(The Kansas City Star posted the following article by Randolph Heaster on its website on August 24.)
KANSAS CITY — Last month, Kansas City Southern chairman and chief executive Mike Haverty took the railroad industry’s top regulator on an aerial tour of Kansas City’s freight rail operations, the nation’s second busiest by volume.
Surface Transportation Board Chairman Roger Nober was making his inspection as a heating economy was overloading the railroad system in certain hotspots of the country, particularly the Union Pacific Corp.’s resources in the West.
“He was astounded by how fluid the traffic generally was in Kansas City, as opposed to what he had seen in places like Houston and Los Angeles,” Haverty recalled recently.
Nober said Kansas City’s rail system has some geographic advantages that other rail hubs lack, but the area also benefited from more than $500 million in rail infrastructure improvements in recent years. He pointed to the $74 million Sheffield Flyover Rail Bridge in the Blue Valley industrial district, which has eliminated delays at one of the busiest rail intersections in the country.
“The carriers in Kansas City have made infrastructure investments that have kept your system operating more smoothly,” Nober said last week. “It’s sort of a minimodel for what they’re looking at in Chicago.”
The movement of goods by rail has become a much-discussed topic in the business world as the economy began to improve earlier this year. U.S. railroads have been trying to do more with less: moving more freight with fewer workers.
In 2003, the major railroads moved nearly 2 million more carloads than 1999, generating $3.1 billion more in revenues. And that was done with 23,000 fewer workers at the major carriers.
But earlier this year as the economy picked up, Union Pacific, the country’s biggest railroad, was caught off-guard by the amount of freight customers needed shipped. That has led to operational breakdowns and delivery delays in some of its areas.
For many in the industry, it has brought flashbacks of 1998, when Union Pacific’s acquisition of the Southern Pacific Railroad left the rail system in a snarl akin to Interstate 35 at rush hour when a truck has overturned, except it lasted for weeks. Most of the nations railroad got bogged down in the mess because of interline agreements in which more than one carrier delivers a customer’s goods. In addition, railroads can share rails through trackage-rights agreements.
But most industry executives and observers are cautiously optimistic that type of catastrophe can be averted.
“I don’t see it getting as bad as back in 1998,” Haverty said. “That affected the entire system. This seems more isolated to the Pacific Northwest, West Coast and Houston areas.”
An industry analyst agreed.
“The UP is not in a meltdown stage,” said Jason Seidl, transportation analyst with Avondale Partners. “There is going to be a strain on the system, but the goal this year is to bend but not break.”
Peak season looms
Still, more trouble hit Union Pacific last week. A tunnel fire in Oregon closed down its main route in the Pacific Northwest affecting lumber shipments.
Because of the intertwined nature of the business, when Union Pacific, based in Omaha, Neb., encounters congestion and bottlenecks, the rest of the freight transportation industry can suffer.
Trucking companies, which are experiencing their own record levels of freight, also have been affected by the delays in the rail industry. In addition to customers offloading more freight to trucks instead of rail, they have seen delays in their own intermodal shipments that go from trucks to trains and back to trucks again.
“We’ve had to take more and more freight off the rails and put it on the road,” said Bill Zollars, chairman and chief executive of Yellow Roadway Corp., last month. “That’s a direct result of the poor performance of the rails.”
Union Pacific said that it is addressing the problems that arose earlier this year amid record carloads. The railroad is continuing to make changes and adjustments in preparing for the peak season, including hiring more people and adding equipment.
“We’re working through a lot of the service issues,” said Davis. “We’re beginning to get some improvements that are starting to show.”
Despite the bottlenecks surfacing in other regions of the country, Union Pacific along with the other major railroads have had a relatively smooth go of it in the Kansas City area, thanks to upgrades in infrastructure along with some geographic advantages.
“The railroads mostly operate in the flood plain in Kansas City,” Nober said. “The trains generally don’t run through the neighborhoods and cause delays like in Chicago and Houston.”
While Kansas City is relatively fluid, the problems of CSX Corp. in the East and Union Pacific in the West and Southwest are giving businesses jitters because the “peak season” for holiday shipments hasn’t begun yet. The rail system also will get further burdened as fall grain shipments fill the system. A bumper corn crop is being predicted for this year.
“There’s very tight capacity on the trucking side, too, in addition to the railroads,” said Peter J. Gatti, executive vice president of the National Industrial Transportation League, one of the nation’s biggest shipping associations. “There’s a lot of uncertainty in terms of what shippers can do and what options are available to them.”
Transportation issues, particularly rail problems, are obviously on the mind of the business world. They surfaced in the Federal Reserve Bank’s July Beige Book report on U.S. economic conditions.
“Transportation-related issues were reported in several districts as well. St. Louis and Kansas City reported delays in coal shipments due to crowded railroad lines; contacts in the Dallas District also expressed concerns about congested railroad lines. And Boston noted that declines in trucking capacity had resulted in rising shipping prices. Transportation and shipping services were in high demand across the country” the Beige Book report said.
Given the level of concern about the peak season, Surface Transportation Board Chairman Nober earlier this summer asked all the major railroads to submit a plan on how they would handle the bulge of business in the fall. The railroads have submitted their responses, which are available on the board’s Web Site ( www.stb.dot.gov).
In addition to addressing concerns of the board , the railroad executives will convene in Kansas City Sept. 9 for a forum sponsored by the Association of American Railroads on handling peak-season goods movement.. As they have during times of freight build-ups in the past, the major carriers will provide updates on how they plan to operate in the coming weeks. Nober will address that program.
“I’m cautiously optimistic about the peak season,” Nober said after hearing the responses of the railroads. “The UP and CSX have improved slightly. That’s the first step — things aren’t getting worse. But for me, the jury is out till we get further into the season.”
Working on the railroad
One step railroads are taking to keep American goods moving is to hire workers and add equipment as quickly possible. After years of downsizing employment, the railroads are in an aggressive hiring mode. It couldn’t come soon enough for rail workers who have endured rugged overtime schedules for several months.
Union Pacific, which has 46,000 employees system-wide, expects to hire about 6,500 more workers over the course of 2004, including 5,000 train-service employees, said Davis, a Union Pacific spokesman. About 1,800 employees are projected to leave the company through attrition this year, Davis said.
Union Pacific already is seeing some improvements in its operations, Davis said.
The railroad’s average train speed is up one mile per hour from the second quarter, which allows about 30 more trains to operate on the system at a given time, he said.
On Union Pacific’s Web Site, Jack Koraleski, executive vice president of sales and marketing, has been giving periodic updates since April on the railroad’s service. In his latest letter to customers on Aug. 11, Koraleski said 804 train-service workers will join the railroad this month and next. In addition, 136 engineers will join the system this month as part of 266 new engineers projected for the third quarter.
The efforts to address the labor shortage have placated the United Transportation Union, which earlier this year filed suit against Union Pacific, alleging the carrier was not addressing its labor shortage and was using management employees as engineers.
“Based on evidence that they are trying to correct the situation, we have withdrawn the lawsuit,” said Frank Wilner, a union spokesman. “We are working toward a resolution on that issue.”
Wilner said the union, which represents brakemen, conductors and yard workers, has begun a pilot program in Chicago in which it is helping to train new workers hired by Union Pacific.
“The UTU can do a better job in training new hires than outside firms that generally do not know the local situation,” Wilner said. “They don’t know the idiosyncrasies of the region the way our members do.”
Still, training takes time, and many rail workers across the country are working around the clock with very few off-days. “As far as train crews are concerned, fatigue is still a problem,” Wilner said. “They’d like to get more days off, but the problem is not going to be resolved short-term. We’ve got a long way to go, but the vectors are now pointing in the right direction.”
Union Pacific has tried to ease the problem with an allocation system for certain shipments to protect specific terminals from overload, especially in the West. But that has repercussions for companies such as Precision Components Inc. of Phoenix .
For a couple of weeks the company got no shipments from Union Pacific while the railroad tried to resolve its congestion issues, said Hal Owens, its president. Precision Components receives shipments of construction materials and raw commodities by rail for customers who don’t have rail access. Union Pacific has resumed shipping to the business, Owens said, but it has left him feeling dubious about what will happen when the rail lines are further congested by holiday shipments.
“I certainly hope we’ve seen the worst of it,” he said. “Union Pacific is trying its best to solve the problem and reduce the congestion, and we’re hopeful that they do.”
While Union Pacific’s allocation of railcars and a reduced number of train starts have increased train speeds in the West, Koraleski said Houston and south Texas remain a problem.
“Crew and spot locomotive shortages continue to slow operations,” he said in his letter.
Bridging problems
For the most part, Union Pacific’s problems have not spilled over to affect the other carriers. Union Pacific saw its profits fall in the second quarter because of congestion issues, but carriers such as Burlington Northern Santa Fe Corp. and Kansas City Southern reported robust gains.
About 145 Burlington Northern trains go through Kansas City every 24 hours, up from 135 trains a few years ago, said railroad spokesman Steve Forsberg.
“Kansas City is really at the epicenter of the tonnage that flows across our system,” he said. “We are moving record volumes right now.”
Although Burlington Northern also has a work force that is being scheduled long hours, Forsberg said the railroad is trying to address that issue. The railroad plans to hire 2,300 new workers by early 2005, with 1,700 joining this year.
“We’ve stepped up our hiring plans, and that started late last year,” he said. “The new employees are coming on board throughout the course of the year.”
In Kansas City, Burlington Northern has added about 120 train-crew workers in recent months, Forsberg said.
When the Sheffield flyover bridge opened two years ago, Burlington Northern projected that it would move 1.6 million intermodal containers and loads through the Kansas City area, Forsberg said. The railroad is now moving about 2 million intermodal units annually, he said.
The $74 million bridge was built by the Kansas City Terminal Railway Co., a consortium of six railroads operating in Kansas City and Missouri. A similar flyover bridge, costing $60 million, is being built to separate two Burlington Northern routes that intersect near the Missouri-Kansas border, called the Santa Fe Junction. It will be the largest three-level flyover in the country.
Called the Argentine connection, that bridge is expected to open in early September, said Chuck Mader principal/vice president of TranSystems Corp., the engineering firm that designed both flyover bridges. “That will also accelerate the flow of trains through Kansas City, including for Union Pacific,” said Forsberg of Burlington Northern.
The flyover bridges are the most visible infrastructure improvements in the area’s rail operations, but Kansas City Southern’s Haverty said other investments have been made as well.
“In the last five years, about a half a billion dollars have been spent on rail infrastructure in Kansas City,” he said. “Most of it has been done through the KCTR (Kansas City Terminal Railway), but the two most prominent railroads that have stepped up to make it happen are Burlington Northern and Union Pacific. I give them both a lot of credit.”
And with all forecasts indicating that the freight industry will continue to grow, future investments in area rail infrastructure are expected. Rail projects under a 2010 plan of the Kansas City Terminal Railway are being moved up because of the service demand, said Mader of TranSystems. These will include track construction projects, signal upgrades and other improvements.
“In terms of train traffic, Kansas City has experienced a higher-than-normal rate of growth than what we expected in planning,” Mader said. “It’s estimated that we could have $100 million in rail projects over the next few years.”