September 25, 2022

Labor shortages have affected the operations of companies such as Union Pacific.

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David McNew/Getty Images

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Following Thursday’s temporary labor deal between freight railroads and train crew unions, rail stocks eased on Friday – but not by more than the overall market.

Friday’s threat of a strike that would have disabled 30% of US freight traffic has drawn President Joe Biden and several cabinet members into talks. A strike has been averted—at least until we see whether the rank-and-file accepts the deal.

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Many fans of railroad stocks on Wall Street now predict that wage and work rule improvements in the new contract will help railroads better retain workers. Labor shortages have plagued the operations of companies such as Union Pacific (ticker: UNP).

Shares of Norfolk Southern (NSC) have hit the S&P 500 . ended the week with a nearly 5% decline in,
Likewise for Canadian National (CNI), whose US rail lines deal with other Class 1 railroads, such as the BSNF unit of Warren Buffett’s Berkshire Hathaway (BRK.A). Canadian Pacific (CP) negotiates separately, but will currently own Kansas City Southern, which was in the bargain.

Union Pacific and CSX fell a few percentage points more than others in a dramatic week. CSX shareholders were shocked by the sudden retirement announcement of chief executive Jim Foote, a longtime proponent of efficiency techniques that the industry calls “precision scheduled railroading.”

Investors need to be reassured that his successor, Ford Motor executive Joseph R. Heinrichs, the rail industry will adopt the dharma of efficiency.

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The cooling-off period prevents strikes while union leaders make temporary deals for their members to vote. The August recommendations of the Biden-appointed emergency board were not accepted by unions representing the 60,000 engineers and conductors who operate freight trains, as the presidential board rejected workers’ demands for changes to work rules. was given, due to which some kept working for a long time. With strict attendance penalties.

leaders of those unions Temporary agreement celebrated For some medical events, to allow workers time off without penalty.

In a Friday note, JPMorgan analyst Brian Ossenbeck said the deal may require additional hiring by railroads to fill absenteeism. “But the potential increase in retention should more than offset the incremental cost in the long run,” he wrote.

The analyst’s only buy rating is on Canadian Pacific, with neutral ratings on all companies that were on the bargaining table. Measures of traffic volume and efficiency levels for railroads come out weekly, and Ossenbeck noted that the latest week’s numbers suffer from the precautions taken before the threatening strike.

Ossenbeck thinks Union Pacific may benefit the most from the labor agreement. Over the past week, the railroad was rectifying the efficiency problems it faced at the beginning of the year. Union Pacific serves auto plants, along with Kansas City Southern, which have rapidly ramped up shipments recently.

But union ratification of the agreement is not a sure thing.

Ten of the 12 rail union teams accepted the Presidential Panel’s recommendations, but one in 10 members voted to reject the deal.

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Members of two unions representing train operators—the Teamster-affiliated Brotherhood of Locomotive Engineers and Trainmen, and the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers—have expressed dissatisfaction with the agreement.

Keep your ears on the rail.

Write to Bill Alpert at [email protected]