A Little Help from the Rails
Nov 1, 1997 12:00 PM, Charles E. Wilson
SOME amazing sights unfolded at this year's Southern Bulk Carriers Day October 2 in Houston, Texas. Most notably, record numbers of shippers turned out, many of them eagerly seeking tank truck carriers to haul their freight. It's a sight we haven't seen in years.
Frequently, the shippers were disappointed because many carriers serving the Houston area have committed all available equipment. One shipper stated that he had reached a point where he would load anything with wheels. Despite all of the talk about Responsible Care and the importance of safe transportation, some attitudes never change.
In several cases, shippers who had been promised equipment on display at the show stood by in the carrier's booth, nervously waiting for the event to end. They weren't about to take a chance on losing a tractor-trailer rig to another shipper.
We have Union Pacific Corp to thank for the heightened popularity of the tank truck industry. Over the past summer, the UP system has virtually imploded, creating near gridlock in many parts of the country served by its 36,000-mile route system. Thousands of railcars are stalled in the Houston area alone.
Much of the blame is being directed at last year's $5.4 billion merger with Southern Pacific Rail Corp. Problems developed as UP began blending the two systems this summer, and the merger has turned into a debacle of colossal proportions. UP officials have said that they simply underestimated the amount of manpower, equipment, and effort the merger would take. However, numerous critics claim the UP tried to cut costs too aggressively.
Merger-related problems were aggravated by a rash of accidents this year. At least seven people died in several incidents, including a fiery head-on collision near Ft Worth, Texas, that killed two engineers. The accidents prompted the Federal Railroad Administration to conduct a detailed safety review of the UP.
Shippers in many sections of the Midwest and West have been affected by the UP problems. At one point, a backlog of 3,000 containers-tank containers included-had developed in the Los Angeles area. Congestion snarled UP rail movements through North Platte, Nebraska; Chicago, Illinois; and Ft Worth.
Houston was probably the worst hit area, though. As the merger effort began, UP managers increased the amount of traffic through the Englewood yard in Houston by 300 freight cars a day. Within a few weeks, the yard was swamped, creating delays throughout the system. By August, trains were backed up for miles along the Gulf Coast.
Houston is a hub for the chemical and plastics industries, and the UP normally handles about three-quarters of the shipments out of the area. The problems related to the merger have become a nightmare for many of the chemical shippers in the area. Railcars are disappearing into the UP system without a trace, and some loads have even evaporated into thin air.
Air Liquide America shipped 15,000 gallons of liquid argon from Houston to southern California in a cryogenic tankcar. By the time the shipment arrived 21 days late, about 90% of the cargo had evaporated.
The Chemical Manufacturers Association estimates that chemical producers in Texas have incurred more than $100 million in additional costs and lost sales. The losses are continuing to mount.
Tank truck carriers have been the winners in all of this. Those serving Houston and other choke points in the UP system have reaped a windfall. Carriers are running flat out trying to keep up with demand, and many have had to turn down new business.
To their credit, tank truck carriers seem to be doing a good job of resisting pressure to add large amounts of new equipment. The UP problems will be ironed out, and some shippers will drop their newfound trucking friends like hot potatoes in a frenzy to shift freight back to the railroads. Carriers that overinvested in new tank trailers may get stuck.
Driver shortages have made it difficult for some tank truck carriers to put more equipment on the road. With the national unemployment rate below 5% now, the situation isn't likely to improve without major changes in working conditions. Those changes won't be cheap.
However, tank truck carriers are in their best position right now to push through the sort of rate increases that will be needed to make meaningful improvements in driver conditions. What we're talking about are double-digit increases; not the paltry raises of 2% to 3% that we have seen in recent years. The window of opportunity won't be open long.
This is also a time for chemical and plastics shippers to reevaluate the way they do business. Many are finding out that they made a big mistake in trying to rely on a single transport mode, and they are paying a big price. Shippers need to assemble a diversified logistics network that provides a cushion against the sort of crisis that occurred this year. It's good to have friends in all sectors.
The UP problems won't go away overnight. In fact, some speculate that it might take over a year to fix everything. In the meantime, another potential rail crisis is looming as CSX and Norfolk Southern begin to absorb the pieces of Conrail that each bought. That all starts in early 1998, so here we go again.
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