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Despite steady profits, railroads have laid off thousands — and more cuts are likely on the way

August 28, 2017 GMT

America’s railroads are going through a round of job cuts — 25,000 in recent years, with more likely to come — aimed at efficiency and controlling future costs.

It’s a familiar pattern for an industry that once was highly labor-intensive and has become more automated, with added computer-driven changes in the works that could reduce employment further.

Union Pacific Railroad’s decision last week to trim 750 positions, mainly at its Omaha headquarters, follows similar force reductions by the other major freight rail systems.

Altogether, the six largest of the seven Class I railroads have shed about 25,000 jobs in recent years, or about 13 percent of their workforce.

Kansas City Southern, the smallest of the Class I railroads, has added about 800 jobs in recent years.SOURCE: Company filings with the U.S. Securities and Exchange CommissionRailroad20142017

The job-cutting leaders are BNSF Railway, based in Texas, and Florida-based CSX, each trimming about 7,000 jobs since 2014.

BNSF spokeswoman Amy Casas said the railroad’s payroll is determined “by our customer freight transportation demands,” and the reductions have come mostly through salaried retirees who have not been replaced.

“We do have hiring plans this year in locations where the level of work requires it,” Casas said.

Warren Buffett-led Berkshire Hathaway bought BNSF in 2009 for about $26 billion.

Union Pacific, despite the newly announced job cuts under a corporate reorganization, also is hiring some workers, staffing its new computer center at 90th and Fort Streets in Omaha plus train crews and diesel electricians at several locations on its 32,000-mile network.

The job cuts aren’t coming in the face of sagging profits. In fact, annual profits for all but the smallest of the seven also never dipped far below $1.5 billion apiece during that period. The biggest — Union Pacific and BNSF — never failed to earn at least $3.8 billion a year each, and BNSF is now the largest earner among Berkshire’s collection of dozens of businesses.

Shareholders also have prospered.

Six of the seven are publicly traded (BNSF is not), and half outpaced the 74 percent gain in the same period by the overall stock market as reflected in the Standard & Poor’s 500 index. Union Pacific came very close, with shares climbing about 70 percent since 2013.

Management decisions to cut jobs may make investors happy, but such decisions put the railroads at odds with the unions that represent workers. At CSX, the man in charge is Chief Executive Hunter Harrison, a veteran railroader who engineered massive turnarounds at north-of-the-border freight haulers Canadian Pacific and Canadian National.

“The industry is reacting to the Hunter Harrison cut-at-all-costs model and doing this to appease the Wall Street money machine, whose demand for profits is insatiable,” said John Risch, legislative director for the Sheet Metal, Air and Rail Transportation union, which represents about 90,000 rail workers.

At the same time, automation is looming.

Ron Kaminkow, general secretary of Railroad Workers United, said one upcoming change could mean reducing crews on freight trains from two people to one: a federal requirement that trains become equipped with an advanced telecommunications array that can stop or slow them remotely in case of danger.

The system, called Positive Train Control, is expected to come at a final cost of more than $10 billion industrywide.

“They have kicked and screamed at every turn,” Kaminkow said of the industry’s opposition to the system. “And they are for sure going to be as opportunistic as possible once they have it, saying they won’t need a second crew member. It is only a question of time before they go full throttle on us over that.”

Another threat to railroad jobs is hiring outside companies to do work once reserved for union members, Kaminkow said, with the companies pushing those boundaries on a regular basis.

One such case is being disputed now in U.S. District Court in Omaha.

The Brotherhood of Maintenance of Way Employees filed a lawsuit in June saying Union Pacific has used outside workers to perform tasks reserved for its members under the labor contract. Union Pacific in court filings described the dispute as minor, and one that should be settled by an industry arbitration panel, not a federal court.

Another issue: a rebound in freight volumes, after almost two years of declines that ended only in March.

So far this year total volumes are up 4 percent from a year ago, leading to a question: How much work can the slimmed-down railroad labor force handle?

CSX recently has suffered enormous network snafus and customer rage.

Last month the federal Surface Transportation Board sent a letter to the company asking for more information on unpredictable schedules and other network problems that “have forced a number of rail shippers and their customers” to curtail production, according to the document.

“They do need to always be aware of the possibility of cutting too much or too fast, and that certainly seems to be the case at CSX,” said Larry Gross, an industry analyst with FTR Transportation Intelligence. “Operations have been disrupted due to the pace of change, and customers are frustrated by their inability to actually reach a human being at CSX in order to work out their problems.”

russell.hubbard@owh.com, 402-444-3133