional storage for containers, opening up long dormant intermodal facilities that haven't been used for quite some time to allow for additional capacity. And so we feel like we're we're taking numerous steps, and really we just need the system to flow um. Again, we're bringing in trains of inter total equipment seven so seven days a week that x time throughout each day they're intermodal trains arriving that need to

be unloaded. And some of our our partners don't work in seven operation the last mile service. I think when you look at the data when our yards, our railroads look at the data in their yards, the volume of pickups aka the outgate and I was talking about drops pretty dramatically later in the day, and drops pretty dramatically over the weekend, and then starts to pick back up

in the beginning of the week. And of course the challenges that the trains keep coming in during all of that time, and so railroads are taking a number of

operational steps as well to try to alleviate that. Are offering incentives to our shipping partners to to come get their goods on the weekend as well, just to keep that throughput going and just to keep the spick it on, so to speak, so that we can keep bringing things in pushing them out into the communities where there where the demand is so strong right now, So it's a combination. So do you maybe go back to the that point that you briefly raised earlier about where rail actually sits

in the wider supply or transport chain. So my understanding is, you know, stuff comes in through the ports, then it gets loaded onto rails, and basically if it's heading to you know, the other side of the country or the interior, it's going to have to travel through rail, and it's probably going to have to travel through a limited number of hubs like Chicago and you know, maybe Kansas or

Memphis or something like that. So I guess my question is, you know, where does rail sit in the broader supply chain? But also are there always going to be choke points of some sort given that goods have to travel through a limited number of hubs. So let's talk about So right now we're just talking about this, this intermodal traffic, this container traffic, and I think we need to take a step back and look at rail's role in the

kind of the overarching economy. And it's important to remember that that rail is moving the goods economy, the tangible economy. So whether it's industrial products, whether it's agriculture products of all kinds, whether it's chemicals, whether it's automotive automobiles, rail news about finished automobiles, not to mention very high percentage of a lot of the components to go into automotives

during the during the manufacturing process. Of course, going back to the challenges we're seen in the semi conductor area, they're impacting that and then intermodal covers. At this point, probably about half of rail traffic UM. That has changed over the years. Coal used to amount for approximately of all rail traffic. I would say, you know, societal shifts, market shifts have dramatically reduced that. But what we've what we've grown in place of that is this explosive growth

in in consumer goods and container traffic. So railroads are are managing all of those different types of UH of products that they're moving through their pipelines at any given time, and those different types of products need to be moved at different levels of pace based on customer demands. So there are certain commodities that that can move at a more measured pace, but your your premium products, or your innomodal traffic, your your UPS traffic. UPS is the largest

customer for the rail industry at large UM. That stuff needs to move very quickly, and so railroads have designed their networks to to allow for the staggering of different, different speed of traffic that's required to meet customers needs.

And so you hit on, you know, the relatively limited number of major gateways that that rail traffic needs to flow to, and I would say that's what we're primary talking about, that traffic that again comes from the West coast and needs to disperse in the middle of the country. And so you mentioned Chicago, we talked about Kansas City, Memphis, New Orleans, St. Louis. Those are the main ones that

come to mind. I can tell you that that our railroads have built out over the years very efficient systems that allow for a very speedy movement of goods from

the West coast into these gateways. And they're designed as such because those gateways are the ones that have the terminal capacity to to sort, shift and rebuild trains as needed to hand off to the eastern partners or you know, we're we're not even talking about the East coast, but we have a similar situation, uh inverse situation coming from the East coast going going western into the heartland as well.

But I can tell you that these networks have been designed in a very methodical and very intentional way to allow for a very efficient movement of interline traffic into the middle of the country where it can then get dispersed as needed um to its final destination. So obviously we are in the middle of some sort of negotiations going on in Washington, d C. Although they seem to be very muddled right now about that's a kind way of putting it, to put it, to put it mildly

about infrastructure and rail and theory. And I'm sure is you're hoping for is a part of that. It's it's it's it's interesting timing because we're talking about constraints on the economy due to supply side disruption, and every form of transportation of goods is experiencing bottlenecks and so forth.

What more could be done? You know, obviously, I'm sure your industry would like a plenty of money to build out rail systems, but from a realistic, uh standpoint, what more could be done in a more functional political system to build out rail side capacity in a way that

would be productive for the nation. So, Joe, I'm really glad you you brought up the investment side of things, in the infrastructure side of things, because one one fact that a lot of people don't necessarily realize is that our freight rail system is almost entirely privately owned and

financed in the US. So what does that mean. That means our railroads are investing about twenty five billion dollars of their own cash back into their networks every year, which has resulted in and this isn't me talking, this is this is others. This is straight up fact. We have the freight rail system that's the en via the rest of the world. It's the most efficient, safest, most advanced rail system, freight rail system in the in the

entire world. And so you juxtapose that against um the other types of infrastructure, other types of surface transportation infrastructure we have in this country, you know, the the interstate highway system, which is at this point at least fift subsidized by by general taxpayer funds. I think we've hit about a hundred forty billion dollars in general fund transfers to support that, a system that was historically supported by by user fees, a lot of gas tax and other fees.

We've gotten away from that. We need to get back to that. Users of infrastructure need to pay for that. You look at our ports again, largely publicly funded, I would argue, I would bet that the folks you've talked to in the port industry would say dramatically underfunded. Their significant investment needed there to increase efficiency, make use of technology to allow for a more efficient throughput of goods, and so Rail. When we look at infrastructure legislation, we

take a little bit of a different point of view. Yes, agree that we need robust public investment into the nation's public infrastructure because if rail is gonna function, we're seeing this right now, If rail is gonna function at its highest level, we need a healthy integrated supply chain, a healthy integrated transportation network. So that includes sports, that includes translate facilities, that includes are high ways. Again, we'd love for our chucking partners to have to pay for the

infrastructure they operate over. But you know that that's probably

a debate for another day. But Rail is looking at infrastructure legislation more as a vehicle to take advantage of our environmental performance, take advantage of our safety performance, take advantage of our inherently efficient operations, and really making sure that we create a framework, whether it's a legislative framework, or a regulatory framework that allows rail to one earn the revenues necessary to invest back into the system to

meet current demand and future demand, because freight demand is only going to grow in this country. But two also allows us to innovate our operating models, to deploy new technologies to create an even more efficient system with the infrastructure we have, while also maximizing safety. And so to your to your second the second part of your question, what can rail do in a We have a hundred and forty seven thousand miles of rail infrastructure in the country.

I don't think it's any secret that standing up a massive new freight railroad is probably uh not something you should expect anytime soon, given the challenges and getting right of way, etcetera. But railroads can make the investment within the right of way to maximize throughputs. So what does that mean? That that means adding second, third, in some instances even fourth lines of of rail on the rights

of way. It means extending sidings to allow for temporary parking of trains to allow those premium trains that need to get through the space they need to get through. It means investing in our intermodal yards to to deploy new technologies increase automation that allows for a safer, more efficient throughput of goods. So between technologies, between maximizing the infrastructure we have and expanding within our our rights of way, you know, we have the ability to move the amount

of traffic that's demanded. And quite frankly, all of our railroads are looking to grow the volumes that we're moving because it's good for good for the highways, it's good for the public, it's good for the environment, and it's good for business. So you know, that's the focus right now. So in the interim when um, you know it is very crowded on the railways, there's all this congestion. People are trying to manage it as best as they can. Um,

how do the rail companies actually a portion capacity? So one thing we learned from our shipping episodes is that like, it doesn't necessarily come down to whoever is willing to pay the highest rate. It might come down to connections or whether or not you're a big customer like a Walmart or an Ikea or something like that of a

shipping company. And I'm wondering if it's a similar deal when it comes to rail So you know, I can't speak for each individual railroads marketing or decision making for how it determines which traffic is going to move, but I think overall the system is designed to to move the most traffic in the least amount of time, with an emphasis put on that track fix that is paying for this premium more just in time type service. Again,

you know, there are their industrial products. You know, gravel for example, does not normally need to move at the same pace as a train full of ups packages, and so the system needs to be designed to meet those customers needs or they're going to look elsewhere to move their goods and that's the last thing we want as our industry. And so again I would just I would have to point to each individual railroad and how they

manage that process. But at a at a macro level, that's that's how things get from point at point B. So you mentioned the possibility of customers moving elsewhere. Is that something that you've seen over the past year or two. Um, you know, given the situation, are there some people who just don't want to wait for railway capacity to get freed up and maybe they switched to something like trucking well, so I think the intermodal freight market by its very nature,

by its very name, it is hyper hyper competitive. You know. That is that that traffic that can flow on either trucks or can flow on trains, and whether it's coming out of the ports or domestically between points in the US, you know, the customer is very real options and it could be you know, it could be rail to rail competition, it could be rail to truck competition, it could be choosing the you know, potentially the port you want to go into to to use a different type of a

different form of transportation as well. And so absolutely, if if a railroad isn't providing good service, you know that

business is going to go elsewhere. And when you look at the fact that rail has grown its intermodal offerings to again about fift of overall rail traffic in today's mix, that shows you that rail is doing a continuously better job at providing a product that is appealing to to that customer that that has a wide variety of options again, whether it's another railroad, whether it's any number of trucking companies out there, and so railroads have done a good

job in getting much more predictable in their deliveries, decreasing the time it takes to make a delivery, and really shrinking the distance where rail can be viable. I think the general cut off used to be a goods movement had to be at a minimum five hundred miles in order for for rail to to ever be competitive. And I can tell you there are many instances around the country where due to operational changes, due to increased efficiency, rail can compete down south of that fund five mile

number UM, sometimes significantly down south. And again that's just that's just the class one railroads. We have several hundred regional and what are known as short line railroads around the country as well, and on any given they they are, they're out there working to to win traffic over as well. So the freight mar market is UH is vibrant and hot, and freight's gonna go where the price is right and where the services. I wanna pivot just a little bit,

you know. And Tracy and I started UM this series. Obviously the context was pandemic related disruptions, and of course that is still the overarching context, and basically everyone has

been affected. Another phenomenon this year that certainly hasn't helped has been the rise of extreme weather, and whether it's associated with specific climate change or not doesn't change the fact that, you know, numerous stories have been written about rail lines being affected by whether it's flooding, the fires in California and so forth, fires in Canada, lingering effects

from the hurricanes Hurricane Ida. I'm curious, like how much you think, how much of you're thinking about the future of the industry is based on anticipation of more extreme weather events, and how you're thinking about mitigating against some

of those effects. Oh. Absolutely, I mean, you're you're spot on with with everything you just hit on in the impacts it's had on rail operations, whether the Western fires specifically in certain parts of California, the Gulf Coast again, you know, it's it's almost predictable that they're going to be extreme weather events every year at this point, and in rail you know, we we've got to adjust for that. So you can do that a variety of different ways.

You can do that by making your infrastructure more resilient. And so what does that mean. It means in low lying areas and the Gulf you're probably increasing the height of the rail, increasing the ballast so that you can withstand a decent amount of standing water. You know, out west with the fires, it's a little bit of a trickier situation, but a lot of it is having alternative

routing plans in place. It's having partnerships in place that allow you if you're if your line is damaged via via fire, you have interline agreements or interchange agreements with other railroads that allow you to temper rarely move your goods over their tracks and vice versa. I know, one of our biggest railroads out west had a bridge burned

down on it's one of its main lines. And while they were able to miraculously rebuild the bridge and I believe three weeks and have it back up and running, which is a stunning feed of engineering in and of itself, goods had to keep moving during that time. So alternate

arrangements have to be made. And so I can tell you that it is absolutely called it climate change, called you know, anticipated increased number of extreme weather events, absolutely being built into strategic planning, absolutely being built into how we're maintaining our infrastructure, how we're planning our our networks. And it's just a reality that we're all going to

have to contend with. Now, I suppose on the positive side, if we're looking to address climate change, rails environmental performance far exceeds any other form of service insptation when it comes to admissions, uh, when it comes to fuel use, it um when it comes to overall environmental impact. And so you know, our customers are cognizant of that Rail can play a role in helping customers meet their overall

environmental targets or emissions targets. But Rail, all the Class one railroads have all committed to significantly reducing their emissions as well over the next several years and are using a variety of technologies to decrease fuel use. It's decrease emissions. We're exploring the use of battery electric locomotives, use of

hydrogen locomotives, biofuels, renewable fuels, um all. You know, it's kind of an all hands on deck because we're going to play a role in helping reduce the countries or those globes emissions and helping our customers reduce emissions, which you know, to come full circle hopefully, if if society can can achieve the overall goals. Maybe we can make a make an impact in on the extreme weather side as well, but in the meantime, resiliency is absolutely key.

I have a slightly weird question, but is there any way that extreme weather and specifically drought might actually UM benefit rail. And the reason I'm asking is because I remember reading one story UM that said Valet was transporting more iron ore by rail because of lower river levels. So I'm wondering if if there are situations where it could be a good thing for for the rail business.

So I will say that rail is generally the most resilient form of transportation when it comes to extreme weather events. Maybe you know the infrastructure burning down notwithstanding, but you know, after a hurricane, for example, rail is usually the first form of of infrastructure backup in operation. UM after Hurricane Katrina, and a rail for quite some time was the only way to get goods into the New Orleans region. And

so I would say that is all very temporary. Now when you're talking about you know, moving more iron because water levels have gotten low, we have the ability to to get up and running more quickly than most and we'll take advantage of that. But you know, in the example, you brought up. I could see a situation where we're providing better service, maybe we're providing a better rate, and um,

you end up winning business out of that shirt. A lot of people maybe they don't pay attention to how the business of rail has done, but it's actually done like phenomenally well. And if you already just go on the Bloomberg terminal right now and you were to pull up a chart of you say Union Pacific and zoom it out, it looks like an Internet stock. I mean, it's just over the last years or whatever. It's incredible.

And I think that's the case with a number of these for people who don't know what the story is. And I would admit when I say people who don't know, I include that myself. But I pretend that I don't what is this story? Like? Why is it? You know, twenty years ago rail is not thought to be like this particularly exciting booming business and years later they just haded just these like massive, massive industry success stories that have made investors a ton of money. So I'll do

you one better. I want to only go twenty years ago. I'll go back forty years even even one. So in nineteen eighty what's known as the Staggers Rail Act took what was a highly regulated, highly heavy handed government federal government interventionist regulatory regime and partially deregulated the rail industry. And at the time, at that time, approximately twenty five of railroads were interfacing bankruptcy. The infrastructure was in decrepit shape.

The industry quite frankly, was on the verge of collapse overall, literally. And so what what the Staggers Act did. It freed up railroads to to operate in markets, to charge market rates, to rationalize their networks. In other words, that the government used to force railroads to operate networks, whether the partner lines, whether there was traffic moving on it or not, whether there was any ability to ever earn any sort of return on your investment or profit based on that particular line.

And the Staggers Act bit freed railroads to act as as normal companies in markets. And what that did is a few different things. One, it allowed them that efficiency increased dramatically. Prices actually dropped dramatically. Today when adjusted for inflation, rail rates writ large or about forty less than they were in nineteen eighty, and revenues increased and so it took about twenty years for rail to really hit its stride.

So when you're when you're using that twenty number, I would say, you know, it took about twenty years for for rail to to really start to realize the benefits of staggers. And in the past twenty years Rail has been able to to really spring forward in a very positive way. So you know, we're moving colossal amounts of goods, we're doing it in a very efficient manner, we're maintaining our own infrastructure, and we're charging rates that are dramatically

less than they were before the regulation. So on rates, and this is something that I find to be an important thing to learn about with every one of these discussions, which is market power. And you know, we talked about trucking, and I think I forget the stat exactly, but something like you know, in the trucking world, by the time you start a podcast and finish the recording, like ten tho new trucking companies have been formed in that hour

or that. That's only a slight exaggeration. And so there is not a lot of especially during the busts, there is not a lot of pricing power. Then you get the massive bankruptcy ways. You know, I'm looking at this chart here someone sent to me a company like Norfolk Southern. Is the consolidation seven companies event over time became what is currently known as Norfolk Southern Union Pacific. It looks like it's like thirteen different companies. Over time, various mergers

became what is now known as Union Pacific. Why has it been the case such that over the last forty or fifty years, despite this massive consolidation we've you would not expect to see more competitive pricing. You would expect the handful of big rail players Norfolk Southern, CSX, Union Pacific and bing An SF to enjoy incredible pricing power because competition is very alive, real and well, um, you know you mentioned some of the mergers that created some

of the bigger railroads today. Well, a lot of that is there were too many railroads back you know, several decades ago. There were too many for for the economy to to support. And so by by the mergers and acquisitions that have historically occurred, you've you've allowed rail too. You have your you know, your your primary rail lines throughout the country again that have been made much more

efficient infrastructures dramatically improved over the years. But then you have this entire economy of regional and short line railroads that are called, for lack of a better term, the feeder railroads to to the bigger guys. And so you've the the economy and the regulatory structure has allowed for rail to to rationalize itself, which is inherently you have a smaller number of very large carriers, a significantly higher number of regional and smaller carriers that all can that

can all excel at what they do. And so rail rail competition is very real, very live and well. Intermodal competition, as we've discussed, is even more alive and well. But there are other types of competition, whether it's a geocratic geographic competition, a company choosing to to cite a facility

one place over the other, product competition. No better example of product competition than natural gas almost entirely replacing coal as a fuel source or not that's an overstatement, but dramatically eating into two coal share being a fuel source.

And so all of those issues have allowed for the market to maintain itself in a very healthy way, and on top of that, as a backstop we have we have an economic regulator, the Surface Transportation Board, which is a backstop for shippers who feel that they may not be being charged reasonable rates and they can appeal to the Surface Transportation Board, who's an adjudicator there. So you do have that regulatory backstop that is a an outlet for for shippers that do have concerns about about the

rates are being charged. So overall, that's created a very healthy ecosystem. And i'll just point out your your your comment about you know, the number of trucking companies going in and out of business at any other any time. You know, one thing I'm really proud of over the pandemic is that because of the healthy capitalization of our companies, we were fortunate that we did not have to go to Capitol Hill to ask for any sort of bailout.

Are our members wrote it out on their own. And uh, you know, our traffic, we didn't have the drop in traffic that our our airline friends did, for example, but we still about a thirty percent drop in traffic at the at the trough um during the pandemic. And it is that that history and that that ecosystem that we've discussed that allowed rail to to ride it out with without getting that that financial aid from the government. So I want to go back to where we started the

conversation with the congestion issues. What's your sense of how long this might actually go on for and what's it going to take to get an improvement. Based on comments that some of our executives have made, and certainly folks in other parts of the supply chain, I think most folks think that these volumes or some of these constraints will last into the new year, potentially through Q one, if not into Q two. And that's again just based on public comments i've seen. How are we going to

get out of this. We're going to get out of it by every part of the supply chain operating at a high level of efficiency and a high level of optimization. And so again I talked about Rails seven way of doing business. Um, the ports don't operate like that now. I did see news recently that some of the West Coast ports are going to be expanding hours m for for longshoreman shifts, are gonna be expanding hours for truck pickup,

which is a good sign. It's a good step forward, and we'll we'll see what sort of impact that has on the on the other side of the supply chain. This this last mile delivery. As we talked about the shippers getting their goods out of the intermodal yards to allow for for throughput to continue, you know that that might be a much trickier issue because as it's a very localized challenge as far as drage trucker availability, as

far as warehouse capacity warehouse worker. You go out to Chicago Land right now, the millions of square feet of warehouses, practically every one of them has a four higher sign. You go to some of those warehouses which are completely full and they're storing containers on chassiss in their parking lots. So what what's the problem with that, Well, that's taking up a chassis that could be brought back to the innermodal yard, picking up another container and getting it out

of the yard. So until we can work through some of these issues and smaller parts of the supply chain, I think, you know, it's going to be a challenge for us to hit max capacity and max efficiency, and it's something we need to do because you know, on the bright side, the economy, the consumer continues to seem to have cash to spend, and you know, hopefully we can keep this strong demand going for a while. We just need to be able to support it as a

as an overall supply chain and as an economy. Can you talk a little bit about hiring right now at at the rail companies? I mean, every industry seems to be having trouble hiring. Rail jobs I think are considered to be pretty good jobs. Union jobs. They seem to be less physically taxing, less stressful on families than say, truck truck driving jobs, which sounds extremely difficult from a lifestyle perspective. Can you talk about a bit about where

the industry is in terms of its staff and goals? Sure? So, one you you hit on a few key points. We are almost an entirely collectively bargained industry and have very productive work in relationships with our unions. Average wages and compensation for a rail worker or roughly one dollars, So these are these are very good paying jobs in the in the manufacturing slash industrial sector specifically. Um that's why

you have more multi generations working in rail. There are areas where railroads are looking to hire, and there are areas where you know where staffing levels are or where we want them to be. And yeah, I mean you hit the nail on the head that I think every industry is trying to bring people on board right now, and and railroading, Look, it's a challenging job. It's a seven operation, it's a hundred forty forty seven thousand mile outdoor factory floor. Um, so it takes a certain type

of person who has that interest. But I think on the bright side, we've seen once people get into the industry, they stay in the industry because it is it's a it's a highly compensating industry. You see what you're doing, it's very tangible. You're literally moving the economy. And so while there may be some temporary challenges and pockets around

the country, you know we'll work through that. And railroads and railroading always has been and always will be a really good place to work in a place where somebody can earn a living and support their family. And so that attraction at the end of the day is going to be what keeps us having the high quality people

we have out on the railroad. You know, you're thinking about disruption, and there are people who fantasize and more than just fantasized are actively working on the idea of one day fleets of self driving trucks, and of course self driving trucks would be more efficient than normal trucks and presumably could have a lot of competitiveness with rail itself. What's your thoughts sort of like out there technologies twenty that I don't know, maybe ten twenty years from now? Uh,

do you keep tabs on these? Do you worry about them? Could that be something that in the medium to long term of the industry is a becomes a meaningful threat. Oh, it's absolutely competitive issue. I think you know, they're almost as many autonomous trucking companies that start up every every day as other trucking companies. But look that that is a huge focus. Um, you're seeing progress in the trucking industry.

It's not going to happen tomorrow, but it is. It is something that's mid term, I would say, and railroad's got to compete with that. Now, when you think about autonomous technology, railroads operate on a fixed guideway and a largely closed network. You know, a truck on the highways

interacting with motorists at every direction. A railroad other than you know, going across UH at Great Crossings is really not interacting with the public, and so to US, rail is a very natural place for automated technologies, and we just at the end of last year recently completed a nationwide build out of a technology called positive train Control, which really is an automated system that that will override the the engineer um if he or she breaks work rules,

that will automatically stop the train for for overspeed or incursion into to work areas. Things along those lines. We've also been deploying technology that acts as almost a cruise control or fuel management system on the locomotive as well,

so it's maximizing the fuel efficiency throughout the trip. And so you pair that with the number of other either on train or on track technologies that Rail has deployed or is deploying, and we're at a position where you know, the train is moving in a highly automated state already, and so we're fully prepared to engage in that battle.

The important thing for US is that we need the federal government, whether it's the legislature or whether it's the Department of Transportation, to allow trucking and rail to operate on equal footing. When it comes to technology deployment, automated technologies, etcetera. And you can imagine, you know, we have some folks who have a vested interest in making sure that the number of employees on a on a train is held

constant regardless of the technological advancements. And we think there needs to be some flexibility there because technology is only moving forward, not only in the rail and trucking industry, in every industry around the economy, and we need regulations and rule is that allow for that to happen, because not only are their business benefits there dramatic safety benefits as well, and that should be the focus of everybody.

Ian Jefferies, thank you so much for coming on. I learned a ton about the real industry from you and really appreciate you coming on outline. Thank you for having me. I really enjoyed it. Thanks you sure, Yeah, that was fun. Thanks you so. Tracy, you asked, well, you know what was probably like the most important question, which is like, okay, when is this all going to ease? And you know we've been asking, we've been asking some version of that

question out for like six months. I would say, if not longer, Yeah, I feel like everyone is sort of settling on this after the lunar New Year kind of idea, like that seems to be the consensus, like after early next year, hopefully things will start to ease. So I guess we should like mark that in our diaries that if if things don't seem to be improving shortly after early February, then uh, we may have these problems for a long while. Yeah, let's mark that down as as

a point where we could hope. But on the other hand, like by and large, and every once in a while, I was like, there have been these tentative signs of easing, like there will be like a week where like the prices of shipping rates go down or the number of ships waiting in the l A Harbor go down, But by and large, things keep getting worse. And it's just so clear that like all of these different industries which

intersect are compounding and lineately. Ian talked about sort of like the wait times that exist for the Royal Yards in Chicago, and that sounded so much like some of the things that Jeans Tarrocco was saying about some of their issues with getting the actual car containers back to ships in l A I just don't feel like I do think things will ease at some point, but I've like becoming more pessimistic. I guess I would say that there's like any sort of like natural mechanism for it

to ease, because it's also like inter interlocked. Yeah, I mean,

well Ian touched on this as well. You get this sort of cascade effect, so you know, even talking about like one problem in one rail system is going to end up or in one part of the railway system is going to end up affecting all of it, but then a problem on the rail system itself is going to end up affecting what's going on at the ports or the barges um like Jeans spoke about earlier this summer, there's something also interesting about rails, and of course in

is biased, but there's something interesting about rail as an industry that sort of seems to work very well from a sort of like public goods perspective, Like, okay, rail shareholders have done very well. We know that you look at the stocks. Rail employees seem to be doing well. It's a heavily unionized industry with a high level of pay. Rail customers seem to be doing well because despite the consolidation in the industry from dozens of different rail lines

to really just four big national rail lines. According to Ian, you know, pricing power remains competitive. I feel like there're like must be some some lesson in there from like a regulatory perspective about how you can have an industry that I don't know, like it kind of seems like the various stakeholders of this customers, employees, and shareholders all seem to be doing well, and I'm trying to figure

out what the catches. I'm sure there is one. I'm trying to compare and contrast the U S rail system with like the rail system in the UK, which maybe we should do a UK rail system episode at some point. Do you know I used to cover rail for Bloomberg in uh in London? I probably I think no, I thought I only knew you covered airlines. Yeah, I covered

all transport. I did airlines, airports, cars and rail. But anyway, um, maybe we should do maybe we should branch out from our transport series and start doing transport around the world, not just different modes of transport, but you know rail in the US versus rail in the UK. Actually, you know, we really need to do soon is a European power episode. Yeah,

let's do it. That's a good one. It's serious because it's like I keep reading about all this, like if the wind isn't blowing a natural gas prices, so let's get that on the agenda too. Yeah, let's do it. Okay, Um, shall we leave it there? Let's leave it there? All right? This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthal. You can follow me on Twitter at the Stalwart. Follow our producer on Twitter,

Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg head of podcast, Francesca Levi at Francesca Today, and check out all of our podcast at Bloomberg under the handle at podcasts. Thanks for listening.