A Guide to Building and Retaining Workforce Capacity for the Railroad Industry (2015)

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5C H A P T E R 1 The U.S. railroad industry is expected to continue its economic expansion based on (1) gov- ernment projections for the freight portion of the industry, (2) the development of high-speed rail, and (3) new technologies that are expected to improve the efficiency of operations. Accord- ing to data collected by industry associations, cargo has steadily increased over the last several years. The Federal Highway Administration’s (FHWA’s) Freight Analysis Framework projects a 55% increase in tons moved by rail, from 2.3 billion tons in 1998 to almost 3.6 billion tons projected in 2020. Table 1 provides statistical data on the U.S. Class I Railroad growth metrics from 2006 to 2012. The railroad industry has been affected by three major economic impacts: (1) deregulation of the U.S. railroad industry by the Staggers Act in 1980, (2) a significant increase in business, and (3) the retirement of a large number of employees in 2002, especially those from the operating crafts such as locomotive engineers and conductors, due to the passing of the Railroad Retire- ment Reform bill that allowed railroad employees with 30 or more years of service to retire at age 60, rather than the previous requirement of 62. Since the Staggers Act in 1980 deregulated the industry, railroads began to consolidate opera- tions in an effort to improve operational efficiency. For example, in 1980, Class I railroads owned 270,623 mi of track and employed 458,000 persons. In 2005, they owned 164,291 mi of track and employed 162,000 individuals, a more than one-third reduction in track miles and a nearly two- thirds reduction in the workforce over the 25-year period. Figure 1 presents this trend in total number of employees from 2004 to 2012. The industry experienced an employment lull in 2010, but data suggests an upward trend in new hires. By the end of 2012, the industry had a total of 258,990 employees, with a large portion having worked for the railroads for 30 years or more (see Figure 2). Figure 3 provides similar information broken down by job category. Introduction Year Total Carloads Tons (Thousands) Ton-Miles (Millions) Train Miles (Thousands) 2006 32,114,399 1,956,572 1,771,897 562,607 2007 31,458,931 1,939,738 1,770,545 543,475 2008 30,624,773 1,933,766 1,777,236 524,223 2009 26,005,348 1,668,254 1,532,214 436,235 2010 29,209,122 1,850,996 1,691,004 475,906 2011 29,996,959 1,885,437 1,729,256 493,311 2012 28,374,746 1,759,715 1,712,567 500,046 Source: Association of American Railroads (2013). Table 1. U.S. Class I railroad growth metrics, 2006–2012.

6 A Guide to Building and Retaining Workforce Capacity for the Railroad Industry 258,929 263,460 268,875 267,255 265,060 250,940 247,449 257,665 258,990 235,000 240,000 245,000 250,000 255,000 260,000 265,000 270,000 275,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 N um be r o f E m pl oy ee s Year Source: Railroad Retirement Board (n.d.), Table D5. Figure 1. Total number of U.S. railroad employees by year, 2004–2012. Source: Railroad Retirement Board (n.d.), Table D12. 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 30 and over 25 to 29 20 to 24 15 to 19 10 to 14 9 8 7 6 5 4 3 2 1 Less than 1 N um be r o f E m pl oy ee s Years of Service Completed Figure 2. Number of employees by years of service completed, 2012. Source: Association of American Railroads (2013). Figure 3. Railroad employees by job category, 2006–2012.

Introduction 7 Figure 4. Percentage of U.S. railroad employees aged 55 and older, 2003–2012. Source: Railroad Retirement Board (n.d.), Table D4. Figure 5. Railroad employee age distribution shift, 2006–2012. Source: Railroad Retirement Board (n.d.), Table D10. According to the Railroad Retirement Board (RRB) data, the number of retired railroad employees increased sharply in 2002, almost doubling the 2001 retirement figure (6,285 in 2001 versus 11,127 in 2002). See Figure 4 and Figure 5. Data provided in Figure 6 depicts updated projections for retired persons at the end of 2012. In response to the changing demographics of railroad labor and increased business projec- tions, the railroad industry anticipates hiring up to 80,000 employees over the next several years. The result of the increased retirements combined with increased business is a greater demand in moving a larger volume of cargo with smaller and less experienced crew and supporting craft bases. These factors represent significant safety and efficiency risks. To address these issues, the Federal Railroad Administration (FRA) sponsored an examination of recruitment and retention issues for craftworkers specifically in the freight industry; for the detailed report, view Reinach and Viale (2007). The research provided insight into the challenges involved in recruiting and retaining qualified U.S. freight railroad employees to (1) replace the large number of employees who recently retired or who will be reaching retirement age in the next several years and (2) meet the current and forecasted increase in demand for freight rail transportation service. Data from structured interviews and focus groups in three different cities across the United States showed that major challenges or barriers to recruiting new railroad employees include railroad work schedules, an incremental pay rate system for some crafts, and finding individuals with the right skill sets for the job. Major challenges to retaining railroad employees include reducing the need to relocate employees, reducing or eliminating furloughs, providing a realistic job preview during the hiring process, and improving work schedules. Despite these challenges, many focus group participants had been in the industry for their entire

8 A Guide to Building and Retaining Workforce Capacity for the Railroad Industry careers, were generally satisfied with their jobs, and would recommend the railroad industry to friends and family members. After the seminal work previously described, FRA developed a task force to examine work- force development initiatives throughout the industry, not only in craftworkers. Its findings are documented in “Railroad Industry Modal Profile: An Outline of the Railroad Industry Work- force Trends, Challenges, and Opportunities,” which serves to describe the current state of the workforce. The task force did not attempt to instantly solve the rail workforce challenges. Rather its approach expanded on the identification of recruitment and retention issues to encompass the larger industry (i.e., all employees and types of carriers) and related supporting relation- ships (e.g., educational partnerships). The task force effort proposed a long-term framework for workforce development that entails: 1. Pipeline development programs—programs geared toward reshaping the public image of the rail industry and emphasizing the multitude of railroad career options available. Pro- gramming will begin early as students’ career decisions are being formed and refined through the post–high school years or into college. 2. Qualitative enhancements—programs to help improve either the current workforce or the manner in which the research team gauges and tracks the status of the current workforce. These programs help ensure that the newly hired employee from the pipeline enters a work- force that will ensure continuous development as their careers progress. Objectives and Scope of Study This study built upon the previous work by characterizing the current state of workforce development issues in the railroad industry. Based on the data collected in this study, the research team identified best practices for building and maintaining a competent workforce into the future. The scope of the research included the following: • Determining benchmark workforce development initiatives; • Developing competency models for key employee groups; Source: Railroad Retirement Board (n.d.), Table B2. Figure 6. Number of new age-related annuities by fiscal year, 2004–2013.

Introduction 9 • Evaluating existing practices in recruitment, training and education, and retention against competency models; and • Making recommendations for future best practices based on existing gaps between the existing workforce and current workforce development practices. Overall Approach The research began with a literature review to examine previous work examining the issues surrounding recruitment, training and educational development, and retention issues in the industry. International workforce development issues in related industries were explored. A goal of workforce development initiatives is to forecast the long-term workforce capacity needs as a function of anticipated changes to the industry. For the current and emerging work- force, a key strategy is to use competency modeling. Through this approach, the rail industry can execute a number of critical talent management initiatives. Competency modeling provides an objective and rigorous assessment of the knowledge, skills, and mindsets that are crucial to employee success in industry job roles. These competencies can describe current as well as future performance attributes. Using qualitative research methods such as structured interviews and focus groups, the research team formulated competency models for various job categories among the three major strata of the workforce: rail executives and business leaders, engineering and operations professionals, and craftworkers. These individuals encompass a vast majority of the workforce and/or are critical groups for maintaining railroad operations. The next step in the research was to characterize recruitment, training, and retention strategies currently in use in the industry. This was done in part through interviews conducted as part of the competency modeling efforts. For craftworkers, the research team conducted a comprehensive set of focus groups and the results are presented in this report. These focus groups and structured interviews conducted during competency modeling efforts form the basis for an industry-wide survey. The results of the survey characterize current and potential recruitment, training, and retention strategies. The research team used these results along with structured interviews with rail industry human resources (HR) departments and an evaluation of international workforce development initiatives to analyze what “works,” what does not, and what could be implemented in the future. To further expand upon industry best practices in workforce development, the research team compared competency models with existing educational training programs to determine whether workforce development needs are being met from a training and education perspective.