UNION PACIFIC EXPERIENCING TRAFFIC CONGESTION, CREW SHORTAGES
UNION PACIFIC LIMITS RAIL CUSTOMERS: Union Pacific Corp., the largest U.S. rail freight operator, has asked customers to reduce their use of the railroad as it works out problems with traffic congestion and crew shortages, the Wall Street Journal said on Monday [April 5]. Union Pacific officials are asking a few customers to use truck shipments, limit new railroad business and examine ways to reduce the number of train crews needed for loading and unloading, the Journal cited a company spokesman as saying. Problems with its service have plagued the company since late last year, the Journal said. Union Pacific's biggest headaches are in the Los Angeles area and along its active freight route running from California to Texas, the story said. The Journal said the Omaha, Nebraska-based company underestimated how many crew members would leave after changes in the federal retirement law for railroad workers, leaving the company with too few locomotive engineers and conductors. At the same time, the railroad has seen a jump in demand for rail service recently in line with the recovery in the U.S. industrial economy coupled with a strong grain harvest. A company representative was not immediately available to comment. [Brotherhood of Locomotive Engineers & Trainmen, 4-5-04, from report by Reuters]
UNION PACIFIC DECLINING SOME BUSINESS: Union Pacific Corp., the nation's largest railroad, is declining some business as it struggles with a train crew shortage that has its system near capacity. For one month beginning Monday [April 5], United Parcel Service will put packages on trucks that normally would run express rail routes once a week each way from Los Angeles to New York, Dallas and Memphis. "They explained they had been having some congestion problems," said Norman Black, a spokesman for UPS. "They need to get a handle on them quickly." Union Pacific will pay the added costs of drivers, gasoline and other expenses of putting those items on trucks, Black said. The express routes are a minor part of UPS business with Union Pacific, and it is important that the railroad get any problem corrected before it deepens across the railroad's system, Black said. "The vast majority of our volume is running on their regular trains," Black said. Union Pacific is the nation's largest railroad, stretching across 23 states in the western two-thirds of the country. Its traffic snarled in 1997 and 1998 as it adjusted to its merger with Southern Pacific Railroad. Train speeds then dropped as low as an average of 12 mph. Today's problem is not as significant, with train speeds averaging about 21.5 mph, down from about 25 mph for first quarter 2003, railroad spokesman Gene Hinkle said. Still, the railroad has heard complaints from some customers about slower service, and it began hiring train crews at an accelerated rate late last summer to get the railroad back up to speed, said Kathryn Blackwell, general director of corporate communications. Service problems began as business surged and trains slowed along the Sunset Corridor, which runs from Los Angeles to El Paso, Texas, Blackwell said. West Coast ports have been busy with imports from Asia that Union Pacific ships across the country, Blackwell said. The nation's economy has rebounded more quickly and with more strength than Union Pacific and its customers had anticipated, Blackwell said. In addition, more engineers and conductors have retired than had been expected under new federal rules that allow them to leave at age 60 with 30 years of service, Blackwell said. The railroad expects to hire 4,000 train crew workers through this year, with about half in new positions and half covering normal attrition, Blackwell said. The railroad employs about 20,000 engineers and conductors. Shipments of coal, industrial products and consumer goods all are growing, Blackwell said. "There is more business than we can handle, really," Blackwell said. "We don't have the crew base to deal with it." Blackwell declined to discuss the slowdown's effect on specific customers. The railroad may have turned down some business when it could not meet time or other specifications for deliveries, but it has not been a widespread occurrence, she said. Earlier this month, Union Pacific said it would not meet its earnings forecast for its first quarter ended March 31 in part because of its crew shortage. It also blamed an adverse $30-million court judgment, severe winter weather and high fuel costs. [Brotherhood of Locomotive Engineers & Trainmen, 4-2-04, from Associated Press report by Joe Ruff]
UP IGNORED UTU REQUEST FOR MORE TRAIN CREWS: Struggling to resolve its crew shortages and track congestion, Union Pacific Corp. is asking some customers to temporarily scale down their use of the railroad, reports The Wall Street Journal. The move to shed business is the most visible indicator to date that the nation's largest railroad has yet to turn around the service problems that have dogged it since the fall. The worst problems are focused in the Los Angeles area and along Union Pacific's busy freight route between California and Texas. But in many parts of the carrier's 33,000-mile route system, freight trains are coming to a stop on passing tracks and even on main tracks, sometimes for hours, because crews reach the limit of their federally mandated maximum 12-hour shifts, and new crews aren't available right away to move the trains forward. Union Pacific, which is based in Omaha, Neb., has acknowledged that it far underestimated the number of train crew members that would leave after changes in the federal retirement law for railroaders two years ago. The new law, which lowered the age at which employees with 30 years service can retire with full benefits to 60 from 62 years of age, left Union Pacific short of locomotive engineers and conductors. Meanwhile, the railroad has seen a rapid increase in demand for rail service in recent months due to the nation's recovering industrial economy as well as a strong grain harvest. Now, Union Pacific executives are approaching "a few" customers to divert shipments to trucks, limit the amount of new business on the railroad and find ways to change loading and unloading operations to reduce the number of train crews needed, according to Union Pacific spokesman Bob Turner. Such moves, he said, would take pressure off the Union Pacific system until it hires and trains about 4,000 new crew members this year. Mr. Turner said the customers include factories and warehouses in Los Angeles, Phoenix and Tucson, Ariz., whose freight shipments require a "significant" number of crews. He declined to identify any of the customers. United Parcel Service Inc., the Atlanta-based parcel-delivery giant, said it recently agreed to suspend certain expedited train services on Union Pacific. "We certainly have an interest in seeing them resolve any congestion problems that they have," said UPS spokesman Norman Black. He said Union Pacific will pay UPS the additional, but as yet undetermined, costs to put the shipments in trucks for a month. Union Pacific experienced massive service breakdowns in 1997 and 1998 following its takeover of Southern Pacific Rail Corp. The problems then started in the Houston area after Union Pacific consolidated freight yards and spread through much of the Union Pacific network in the West. Mr. Turner said the company doesn't expect a repeat of those breakdowns. The United Transportation Union, which represents trainmen and conductors, says Union Pacific ignored advice from the union to hire more train crews. And it blames the company's top management team, led by Union Pacific chairman and chief executive Dick Davidson, for holding down costs at the expense of service now and in 1997. "It's just amazing that these guys haven't learned from Houston. I thought that would never recur," said UTU spokesman Frank Wilner. Union Pacific's Mr. Turner said the railroad is "taking this very seriously." Even though the carrier is handling considerably more freight shipments now, Union Pacific has spent about $18-billion since 1997 to maintain, upgrade and expand its tracks, equipment, facilities and locomotives. "All of our computer systems, dispatching, repair and track systems are fully integrated today, and they weren't during the merger," Mr. Turner said. "The condition of our railroad from a maintenance and capacity standpoint is significantly better and our locomotive fleet is younger." [United Transportation Union, 4-5-04, from Wall Street Journal report]
SLUGGISH U.S. UNEMPLOYMENT RATE DOES NOT REFLECT SITUATION AT UP: Union Pacific Bucks National Hiring Trend... While U.S. unemployment numbers remain virtually unchanged, Union Pacific is doing its part to reverse the trend. According to numbers issued today by the U.S. Department of Labor, the nation's unemployment rate was 5.7 percent in March, showing little change over February. In contrast to the sluggish job situation in many sectors of the economy, Union Pacific is actively putting more people to work. North America's largest railroad began a significant hiring effort in the fourth quarter of 2003, and is continuing to hire at more than 80 locations across its 23-state system. The primary need is for train service employees - those employees who help to switch and assemble trains in Union Pacific yards. The railroad also is hiring mechanics, electricians, laborers and other employees. The call for more employees has been fueled by the increasing shipping needs of Union Pacific's customers, mostly in the manufacturing sector. The railroad expects the need for more employees to continue through the next two years. "We hired more than 2,300 employees in 2003, and need to hire 4,000 more by the end of 2004," said Barb Schaefer, senior vice president of Human Resources for Union Pacific. "Increases in our industrial products, agriculture, intermodal container and energy business are putting pressure on us to move more trains, and we need good people to help us do that." Union Pacific train service positions are not the usual entry-level positions found in other areas of the economy. Train service employees start at a salary of approximately $40,000 per year and, in as few as three years, can earn up to $75,000 per year based on seniority, location and work assignments. Excellent benefits are included, and Union Pacific provides all the training necessary to perform required duties. "The benefits we offer are very good - and they reflect the hard work of our employees," Schaefer said. "These are physical jobs that are performed out-of-doors in all types of weather. The people we hire work hard, and we reward them accordingly." [UP, 4-5-04]
UP WORKING OUT OF SHORTAGES: Freshly cut two-by-fours are piling up in the shipping yards at Swanson Group Inc.'s Southern Oregon mills, an unwelcome reminder of the persistent toll that Union Pacific Corp.'s ongoing rail capacity problems are having on businesses across the Northwest. The stockpiled lumber should be supplying new-home construction in California. But the Glendale-based company is having trouble getting cars from Union Pacific to make the trip south, thanks to congestion and delays throughout the railroad's 23-state system. "I need 10 to 14 cars a day, and I'm getting -- on a good day -- four," said Jim Hunt, vice president of sales and marketing for Swanson Group. "I don't look for it to look a lot better." Union Pacific customers nationwide feel Hunt's pain. The nation's biggest railroad has taken the unprecedented step of asking some customers along its 33,000-mile system to scale back their shipments at least temporarily. Others, like Swanson Group, don't have to be asked -- they don't see any other choice. Union Pacific blames its congestion woes, which began in earnest late last fall, on an improving economy and a rash of early retirements thanks to changes in federal retirement regulations for railroad employees. The change, which went into effect in 2001, left Union Pacific short of experienced crews. As a result, trains in Oregon and Washington have frequently been left dead in their tracks, short of their destination, because crews reach their work limit under federal law of 12 hours a shift. The Omaha-based railroad has responded with a recruiting spree, hiring more than 1,600 new train service workers nationwide in January and February. That's more than the 1,500 workers it hired all of last year. But the impact won't be seen immediately by harried customers, a Union Pacific spokeswoman said, because training the new employees takes at least four months. "I think the railroad is responding," Hunt said. "It's just that you don't move something that big that quick." Rail customers and industry observers say Union Pacific's crew shortages and track congestion in Oregon have actually improved in the last month, even as they've worsened elsewhere. The problem is especially acute in California and the Southwest. But Union Pacific isn't out of the sticks in the Northwest, either. Wait times for freight cars at the railroad's yard in Hinkle, near Pendleton, a key transfer point for freight moving in and out of the Northwest, rose throughout March. Meanwhile, train speeds systemwide are declining, a sign of continued congestion on the rails. Slowdowns in the Los Angeles area and throughout the Southwest have also triggered service disruptions in Oregon. "The crew shortages in the Pacific Northwest appear to have gotten better," said Ron Vincent, vice president of customer service for Portland & Western Railroad, which delivers 60,000 cars each year between Union Pacific and customers in northwestern Oregon. "The problems now have shifted to the L.A. area, and, of course, there's residual affects from that." Timber operators around Oregon have had to curb operations and stockpile lumber inventories because of problems getting timely service and recovering cars caught in Union Pacific's congestion. Other companies have been told by Union Pacific that they should make more shipments by truck rather than rail to help relieve congestion. "If they have certain timing demands, and we don't feel we can meet them right now, we're suggesting that they look at trucks," said Kathryn Blackwell, a Union Pacific spokeswoman. "We hope that's a temporary situation we have." Hunt said the Swanson Group has cut hours of operations at its mills in Glendale, Noti and Roseburg from 90 to 80 hours a week and worked employees overtime loading studs and plywood onto trucks, rather than railcars. Hunt said if he can't get more cars to clear mill inventories, he fears the company might have to shut down some mills completely. "We can't continue to produce at a certain level and ship two-thirds of that production every week," Hunt said. "Eventually your inventory engulfs you." Compounding the Swanson Group's problems, a fire in November shut down a 3,000-foot-long tunnel on a key rail line between Central Oregon and California, forcing the Swanson Group to ship southbound loads on a less-direct route through Union Pacific's yard in Eugene. The tunnel isn't expected to be reopened until May, said officials with Central Oregon & Pacific Railroad, which owns the rail line. Union Pacific's troubles, though, run far deeper than the tunnel fire. The company has had a problem, for instance, attracting applicants for 15 train service positions in its Hinkle yard, a situation Blackwell blamed partially on the remoteness of the terminal. Some customers and observers say Union Pacific's service problems stem from inefficiencies that started with UP's merger with Southern Pacific in 1996. Blue Heron Paper Co. in Oregon City has been forced to curtail its pulping process several times in the past two years because the railroad failed to make timely deliveries of recycled newsprint, said Craig Fletcher, the company's fibre supply manager. Even before the latest congestion problems, the employee-owned company reduced the amount of shipping it did with Union Pacific because it found it could find more efficient service from trucks, Burlington Northern Santa Fe Railway and other rail providers. It also has decided to ship more finished rolls of paper by truck, Fletcher said. State officials have questioned whether recent dispatch and management decisions haven't made recent problems even worse. On one occasion in February, the railroad used four crews over three days to get a train from Portland to Eugene, said Ed Immel, a rail planner with the Oregon Department of Transportation. On another occasion the same month, a long freight train was left parked with cars spilling onto the main rail line, blocking an Amtrak passenger train from passing and requiring Amtrak to bus passengers from Portland to Vancouver, Immel said. "We think there's some stuff that's just bad decision-making," Immel said. Blackwell said such criticism of dispatchers was unfair. She said the railroad's chairman and chief executive, Richard Davidson, and president, James Young, toured the railroad's Idaho and Oregon operations by train the weekend of March 27 and said Young was "very enthused" with the progress the railroad was making. "It was my impression that the Pacific Northwest in general is actually doing pretty well," Blackwell said. "I was told that was a good part of the railroad to be in." [Brotherhood of Locomotive Engineers & Trainmen, 4-6-04, from article by Brent Hunsberger posted on the Oregonian website]
UP RAIL CRUNCH COULD SNARL ASIA TRADE, REPORT SAYS: Freight congestion has spread across the Union Pacific Railroad system, especially in Southern California and the southwestern United States, raising concern about the effects on America's trade with Asia, according to this report published by the International Herald Tribune. If a solution is not found before the rail freight rush begins in the late summer and autumn, the slowdown could disrupt trade through the ports of Los Angeles and Long Beach, just two years after a West Coast port strike caused chaos. Railroad officials say that has not happened yet and add that they are working to prevent such an outcome. Exacerbating the stresses on the system, Asian traffic has taken an unexpectedly strong upturn in the past few months, with a spike in shipping containers arriving from Asia and a new flow of American grain to China. In Southern California, some railroad officials are calling the situation a mini-meltdown, similar to - but not as bad as - the freight chaos that spread from Houston across the Union Pacific system in 1996. Dozens of trains daily are parked on sidings because they cannot get into or out of the Los Angeles Basin. Union Pacific's busy line from Los Angeles to El Paso, Texas, is sometimes referred to as a parking lot, as trains have stalled there because their crews have reached the federal maximum of 12 hours on duty. Often, relief crews are not available. At the root of the problem, Union Pacific concedes, is its failure to accurately gauge its hiring needs and unexpectedly strong traffic brought on by changes in regulations governing work hours for truckers. Union Pacific and Burlington Northern Santa Fe, the two largest U.S. railroads, handle all long-distance rail freight traffic to and from the West Coast. Officials said Burlington Northern, which shares port traffic with Union Pacific, is still fluid but has been forced to begin operating more heavily loaded container trains on its busy Los Angeles-Chicago main line. Almost all Asian trade now moves by rail from U.S. West Coast ports to midwestern, southwestern and eastern states, and not enough trucks and drivers would be available to handle even a small portion of it. Morgan Stanley last week downgraded Union Pacific to an "underweight" rating in model portfolios from "equal weight," partly because of its operational problems. The firm's latest freight customer survey ranked the company near the bottom in service among seven major North American railroads, giving it "the sharpest drop of any railroad" since a June survey. Operational data, reported by the rail companies to the Association of American Railroads, give evidence of the railroad's problems. Freight cars on line, which can be used as a measure of congestion, were at a historic high of 325,634 in the week that ended on March 19. The average amount of time that a car spends in terminals has also surged. Average train speed, which was 24.8 miles per hour in the first quarter of 2003, was down to 21.5 miles an hour in the week that ended March 19. The Union Pacific problems result partly from a surprising growth in rail traffic brought on by a sustained economic upturn and by federal rules on truck driver rest that went into effect early this year. The severity of the problem in Southern California and the Southwest, oddly, can be traced partly to a Union Pacific effort to provide premium service to one of the largest U.S. rail shippers, United Parcel Service. UPS has begun a coast-to-coast premium service that requires consistent high-speed train service to Dallas, Atlanta and New York. To keep the train on time on the busy and mostly single-track segment between Los Angeles and El Paso, called the "Sunset Route," railroad dispatchers clear other trains onto sidings far ahead of the hot UPS train, sometimes hours ahead. Often, crews can't make their next terminal within the federal on-duty limit of 12 hours, and no other rested crews are available. It sometimes takes a week to sort out the resulting mess. [United Transportation Union, 3-29-04, from report published by International Herald Tribune]
UP SERVICE MELTDOWN ROOTED IN CREW SHORTAGES, UTU SAYS: Union Pacific Railroad (UP) is in the midst of its second major service meltdown in seven years, causing shippers, Wall Street analysts and journalists to find many negatives with the carrier. It was seven years ago that Union Pacific suffered its first major service meltdown - following its 1996 acquisition of Southern Pacific. The cost in customer claims for service failures topped a quarter-billion dollars and Wall Street analysts estimated Burlington Northern Santa Fe (BNSF) enjoyed another half-billion dollars in new freight revenue at Union Pacific expense. The total economic cost of that first UP meltdown was estimated by some at in excess of $2-billion. Once again, Union Pacific is caught in a severe service meltdown. It has been pointed out that all UP has to sell is service, meaning two severe service meltdowns in a seven-year period is a serious event. In fact, there also were severe service failures associated with UP's 1995 acquisition of the Chicago & North Western. During the 1997-1998 UP service meltdown, a coalition comprising the National Industrial Transportation League, the Texas Railroad Commission, the American Chemistry Council, the Society of the Plastics Industry, Kansas City Southern Railway and the Texas-Mexican Railway petitioned the Surface Transportation Board to permit Kansas City Southern to operate over UP tracks in the Houston area in an attempt to get freight moving again. UP controlled (and still controls) nine of the 11 mainline tracks entering and exiting Houston. The STB denied the petition and UP promised to hire and train additional crews, add locomotives and take other steps to solve the problem so that it never again occurred. But once again, Union Pacific is in the midst of a significant service meltdown. And, once again, a major part of the problem is that UP is short of crews to operate its trains. Although UP has made repeated promises to do the hiring, UTU general chairpersons confirm the hiring has not been accomplished. Just recently, the UTU - fed up with empty promises - brought a lawsuit against UP to halt the use of managers filling engineer vacancies. The UTU is demanding that UP promote qualified conductors and brakemen and hire replacement train-service employees. More than 2,100 UTU-represented conductors and brakemen are available for promotion to engine service. While Union Pacific again stumbles, other railroads are making service improvements. According to Association of American Railroads, while Kansas City Southern has increased its highly competitive intermodal (trailers and containers that could otherwise be hauled by truckers) traffic by some 23 percent so far this year, and while BNSF increased its intermodal volume by some 8 percent, Union Pacific's intermodal loads has been virtually flat for the year and recently on a decline. While UP's average train speed slowed by more than 12 percent this year, Kansas City Southern's average train speed has improved by more than 11 percent. While Canadian National reduced its yard dwell time for freight cars by some 12 percent this year, Union Pacific's dwell time has increased by some 19 percent. While Norfolk Southern has been reducing the number of freight cars on line (meaning more speedy interchanges with connecting carriers), the number of freight cars on Union Pacific's lines has been soaring. Wall Street Journal reporter Dan Machalaba is researching a story on whether Union Pacific will be able to meet shipper demands this summer when freight volumes soar as Christmas-season inventories start moving. Machalaba says that, so far, he hasn't found much encouraging evidence. Wall Street analysts who follow Union Pacific stock have been telling investors that they are similarly discouraged over Union Pacific's prospects to restore adequate service. On Monday, May 17, in San Francisco, at a meeting coordinated by the National Industrial Transportation League, the nation's largest shipper organization, scores of shipper officials intend to tell Union Pacific officials how inadequate train crews, locomotive shortages and poor service are keeping their freight from moving and damaging the U.S. economy. They will also demand answers and action. At the Wall Street firm of Morgan Stanley, analyst James Valentine published a report May 12 saying that congestion problems "have been brought about by too much cost cutting over the past decade." That cost cutting, said one expert on rail operations, is behind putting managers in the cab and not promoting conductors and brakemen. "If a railroad can get away with paying a manager $5,000 a month and working him to death without overtime - rather than paying train crews what their contract calls for - the savings when multiplied by 100 or more managers in the cab is very substantial over a 12-month period," he said. "The railroad also saves by not having to hire new conductors and brakemen who are not promoted." Penny wise and pound foolish? Just ask the shippers, the Wall Street analysts, the journalists who cover the rail industry and, especially, UP investors. [United Transportation Union, 5-13-04]
UP WOES SPREAD TO PACIFIC NORTHWEST: Union Pacific's service meltdown has spread to the Pacific Northwest, according to freight shippers who attended a meeting devoted to UP problems. Meanwhile, Union Pacific's stock price dropped to $56.30 May 18, down from a high of more than $69 earlier in the year and is showing no signs of recovery. In spite of the stock slide, UP executives took home in excess of $100-million earlier this year as part of a three-year long-term incentive plan. UP executives were aided in reaching that goal by the sale of its Overnite Trucking subsidiary, which, according to UP, produced a gain of $211-million after factoring in tax benefits. The gain on the Overnite sale would not have been possible were it not for a 1998 write off of $547-million in Overnite goodwill. UP Chairman Dick Davidson's share of that bonus was some $2.5-million -- about half in cash and half in UP stock. Shippers said "significant deterioration" in UP service levels is now occurring in the Pacific Northwest, and problems continue along in Southern California as well as in the Houston area. A newsletter read by North American transportation attorneys and published by the Association for Transportation Law, Logistics & Policy, carried an opinion article asking whether UP has become the "emperor without clothes" given its history of service meltdowns and current inability to restore service levels. UP is sometimes referred to as "the emperor" given its influence at the White House, within Congress and within regulatory agencies. Vice President Dick Cheney was a member of Union Pacific's board of directors, White House Chief of Staff Andy Card was a protege of former UP chairman Drew Lewis, the former chairman of the U.S. Surface Transportation Board (who approved the 1996 UP-Southern Pacific merger and who voted in favor of UP in 82 percent of the cases involving UP) was subsequently hired by the railroad, the former chief counsel to Republicans controlling the House Transportation and Infrastructure Committee is now a UP lobbyist, and Senate Commerce Committee Chairman John McCain (R-AZ) has received substantial political contributions from UP. Those House and Senate committees have principal congressional oversight of rail issues. Also, the principal adviser on rail issues to Senate Republicans is a former employee of Union Pacific. Additionally, UP Chairman Dick Davidson is among an elite class of George Bush fundraisers, having helped collect (from friends and family) at least $200,000 toward Bush's re-election this November. The San Francisco meeting, sponsored by the National Industrial Transportation League -- the nation's largest shipper organization -- was attended by Dick Davidson, but shippers complained that neither Davidson nor other UP executives in attendance would predict when the service meltdown might end. In a letter to institutional investors, the Wall Street firm of Morgan Stanley termed UP's problems "self inflicted." Two large forest products shippers said they will divert some 15 percent of their shipments to barge and other shippers asked that UP permit them to route cars onto Burlington Northern Santa Fe tracks after loading at UP stations. UP executives said the recent hiring of new operating employees is starting to relieve pressure in Southern California and shippers confirmed that problems in Southern California no longer are worsening. However, there generally is a lag of up to six months due to classroom and on-the-job training requirements. [United Transportation Union, 5-19-04]