Oct 11, 2022 - Economy & Business

Worker shortage could rewrite furlough playbook in next downturn

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Railroads raked in record profits over the past few years, largely by cutting their workforces.

The big picture: For the companies, now there's little left to cut. The industry is struggling with a worker shortage. And if the economy goes through a major slowdown in the near future — as economists say it might — the old playbook won't work to keep profits fat.

Why it matters: These kinds of workforce problems are playing out throughout the entire economy, and may help explain why unemployment and layoffs are at record lows — despite some economic skittishness.

  • Employers fought hard to get workers back, and letting them go again doesn't seem quite as appealing.

Between the lines: Traditionally railroad companies were quick to furlough employees when the economy slowed down, said Christian Wetherbee, senior transportation analyst at Citi. That strategy failed them during COVID when many of those workers just didn't come back.

  • Now some companies are rethinking things.

The big question: "Do you hold on to the employee and take the short-term pain from a financial perspective, or do you furlough them and take the risk that they won't be there when you get back?"

By the numbers: The rails reduced headcount by 20%-30% over the past several years, said Wetherbee.

  • Take Union Pacific: It went from 47,000 employees in 2015 to 30,000 in 2021.
  • Industry hauling volumes over the same period were down — but profitability surged, "largely on the back of reduced workforce," Wetherbee said.

Now: Rail operators are struggling to hire and retain workers. "We've seen a significantly higher attrition rate than what we had ever normally experienced," CSX CEO James Foote told investors on a second-quarter earnings call. (Foote retired last month.)

  • In a statement to Axios, the company said it's making "significant progress" in getting its workforce back to pre-pandemic levels.

What to watch: If a new worker agreement gets ratified — a big "if" right now — the higher pay laid out in the contract could help improve worker relations and stem the tide of attrition.

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