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Employment at the U.S. operations of Class I railroads fell to its lowest level in years in December 2019, according to the latest data released by the Surface Transportation Board.
Those operations employed 131,486 workers in December, an 11% drop from December 2018 and a 1.3% decline from November 2019. December’s total is the lowest not only for 2019 but since January 2012, the earliest date for which FreightWaves has data available.
The headcount for train and engine employees also fell in December. The total of 54,133 is 14% lower than December 2018 and 0.92% lower than November 2019. December’s total is also the lowest for the train and engine category for 2019 and since January 2012. The category of train and engine (T&E) employees tends to be sensitive to market demands for rail service. As T&E headcount levels were down, U.S. rail traffic in December slipped 9.4% to 1.9 million carloads and intermodal units, according to the Association of American Railroads.
The drop in employment levels comes amid the railroads’ deployment of precision scheduled railroading (PSR), a model that seeks to streamline operations. PSR may have caused the railroads to reorganize their labor forces. The railroads also tend to lower employment levels in winter.
“Our lower headcount and work hours [in the fourth quarter] are the result of train consolidations, reducing crew starts, hours worked, overtime recrews and deadheads, along with mechanical reductions due to a smaller fleet and some optimization of certain G&A [general and administrative] functions,” said Mike Upchurch, chief financial officer for Kansas City Southern (NYSE: KSU), during his fourth-quarter earnings call last week.
One question that Class I rail executives will likely be addressing is whether they plan to reduce headcount even further in 2020 as the railroads strive for additional efficiency gains under PSR. But some industry observers question whether the railroads will have enough resources and manpower available should rail volumes bounce back.
“Headcount reductions in a down volume environment have helped hold profits relatively steady by increasing margins against down revenues, but also carry the risk of coming up short on the people side of the capacity equation when volume growth inevitably returns,” said Susquehanna Financial Group transportation analyst Bascome Majors in a Jan. 22 research note.
The railroads so far have sought to reassure investors that they’ll have the resources available to meet any growth in rail volumes.
“Our focus is on labor cost not just headcount reduction. We’ve made a significant reduction in the labor costs and not just targeting heads. So we’ll continue to look for ways to reduce our labor costs…as we did in this quarter and as we’ll do in every quarter that we have to manage the company,” said Jim Foote, CEO for CSX (NASDAQ: CSX), during his company’s fourth-quarter earnings call last week.
Said Kevin Boone, CSX’s chief financial officer, “We’ll continue to focus on managing attrition. There’s a process here where we look at every job that comes available and ask ourselves given the model whether that job is necessary. So we’ll continue to evaluate those. With the lower volume, there’s opportunities on the operating side that we’ll find … . It’s about the overtime which we saw some great success [during the] the fourth quarter. We have big targets next year to continue to drive the overtime down as well. So it’s across the board on the labor savings.”
This article first appeared on www.freightwaves.com
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