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Cheap at Twice the Price

That being said, I am the luckiest person I know. I’ve been the luckiest person I know ever since a storm drove me to seek shelter in Northwestern Station and I stumbled, literally, into the line for employment with the railroad.

After dazzling the employment personnel with my ability to remember my birthday and the spelling of my last name (I cheated, having written the date and the letters on my palm while waiting), I was hired.

I was hired for the princely sum of $5.07 per hour and was I ever happy. Sure beat the hell out of $3.18 I was paid for working in the coke ovens at Great Lakes Steel on Zug (rhymes with Ugh) Island. You ever work a coke oven? No? Remind me to tell you about the time my “fire retardant” (finest grade asbestos) jacket burst into flames when I put my shoulder a bit too close to the inside of the oven. What a hoot.

Anyway, $5.07 an hour plus medical insurance and 90 percent of what I had to do for that was to show up and not get myself or anyone else killed.

I couldn’t work enough. Wait by the phone? Not a problem? Don’t drink or do drugs when subject to call? Piece of cake. Too easy to get yourself killed straight, much less high.

I felt lucky then at five bucks an hour, and I felt lucky when I was, in theory, being compensated at fifty-five bucks an hour, based on a purely theoretical forty-hour week, which was a little less than two-thirds of the actual hours, not including phone calls to/from me at home.

The work was never, at any of the stations between brakeman and superintendent, anything less than demanding, and that was fine with me. The work was demanding but I was and am lucky, because most of the people in this world have to work hard, harder than I had to, and don’t have much to show for it at the end. I have my health, my health insurance, my pension, my children’s health and education, and my grandchildren. Lucky with a double L.

I thought then and think now that there are a lot of reasons I was paid what I was paid, but most of them have to do with what the operating crews were paid, even when they made more than me. So I’m the first not to begrudge the gains the organizations have made over the years and in particular this last round, because, besides my enlightened self-interest, those gains have been paid for and more by overall force reductions and improvements in productivity.

I’m convinced that railroad labor isn’t expensive, it’s a bargain I’m convinced railroad labor costs are better than a bargain, they are a downright steal. And I think railroad management has to recognize the bargain it gets, and adjust its scheduling, staffing, and service requirements to enhance the ability of this bargain resource to do what it has done over the last forty years—deliver the goods.

You want to know how cheap railroad operating crew labor is? So did I. So I went to the Bureau of Transportation Statistics, Fiftieth Anniversary Edition, National Transportation Statistics, 2021 (DOT, Volpe Center).

Now the secret to my success was not luck, it was being good…at basic math. As stated before elsewhere, the raw numbers come from BTS, but the calculations, extrapolations, exposition are mine, so obviously my fifth-grade teacher again bears responsibility for any errors. She was a very kind woman, too kind to have to put up with a ten-year old me, so it’s only right that I take advantage of that kindness at least one more time.

What makes me say railroad labor is a bargain? Well, it’s all in relation and in this business it’s the relation of speed--how fast those costs can be offset, matched or recovered as or by the revenue being produced.

We begin with BTS table 3-21: Average Freight Revenue Per Ton-mile (current cents). For 2019, Class 1 revenues per ton-mile averaged 4.42 cents.

Then we will go to table 1-50: US Ton-Miles of Freight (Millions) and table 1-35: Vehicle-Miles (Millions) where we will find that railroad freight ton-miles in 2019 measured 1,614,498 million or 1.6145 trillion ton-miles, and by dividing freight car ton-miles by freight train ton-miles, we determine that on average each freight train hauls 72 cars with a trailing weight of approximately 3625 tons.

So we now have our average freight train of 72 cars, 3625 tons, with an average crew of “1 + 1,” one engineer and one conductor.

Now we add some information from outside the BTS. We know that the average freight train speed is somewhere close to 23 miles per hour. And we add wages, including fringe for our average crew. Various sources estimate the average hourly wage for locomotive engineers in a range between $35 and $58, not including fringe.

We’ll use the high number.

Fringe adds 30-35 percent to the basic wage, and we’ll equate the wage of conductors and engineers. So ($58 x 2) +35 percent = $156.60 per crew hour.

So let’s move our train, ignoring initial terminal delay and final terminal delay.

In one hour the train generates (23 miles) x (3625 tons) x ($.0442) or $3685 of revenue, approximately 23 times the costs of the crew hour. To put it another way, the crew cost amounts to less than three minutes of each hour of train operation.

Now this isn’t profit, it is revenue. Still crew costs are minimal. It’s certainly a fact that the intense capital investment in locomotives, equipment, tracks, signals is the reason hourly crew costs are so relatively modest.

It’s also a fact that maintaining a railroad is an expensive project. Again, that’s not because of the cost of labor, but due to the investment necessary to make that labor productive, efficient, and safe.

What? I left out yard costs? Switching costs? Coming right up.

Take a small classification yard, one that dispatches 1100 cars a day. The yard requires 24 hour operation, utilizing 5 hump crews, and 5 pullout crews. Now we’re dispatching 1100 cars weighing a total of 55, 382.2 tons with 15 road crews and 10 yard crews.

In 1 hour the 15 trains produce (23 x .0442 x 55,382.2) or $56301.54 in revenue. Yard crew costs are (10 x 24 [we have to include the 24 hours of time the yard spends in this activity] x 156.60) or $37584; road crew costs (15 x 156.60) or $2349.

You make your money on the road and you spend it in the yard.

Even so, in 45 minutes the fleet of dispatchments recovers the full day’s crew costs of the yard operation, and the first hour of road crew costs. After that, yard costs disappear…until you get to the next yard.

My point? That with this much capital investment providing for this much make-up and movement, facilitating this much productivity of labor, attacking crew operating costs becomes destructive, rather than constructive, to good asset utilization, and will defeat productivity.

Work will simply not get done.

So we have to find a better way.

Or not.

We can do it the hedge-fund way, and liquidate assets and drain cash into executive salaries and stock buybacks until there’s nothing left but the ballast.

The BTS review also provides measures of the challenges and trends that confront the railroad. As soon as I brush-up on my sixth grade math skills, I’ll be happy to explore those.

Labor costs aren’t one of those challenges. “Cheap at twice the price” sums that up.

David Schanoes

September 19, 2022

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dmschanoes@ten90solutions.com