Service crew

Collapsing railroad services limit U.S. coal sector in booming market

Demand for coal in the United States is on the rise and has pushed up prices, but coal producers are struggling to get the rail service needed to further increase shipments.
Source: Alan J. Nash

U.S. coal miners, eager to sell in a reinvigorated market, are struggling to move their product as rail lines face severe labor shortages.

International prices for thermal coal used by power plants and metallurgical coal used to make steel have soared dramatically over the past 12 months, domestic demand and international demand rebounded from pandemic-induced lows and coal producers increased production volumes. But coal is piling up at the mine because the expected freight trains just don’t show up.

Overall, railroad employment is down 20.4% since January 2019, according to the U.S. Bureau of Labor Statistics. Rail operators are working to resolve the problem, but recognize that it could take several months to make up for the lack of workers. The price valuation of high-volume US East Coast metallurgical A coal, for example, soared as high as $525/tonne in March after spending most of 2020 just above $100. / tonne, but supply response was limited due to slow rail service and other factors.

Coal companies are frustrated with the inability to get more coal to the booming market.

“The situation is entirely attributable to a collapse in rail service capacity that is affecting shippers of all sizes and types,” said John Ward, executive director of the National Coal Transportation Association, a trade association funded by coal producers. and electric utilities.

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Rail service hinders coal sales

Many coal producers celebrated improved and even record financial results in recent quarterly reports, but also found that inadequate rail service was preventing a more robust rebound in sales. Coal production rose 8.0% year-over-year in 2021, according to data from S&P Global Market Intelligence.

“Rail’s performance was extremely disappointing as we worked through the quarter,” said Arch Resources Inc. Senior Vice President and Chief Operating Officer John Drexler said during an April 26 earnings call. “IThat’s been our biggest challenge and it’s created a host of issues that we have to solve and deal with.”

Arch estimated that it only received 60% of the trains required by its eastern US-based metallurgical coal segment during the first quarter of 2022. While the company said rail services were responding at nearly 70% of those requirements in March, less than half of the trains needed to match supply levels were arriving in January, the company said.

The coal producer estimates that it currently receives around 80% of the trains generally expected.

“That means we continue to add coking coal to already bloated inventory,” Drexler said.

Rail issues are also impacting shipments from the western United States, where companies mainly mine thermal coal used for power generation. Arch executives noted that while the company has sold above its guidance range for western US coal this year, they expect around 5% to 10 % of production is pushed back to later years due to rail issues.

At an April conference hosted by the National Coal Transportation Association, 92% of members participating in a survey said rail service shortages had impacted their company’s coal transportation, with 64% reporting resulting changes operating plans in the second half of 2021.

Executives of Peabody Energy Corp.the nation’s largest coal producer, also reported the impact of rail service on its coal deliveries, while Warrior Met Coal Inc. estimated on a On May 5, Rail’s poor performance cost his company $32 million in first-quarter net profit. Other coal companies that reported issues with rail service in first-quarter earnings calls include Consol Energy Inc., Alliance Resource Partners LP and Alpha Metallurgical Resources Inc.

A survey of public service members also conducted by the National Coal Transport Association in April found that two-thirds reported poor rail service and more than half reported it was getting worse. Of its utility members, 78% reported missed coal shipments due to rail issues, while even more said rail service negatively affected the ability to maintain power plant coal inventories.

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Good helper, hard to find

The United States Bureau of Labor Statistics estimated that there were 183,000 employees in the railroad industry in January 2019. This figure fell 20.7% to 145,100 in January 2021 and has since gained little or no land.

BNSF Railway Co., which ships more coal by volume than any other rail service in the United States, plans to hire around 1,000 additional train crew members in 2022 and already has 300 people in crew training, BNSF spokesman Ben Wilemon wrote in an email. The company has also seen a “significant improvement in crew availability” since updating its attendance policy in February, the spokesperson said.

“BNSF teams have implemented an aggressive service recovery program to drive improved speed and fluidity across the network,” Wilemon said. “We are making incremental progress in resolving high levels of car inventory, speed reduction and resource imbalances with freight volumes.”

Norfolk Southern Corp. said it had ramped up hiring with 850 active conductor trainees and more on the way. The rail service has also rolled out a plan including capital spending to expand the capacity of its network.

“We are focused on improving service; however, we continue to operate in a tight labor market and demand across the national supply chain remains extraordinarily high,” a Norfolk Southern spokesperson told Commodity Insights. .

A Union Pacific Corp. A representative told Commodity Insights that the train service provider was working with customers to address the impacts of several “disruptive events”. This includes training new employees, relocating crew members to high demand areas and adding new locomotives to its fleet.

CSX Corp. also addresses delays related to the explosion of a coal transfer tower at its Curtis Bay coal terminal in late 2021. A CSX representative said the company expects this facility to be fully repaired later this year and noted that the company was also hiring more employees.

Coal producers demand action

Rail service providers did not say when they would be able to restore service to acceptable levels during a two-day hearing into freight rail service issues hosted by the Surface Transportation Board from April 26. , Ward said.

Industry watchers believe rail service could return to acceptable levels as early as the third quarter of 2022 or as late as mid-2023, Ward added.

The National Coal Transportation Association and other parties have called on the Surface Transportation Board to take action to improve rail service. This includes potentially requiring increased transparency on service reduction or rationing, requiring action plans to address railway delay issues, and imposing certain financial limitations on service providers. railways.

Some coal companies even hire and train extra staff to load trains when – or perhaps if – they arrive. Katie Mills, a lawyer for the National Mining Association, wrote in testimony to the board that one coal company was considering third-party rail services for loading, while another was considering reopening a river terminal to transport coal.

“Just because the mines are running at full capacity doesn’t necessarily mean the coal is coming across the country by rail,” Mills wrote. “The problem isn’t the number of cars on the trains, it’s that the trains often don’t show up at all.”

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