Analysis: Lawsuit means shareholders might not be OK after East Palestine

March 20, 2023

The brutal effects of Precision Scheduled Railroading, better known as PSR, on the lives of railroaders since 2017 have been well-documented. It’s been almost as bad for suppliers, who have seen delays in their products making it to market. It’s been bad for shippers, who have seen deliveries have to take circuitous routes so the carriers can game the metrics to show that a rail car isn’t dwelling somewhere, and it’s been bad for retailers and manufacturers, who have experienced difficulties getting products on their shelves and materials to their assembly lines.

The people benefiting from the ruthless implementation of PSR have been the rail company shareholders and execs, seeing their wallets fatten and profits blossom as profitability and share prices rise on the backs of the efforts of SMART Transportation Division members and all of rail labor.

It is a common quip on social media for railroaders to comment on articles about derailments — “But at least the shareholders are OK,” or some variant, meaning that the folks who write the accident off as the cost of doing business will be just fine so long as the money train keeps delivering.

Yet following Norfolk Southern’s Feb. 3 derailment in East Palestine, Ohio, the carrier and PSR have received even more public scrutiny than perhaps either can stand.

The story of PSR and what it means for industry safety has been exposed by the press coverage of the fiery wreckage in East Palestine. Confusion and anger about the business practice have been flowing out of the national media faster than vinyl chloride contaminating groundwater. Additional headlines are generated seemingly daily by increased coverage of derailments occurring across the continental U.S. In each, the specter of Norfolk Southern and the events in East Palestine are refreshed in one way or another.

It seems that Norfolk Southern’s extended nightmare has worsened. After a month and a half of consecutive losses in press cycles featuring the release of toxic materials in a region where thousands of people live, multiple derailments, an employee fatality, having their CEO lambasted by U.S. senators on live TV, and derailing another train 12 miles from the hometown of Ohio Gov. Mike DeWine, it would be fair to ask how it could get worse.

An internal revolt can be added to the list. Their own shareholders have decided to bite the hand that feeds. A class-action lawsuit filed in mid-March against NS by a group of shareholders claims they were misled about the ramifications of PSR. The suit states that NS failed to disclose pertinent information about PSR, such as the involvement of longer/heavier trains and deep cuts to operational personnel. They go on to claim that Norfolk Southern’s embrace of PSR was part of a “CULTURE OF INCREASED RISK-TAKING AT THE EXPENSE OF REASONABLE SAFETY PRECAUTIONS.”

Ironically the people NS and all rail companies are using PSR to make richer aren’t comfortable with PSR anymore for the same reasons railroaders and their families have been uncomfortable with it since its inception. Now that political leaders and the media have taken the time to dig into the topic, the narrative is iron clad.

Essentially, the group of NS shareholders say that large-scale disasters were inevitable because of the practices of PSR. Due to that inevitability, they say that NS leadership was not acting as good corporate stewards of their investments. So even though the investors have benefited from record-breaking returns, seeing an Ohio village spoiled and the later economic consequences may have them now sensing the end of the road. These shareholders have become appalled at what PSR really meant on the ground level. It’s a classic case of losing your appetite when someone tells you how the sausage is actually made.

Under normal circumstances, it would be difficult to sympathize with the shareholders of NS and the other carriers. For seven years, rail labor has felt the weight of their finely polished wing-tipped shoe on our fingers as we try to keep the fraying supply chain together. The results have been a driving force in both our personal and professional lives — constant exhaustion, poor morale and the dread of wondering what else will go wrong.

That being said, there is a time-tested adage that, “The enemy of my enemy is my friend.” And if the railroad employees are revolting against PSR, the government regulators are pushing back against PSR, and now the mighty shareholders are joining in, we need to embrace it. This class-action suit by NS shareholders may turn out to be the loudest voice in the anti-hedge fund/PSR railroading chorus.

What we the people who move their freight every day say means absolutely nothing to carriers. What the FRA does to them is a nuisance that only means the carriers have to adjust the next quarter’s lobbying budget. But when the shareholders seize pitchforks and torches, we all know that is the only pressure that means anything to the hedge-fund operators leading our nation’s railroads.

We would encourage all our members to keep an eye on this lawsuit. If you are an NS employee or anyone with significant amounts of stock in their company, we would encourage you to follow the link provided to look into joining the suit.

SMART-TD will continue to keep you informed as we push back against PSR and fight now and into the future for your quality of life to be restored to what it was before Hunter Harrison’s legacy infected our industry.