UP: It''s Getting Worse

UP: It''s Getting Worse

Copyright 2004, Traffic World, Inc.

Union Pacific Railroad executives said that congestion problems on its system in the Pacific Northwest and Houston are getting worse, according to attendees at special forum in which the railroad addressed shippers increasingly angry about the railroad''s intermodal service troubles.

"It wasn''t nice to hear," said National Industrial Transportation League President John Ficker. NITL sponsored the May 17 forum in San Francisco, attended by more than 100 rail shippers and UP''s top executives.

Not all the news was bad: UP told shippers that service in California and Phoenix - where its congestion problems originated - is improving. But the shockwaves caused by the UP''s current service crisis are disrupting other parts of its network and affecting UP''s interline partners.

Sources at CSX say that the containers that UP handles for CSX from the West Coast are not making delivery times. "They''ve been costing us business," the source said.

Ferromex, UP''s Mexican rail partner, also is getting hit. "We''ve been holding up some marketing plans we had scheduled until they can get around this," said Ferromex executive vice president for commercial Juan Cuellar. Ferromex has been rerouting empties through alternative Mexican gateways to help UP balance out their system, Cuellar said.

UP''s service problems, which began last fall as a result of shortages of crews and locomotives, burst out in a large way in the first quarter as the nation''s economy improved and freight capacity tightened. The crisis forced UP to give up its prized UPS cross-country bullet train that moved intermodal trailers from Southern California to the Southeast. The railroad is working hard to bring on new crews - it expected 622 employees to complete training and hit the rails in May - but it''s finding it hard to deploy them as quickly as necessary.

"UP has added more resources - crews and locomotives - to fight the congestion but these resources have not yet begun to result in improved network fluidity," said Morgan Stanley rail analyst Jim Valentine.

The forest products industry in the Pacific Northwest, which uses center beam cars to move lumber, is being hit particularly hard, said Valentine. "The cars were already in tight supply heading into the year and thus the recent congestion in the region has only made the problem worse," he said.

Valentine said that despite repeated questioning, UP still would not provide a time frame when service levels should begin to show improvement, frustrating shippers looking to plan for the peak shipping season this fall. Two large forest products shippers will begin moving 15 percent of their traffic via barge "at a loss" to satisfy customer demand, he said.

Others are asking UP for more open interchange points to allow them better access to rival Burlington Northern Santa Fe Railway''s network, something UP is willing to discuss, said Valentine.

The hit to UP''s service reputation was also hitting the railroad''s bottom line. Valentine said, "We believe (second quarter) 2004 congestion related costs are likely to exceed the $75 million encountered in (first quarter) and the $80-85 million we previously assumed for the (second quarter)."