Finger-pointing won't help

Finger-pointing won't help

Just as no congregation builds a church large enough to seat all those who want to attend services on Easter Sunday, no railroad builds all the capacity it needs to handle the once-a-year peak demand for transportation service.

In that context, congestion at and near the ports of Los Angeles and Long Beach is receiving a lot of attention as the intermodal peak-shipping season hits full swing. The congestion is real, and it probably will continue at least through the rest of this year.

Union Pacific, one of the two major railroads serving the West, has severe congestion problems, mostly self-inflicted. In its efforts to avoid the kind of service collapse it experienced in 1997-98 following its acquisition of Southern Pacific, UP has quit marketing some intermodal service and is rationing the capacity that it has available. Competing Burlington Northern Santa Fe Railway's double-digit increases in intermodal loadings suggest that it is taking market share from UP.

But BNSF has finite capacity, and it cannot handle everything. Service measurements show deterioration from 2003, but BNSF's system has remained fluid and it is handling the volume tendered to it. It has, however, resorted to ration-ing capacity to keep from being overwhelmed.

Intermodal congestion is a manifestation of the capacity constraint that all transportation must deal with. The days of excess capacity - when shippers could play one railroad off against another, or against truckload carriers - are over, and they're not likely to return.

UP's problem has been compounded by a severe crew shortage, triggered by large numbers of retirements following a legislated change in the Railroad Retirement System that allows rail employees to retire on full pension at age 60. Other carriers have faced the same situation, but were more alert to the losses and began to hire and train replacements sooner than UP did. While other railroads had higher head-counts in the second half of 2003 than their traffic required, they are managing to handle the traffic this year. UP made short-term decisions and is paying the price.

Even if UP were operating normally, there probably would be congestion at West Coast ports. Face it, there still are long lines of drayage contractors clogging local streets and area highways leading to the ports. Ships are anchored waiting their turn to dock and discharge and load containers. Stevedores and the International Longshore and Warehouse Union are promoting about 1,000 casual workers to regular status and are hiring 3,000 additional casual dockworkers.

The railroads are not the sole cause of congestion at the ports. If they could take every container tendered immediately, there still would be backups of ships and cargo at the ports. Because there is rail congestion, it is easy for other participants in the intermodal system to deflect criticism of their performance by heaping blame on the railroads. After all, some of it will stick.

The capacity-constrained transportation world has changed significantly since its years of excess capacity. Railroads no longer are cutting prices just to gain traffic. Jim Hagen, a former Conrail chief executive, said in 1995 that for the previous 15 years, railroads had been "eating inflation" for their customers. The retired Hagen must feel vindicated now that the railroads are behaving like other businesses.

Double-stacking containers changed intermodal economics, and success begat more success. Trucks have been virtually run off certain long-haul lanes. With increased volume, railroads now handle intermodal even more economically in trainload service.

The rail system slows every year at about this time because of a seasonal spike in demand, so even if UP had not run into its congestion problem, there still would be congestion. BNSF wisely is doing everything it can to avoid having UP's crisis spill over to its system and become BNSF's own crisis. That grinding sound you hear is the gnashing of teeth by shippers with contracts that tie them to UP. They have no choice but to wait until things improve at UP, or pay more for substitute truck service, if they can find capacity.

UP will fix its service problems, probably in the first half of 2005. But that won't add any real capacity; it will merely restore rail capacity to the level it should have been in 2004.

In the longer run, there is a need for greater rail capacity. Instead of playing the blame game and arguing over who is responsible for current congestion, carriers and shippers would be well-advised to figure out how much additional capacity truly will be needed in the years to come, and how to pay for it. With virtually no chance that government will help the situation, the intermodal freight world is on its own.

Larry Kaufman, former intermodal editor of The Journal of Commerce, has worked in and written about railroads for nearly 40 years. He can be reached at