Greetings 

The PEB report, as expected, split the baby and in this political/economic/jobs/service environment it  surely could have been worse for the rails and their owners. 

Before we get to this, I have been made aware of some subscribers somehow falling off of my list  (IT issues – again); if you get this second-hand and should be getting this directly or in any way  find that this has happened to you, please let me know ASAP. Apologies! 

And remember, this is for subscribers only. 

The Presidential Emergency Board recommendations on the (US) national bargaining between the  railways and their unions was released today, a day late, and, although they devils is as ever in the  details (see below) the headline is that the wages increase of 22% (retroactive to 1/1/20) splits the  difference between the rails’ 16% proposal and the unions collective 28% (plus $5K in “service  

recognition bonuses”), with little changes in benefits and work rules and with scheduling recommended  to arbitration. The bottom line, so far anyway, is that the rails can live with this (I was told it was at “the  upper end of accruals” for planned wage increases – in other words, within their expectations). The AAR  

issued a statement saying that the PEB report does “provide a useful basis to reach a resolution” and  that the industry was “prepared to propose agreements based on the PEB’s recommendations”…. 

What’s next? We have most likely seen what the contract will yield, and the rest is just for show. So now  theres another 30-Day Cooling Off period, and then we get to brass tacks. A union rejection (for the  ball’s in their court now) could lead to a (very, very brief) strike, but as I have written before (and  tweeted yesterday) that is highly unlikely and in any event not an investable event. Some thoughts: 

  • Believe me when I write about the devil and details – in terms of work rules one needs to have  direct operating experience to interpret the changes, which in any event seem modest. As an  example, see page 110/124: “The National Conference of Firemen and Oilers (“NCFO”) proposes  an increase in the base wage rate of $1.58 per hour effective January 1, 2020, to adjust the pay  relationship between NCFO-represented employees and shop Mechanics to account for changes  in job responsibilities resulting from assignments under the incidental work rule”. Hard for me to  change my earnings models based on that….for the full report: PEB 250 – Report and Recommendations (trains.com)
  • On crew consist (size) the PEB recommended that rails withdraw their (national) proposal on  conductors-on-the-ground and negotiate that locally. This was a pre-ordained defeat in the  rails’ struggle to take advantage of technology, including the government-mandated PTC system,  while AV technology and research is subsidized by federal and state governments. 

o In any event, the FRA, the industry safety regulator playing the role of the Joker, has  already mandated two-man crews, which, for now anyway, supersedes these or any  negotiations 

o BNSF tried local negotiations on consist and after initial (and local) success, was shut  down by national actors 

  • The PEB ventured deep into the philosophical aspects of capital and labor, in discussions about  the nature of caoital and risk (valid), compensation and company profitability (the crux of the  theoretical debate – do labor rates relate to the market for labor and skills or to the success of  the company, or to what degree do they inter-twine?). The PEB stated that the carriers argued  that employees don’t share downside risk, which is patently false (see furloughs), but this, of all  industries, is a capital intensive one….
  • What will retro-active payments and bonuses do to attrition of the current labor pool? Swill  their be a bubble of folks taking the money and running for the hills? Will this rather hefty wage  increase allow for better recruiting? tay tuned…. 

The bottom line is that in this environment this is likely the final result and while perhaps a modest  defeat as seen from the beginning of the process in 2019 is a hard-fought tie as seen in 2022. Real issues  of productivity and technology remain unresolved with a negative bias, unfortunately. On the sunnier  side, perhaps after resolution we can see reduced friction leading to less attrition/better labor relations  moving forward. 

Anthony B. Hatch 

abh consulting 

http://www.abhatchconsulting.com 

1230 Park Avenue suite 4A NYC, NY 10128 

anthonybhatch@gmail.com 

212.595.0457 W/ 917.520.7101 M 

twitter @ABHatch18