UP Crisis Stings Intermodal Sector
Dec 1, 1997 12:00 PM, Charles E Wilson
RAILROADS-Can't live with them; can't live without them.
Never has this seemed more true than now, especially for those involved in intermodal transportation in the United States. Companies had to scramble this year to find transportation alternatives in the wake of a virtual meltdown of service at Union Pacific Corp, one of the largest US rail carriers.
The UP crisis drags on and shows no real sign of ending. UP recently announced that the widespread service problems will depress fourth-quarter financial results much more than expected and force the company to sacrifice even more business to rival railroads.
Still struggling to digest its $3.9 billion takeover of Southern Pacific Rail Corporation, UP has asked for help from other railroads, including Burlington Northern Santa Fe Corporation and Kansas City Southern Industries Inc. UP also has said that it may turn to other rail carriers for crews to operate its trains.
Alarmed at what is one of the largest railroad-service breakdowns in history, the Surface Transportation Board (STB) granted rights to the Texas Mexican Railway to handle UP traffic through Houston, Texas. The STB emergency order also called on UP to show tangible improvements before the end of the year.
The problems that put UP in this fix surfaced in August, and the total cost to industry is in excess of $1 billion. Thousands of railcars have been stalled for weeks in backups and traffic jams throughout UP's 36,000-mile system. The problems grew out of efforts to integrate the UP and SP operations.
Chemical manufacturers with plants along the Gulf Coast have been especially hard hit by the UP mess. In a news item on page 10, the Chemical Manufacturers Association (CMA) claims shipment transit times have increased dramatically. Shipments that used to take 15 days to reach any destination in the country sometimes are taking more than 60 days. One tankcar took 51 days just to move halfway through Texas.
UP-related delays have forced Dow Chemical plants in Midland, Michigan, to shut down some operations for days at a time. Another chemical plant operator is reporting an average of more than six million pounds in lost production every month.
Fearing similar problems from the proposed takeover and breakup of Conrail, the CMA and The Society of the Plastics Industry (SPI) have now announced their opposition to that deal. Both groups say the deal between CSX Transportation and Norfolk Southern Railway is so complex that there is a high likelihood of massive confusion, disruption, and delay.
Manufacturers aren't the only ones that have suffered from the railroad problems this year. The intermodal sector has taken plenty of lumps.
The UP crisis has had a mixed impact on X-rail operations. Transloaders that are tied to the UP have experienced layoffs and temporary shutdowns. Those served by other railroads have seen an increase in business. Modern Bulk Transporter has received phone calls from plastics and chemicals shippers looking for non-UP-served transloading terminals in the western states.
Tank container operators have struggled to move equipment across the country by rail. One US-based operator has been sending tank containers by ship through the Panama Canal. While the arrangement has been reliable, it has increased transit times significantly.
Intermodal operations have become a crucial factor in today's economy. We need a logistics system in which all transport modes are healthy. As we've seen since the summer, severe problems result nationwide when one mode stumbles.
The various transport modes are linked to a degree never seen before. Each mode has its place in the transportation scheme. No mode can stand alone in a world where seamless transportation is becoming the norm.
We have to move beyond the modal jealousies and concentrate on working together. Shippers must realize thatthey set themselves up for a crisis like the one with the UP when they constantly pit modes against each other in a shortsighted effort to drive down rates.
We need to take a close look at consolidation within modes. How much is too much consolidation? How many companies are needed within a given mode to ensure that the nation's freight transportation needs are met effectively?
If we don't learn from the events of today, we will be destined to repeat the process.
© 2013 Penton Media Inc.
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