HOUSTON — Five years ago, the troubled merger of Southern Pacific and Union Pacific nearly paralyzed rail traffic in Houston and points north, the Houston Chronicle reports.
Despite the near-meltdown in service in 1997 and into 1998, massive efforts by Union Pacific to improve service have brought the carrier back to normal.
Customer service is also better and the company is reporting record profits, spokesman John Bromley said. The company hauled in record net income of $222 million in the first quarter of 2002.
While shippers agree that customer service is considerably better than it was five years ago, that doesn’t mean they all are happy.
The source of their ire is the lack of rail competition in the Houston area. It is an ever-present annoyance for shippers like Sam Slovack of Basell USA.
“We are not in a meltdown condition. Traffic is moving,” Slovack said. “Is it moving at what we believe to be competitive rates? No. Do we see room for improvements in service levels? Absolutely. But if you have no competition, there is no drive nor desire to improve the product offering.”
Shippers generally agree they would like to see more competition, said Diane Duff, head of the Alliance for Rail Competition, which represents a group of freight rail customers and industry trade associations in the ongoing debate over rail competition.
“I can generally state that my members are far happier with their rail service today than they were five years ago,” Duff said. “But that wouldn’t take too much. My experience has been that rail customers on the whole are thrilled when their stuff arrives with any regularity at all.”
It’s not a problem isolated to Houston. The number of mergers since 1980 has whittled the number of major railways in the nation to only a handful.
In the
midst of the crisis, there were widespread calls to make changes to
ensure more competitive rail service.
While the rail merger was only approved with terms requiring Union Pacific to open up a few of its lines to competing carriers, there was a strong push to open the system far more during the crisis. There’s still plenty of talk of the need for more opening, but the chance of it happening has faded as service has improved.
Union Pacific dominates the local rail shipping business because it owns the great majority of the lines, said Ed Emmett, president of the National Industrial Transportation League. The group represents big shippers before government regulatory agencies.
That’s a major concern for the chemical plants along the Ship Channel that depend on trains to move their huge output overland.
“All modes of transportation supposedly have been deregulated, but the very nature of railroad is if you have a chemical plant, you are served by a railroad — and if you don’t like that railroad, you can’t call another one,” said Emmett, a former member of the Interstate Commerce Commission.
Most shippers just want the ability to have another railroad physically serve their plants or at least have the ability to get around “bottleneck rates,” he said.
That urge sparked the formation of a venture combining a group of large chemical makers with the Burlington Northern and Santa Fe Railway Co. to build their own 13-mile spur line.
The $80 million project, called San Jacinto Rail Ltd., would cut the cost of shipping in and out of the four plants in the Bayport area: Atofina Petrochemicals, Basell, Equistar Chemicals and Lyondell Chemical Co.
Since the petition asking to build the line was filed by San Jacinto and Burlington Northern last August, the Surface Transportation Board originally was to have completed its investigation and review by August. But it will take more time because the agency is doing an environmental analysis, said Joe Dettmar, deputy director of the board’s office of proceedings.
“We can’t put out a final decision until the environmental process is complete, and it is pretty clear that it is not going to be completed” on time, Dettmar said.
While the huge traffic tie-up in 1997 at Union Pacific’s Englewood yard in Houston could happen again, Emmett doesn’t believe it will.
The 1997 breakdown wound up costing the railroad hundreds of millions of dollars. Enraged customers, whose shipments were delayed, demanded reimbursement because late shipments hurt their businesses.
The rail slowdown triggered lawsuits filed by the likes of Phillips Petroleum and Air Liquide America Corp. The lawsuits contended Union Pacific refused to acknow-
ledge the extent of its service problems and “set out on a campaign to deceive Air Liquide and other shippers,” the company’s lawsuit charged.
Union Pacific denied those allegations. It has since settled that lawsuit and most of the others. Only one suit is still pending against the carrier from that period.
At the height of the problems, the average time a car spent at the Englewood Yard in Houston was as long as 50 hours, Union Pacific Chairman and Chief Executive Officer Dick Davidson said. Now it is a bit more than half that.
Union Pacific has taken advantage of its recent turnaround by launching a marketing campaign aimed at shoring up its image. The “branding” campaign marks the first such move in years for Union Pacific, which suffered one of its worst public drubbings as a result of the problems emanating from Houston after the merger.
Steve Barkley, a regional vice president with Union Pacific, was dispatched to Houston in 1998 to attack the problems the Southern Pacific merger caused.
One solution was simple — trains in Houston were being moved by dispatchers in Omaha and Fort Worth, Barkley said. The company dealt with that by creating a local dispatching office that was also designed to maximize cooperation with its biggest competitor, Burlington Northern.
The idea for the shared office to coordinate train movements was hatched during a Sunday afternoon meeting in 1998 involving top executives from both companies.
“This was groundbreaking,” said Rod Richardson, superintendent of the coordinating center, which is in Spring and focuses on dispatching trains in the area from Brownsville to New Orleans. “It has worked a lot better than anyone could have imagined.”
One advantage of the setup is that what they call “colorblind” dispatching. The system reduces conflict between the competing interests of the railways by setting priorities based on the kind of cargo rather than the train line.
Intermodal traffic, products carried on stack cars or trailer cars, have the highest priority, followed by chemicals, said Stan Bubela, joint director of the Spring dispatching center.
For example, say a Burlington Northern chemical train is about to leave the South Yard, headed west to Rosenberg. If a Union Pacific intermodal train is heading east into Houston on the same tracks, dispatchers would normally decide to keep the intermodal train coming and hold the chemical train back until the intermodal train is past.
If the trains are carrying similar cargo, the priority goes to the crew that worked the longest.
The staff of the center is also a mix, with 95 Union Pacific employees, 24 Burlington Northern employees and 31 who work on behalf of both companies. An employee of the TexMex Railway, a joint operation of Kansas City Southern and TMM, also is at the center.
Union Pacific also made use of the added track from the merger by creating lines where all the trains run in the same direction. The advantage of this is easy enough to see — it reduced the number of times a train had to pull off the track to let another pass by 41,000 times a year. But initially it slowed operations instead.
“We knew it was going to be a wonderful thing, but the changeover itself was very painful,” Davidson said. “It took about two months to make the changes work effectively.”
Average train speed had slowed to about 7 mph during the height of the slowdown, Davidson said. It is back up to about 15 or 16 mph or even higher today, he said.
“It never will be as fast along the Gulf Coast because you have so much business originating and terminating there,” he said.
Union Pacific also has since integrated its operations with the old Southern Pacific system by installing a new computer system.
Davidson noted that Union Pacific has spent $150 million in the Houston area alone to implement changes and make good on promises of improved service. Much of the improvements were needed because Southern Pacific had not kept up with maintenance improvements, he said.
“Southern Pacific had been neglected because they really had been cash-strapped,” he said.
Union Pacific also had to spend several hundred million dollars to settle lawsuits the slowdown triggered. Davidson did not reveal the settlement figure, only acknowledging it was under half a billion dollars.
In the case of Air Liquide, the company has relied on Union Pacific for years to ship products from its manufacturing plants to national distribution points. The company ships products such as liquid argon and carbon dioxide, supercooled gases that are subject to rapid evaporation, meaning reliable delivery and transit times are paramount.
Phillips Petroleum leveled similar allegations in its lawsuit — that slowdowns and delays cost the company millions because it could not serve its customers properly.
Attorney Ronald Krist, who represented Phillips in its suit against Union Pacific, said the company did a good job of promptly settling the case, but he declined to discuss the terms.
“Railroad law is heavily laden with rules and regulations that limit damages, but in this case it was resolved very reasonably for both sides,” Krist said.
Union Pacific paid out another $34 million in 2000 when it agreed to settle a shareholder lawsuit. That suit, like the others, claimed the company made false and misleading statements about service and congestion following the merger.
Davidson said he never questioned that the problems would eventually be straightened out. But he acknowledged that the “pain” from the merger lasted longer than anyone anticipated.
“It has all paid off,” Davidson said. “Our service is better than it was prior to the merger, operations are clearly more safe and customer satisfaction levels are at an all-time high.”