Union Pacific service problems continue

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Union Pacific service problems continue
Union Pacific Railroad may claim its freight service is improving, but passengers aboard Amtrak's Sunset Limited might disagree, reports rail writer John Gallagher in Traffic World magazine. The service, which operates over UP track between New Orleans and Los Angeles, was 45 hours late one week last month, thanks to congestion on UP's line.

The situation got so bad -- amenities such as soap and toilet paper on the train were running out, and equipment was bumping up against maintenance outages -- that the Sunset Limited canceled its journey in San Antonio. Amtrak ended up paying for air and bus fare to get passengers to their destinations, and the train was sent back to Orlando.

"This is the worst ever, worse than their meltdown" six years ago, said Amtrak spokesman Cliff Black.

For the unlucky passengers of the Sunset Limited, the debacle provided a rare public window on an ongoing fiasco that has roiled rail shipping this year. With rail cars backed up at Houston sidings, containers stacked up in Los Angeles and shippers complaining of costs rising even as service deteriorates, Union Pacific has become the symbol of a national transport infrastructure that is cracking under the weight of unprecedented freight volume.

On a national scale, the cost of the problems is likely incalculable, but not so at the nation's largest railroad: UP estimates it lost $100 million in profits in the second quarter due to its service problems.

Several months after the service problems started to pick up steam, costing the railroad some big-name shipping business, UP says it has made "modest improvements" in speeding up its trains. Manufacturers and retailers aren't impressed, however, as they look for ways around severe bottlenecks they say stand between their businesses and full economic recovery.

"UP will make improvements in one area, but then they'll have a service interruption somewhere else that will throw them into a tailspin," said Tom Shurstad, president of Pacer Stacktrain, UP's largest customer. "They're pretty upfront about what's going on. But it's frustrating because it slows their whole network down."

Service at UP, and at the other Class 1 railroads, has the attention of federal regulators, given the potential for gridlock during the fall peak shipping season and the high freight volumes expected to begin flooding in from overseas in September.

"We're paying close attention, and we hope there's no problems, but of course we don't know if that will be the case," said STB chairman Roger Nober. Last month he took the unprecedented action of asking all seven Class 1 railroads to submit fall peak service strategies.

Nober says that if the rail network breaks down under the stress of overwhelming demand and inadequate capacity, his oversight options are limited.

"There's not a lot of tools in our toolbox to deal with that," he said. "Regulators have never faced the problem of how to handle a situation where rail demand is in excess of rail capacity while helping ensure that service remains adequate. We can order one railroad to operate over another, but if everyone's already at capacity that's not an adequate solution. "To me, it's a symptom of the larger problem of getting enough capacity to meet the predictions of demand far outstripping supply. We're starting to see the leading edge of that."

UP says it is acting by pressing steady improvement in three key areas: average system velocity, terminal dwell time, and total car inventory. Performance trends have improved somewhat in recent weeks. The average train speed was 6.5 percent slower in the first weeks of the third quarter than last year versus an 11.2 percent decline during the second quarter. Terminal dwell hours worsened 10.4 percent more recently compared with the 27.9 percent in the preceding quarter. "We have taken many actions to achieve improvements, but to date have managed only to stabilize our system and achieve modest improvement," said Jack Koraleski, UP's executive vice president of marketing and sales, in a letter to the Surface Transportation Board.

To improve capacity, UP says it will add 5,000 trainmen and 750 locomotives by the end of the year. It will also continue to use a freight allocation system and embargoes to limit volume as demand ratchets up in the fall. In addition, UP is limiting rock and aggregate materials carloads handled in Texas, consolidating selected automobile and chemical trains, regulating the volume of selected agricultural commodities, and capping incremental train starts.

UP also plans to add 53 miles of second main track to its Sunset Route between Los Angeles and El Paso in 2004 that will open up capacity for intermodal freight between Southern California and Chicago. "We have an alternative route ... via Salt Lake City," UP said, "but this route has only limited additional capacity. ... We are studying additional capacity expansions that we will pursue if we can generate adequate returns on investment."

Although UP can point to operational improvements, shippers on all of its 33,000-mile network aren't seeing them.

Hal Owens, president of PCI Reload, a supplier of construction material in Phoenix, recently had to cut deliveries of lumber, sheetrock, bricks, and steel coils due to a temporary embargo UP placed on the company's shipments. That set off a scramble for construction material in the booming Arizona housing market.

"It's frustrating, because we rely on UP, we understand what they're going through and we want them to stay fluid," said Owens. "But we also work hard to turn our cars fast for the railroad, so to get hit with an embargo, it kind of hurts."

"We are extremely concerned about the continued deterioration of service from Union Pacific," said Michelle Talmo, of Basell North America, one of the nation's largest producers of plastic resins. "Due to the inconsistent return of empty railcars, which we need to hold our finished product, we have been forced to reduce production rates and at times we have even been forced to shut down our Gulf Coast plants."

Even UPS, whose $750 million rail transportation bill makes it one of the nation's largest intermodal customers and commands top-notch service attention, is seeing operating costs rise as service falls. "We have a fair amount of freight running late day in and day and out," said UPS spokesman Norman Black. "But it's not just UP that's having problems. We can no longer differentiate between UP and (Burlington Northern Santa Fe Railway)."

UPS continues to make all its service commitments to customers, Black said, but "we dramatically increase at times our own expense to make sure that happens" due to the western carriers' poor service.

As bad as it is, however, Black sees no comparison to UP's service meltdown of 1997-1998. "We're seeing improvement - the trend is not going the wrong way."

(The preceding story was published by Traffic World magazine)

August 16, 2004