(The following article by Tim McLaughlin was posted on the St. Louis Post-Dispatch website on July 15.)
ST. LOUIS, Mo. — What should be a glorious ride for American railroads has turned into a glitch-ridden mess.
And that’s not counting unpredictable events, like bad weather and major derailments.
Some of the country’s biggest operators – most notably Union Pacific Railroad – can’t stoke the U.S. economy’s engine room fast enough. The upswing in the economy has caught some railroads woefully short of the conductors, engineers and locomotives needed to alleviate congestion. Those are chief reasons why Union Pacific and others are turning away business, angering customers and leaving tens of millions of dollars on the table each quarter.
Congestion could get worse when the new car model introductions, the fall grain harvest and the holiday retail season converge during what’s forecast to be a record-breaking, peak season for rail traffic. Most coal burned in electric power plants moves by rail. America’s freight rail system is often taken for granted by consumers who don’t fully realize that the cargo moving over 142,000 route miles is a driving force behind U.S. productivity and the country’s leading position in global markets.
“They form the most efficient and cost effective freight rail system in the world, saving our economy billions of dollars annually,” according to a study released in January by Association of American Railroads.
Inaccurate forecasting and a severe labor shortage, however, have contributed to clogged rail traffic from Los Angeles to the eastern seaboard, disrupting the shipment of U.S. staples such as coal, wheat, lumber and iron ore. The timing couldn’t be worse. The weak dollar has created a big appetite for our manufactured goods overseas, but clogged railways have dampened a revving U.S. economy.
The latest evidence came Thursday when St. Louis-based Peabody Energy, the world’s largest coal producer, said rail problems reduced its shipments by more than 500,000 tons, or about 1 percent of total shipments, in the second quarter.
“We just have to assume that we won’t get complete service from the rails going forward,” said Richard Navarre, Peabody’s top financial officer.
And while a national debate rages over U.S. jobs going overseas, railroads can’t hire people fast enough. A newly hired rail worker can start out making $45,000 a year, not counting some of the best benefits in our industrial economy.
But at Union Pacific – the nation’s biggest railroad – the company has to interview 10 people to get one acceptable candidate, company Chairman Richard Davidson recently lamented. Hires have to pass a drug test and physical exam. Train crews often work around-the-clock, irregular schedules.
“It’s easy to make $75,000 a year after a few years,” Union Pacific spokeswoman Kathryn Blackwell said.
The company plans to hire 5,000 train service employees this year, she said. But attrition and retirements will diminish net gains.
“We didn’t start this hiring process soon enough. Now we’re playing catch-up,” Blackwell said.
Meanwhile, Union Pacific’s locomotive budget has swelled as it scrambles to increase train speeds on its network. It has acquired 500 locomotives over the past nine months and will add 300 more through the rest of 2004 while accelerating an order for another 125.
Railroads expect to hire 140,000 new workers over the next decade, according to the Association of American Railroads. And that estimate could be too conservative, the group says, because nearly 40 percent of rail employees are eligible to retire within the decade.
Union Pacific – the nation’s biggest railroad – says “unprecedented demand” is a major reason behind the chaos, but industry analysts see that assessment as overblown.
Derailments and Mother Nature can exacerbate problems on railroads not operating efficiently. A 40-car coal train derailment near Topeka, Kan., in March shut down a critical Union Pacific route for nearly four days. And when floods washed out a major bridge in Mexico, that contributed to congestion in Houston, the company says.
“CSX Corp. and Union Pacific are having a contest to see who can do the worst,” Donald Broughton, a transportation analyst at A.G. Edwards, said. “Right now Union Pacific is winning, but CSX isn’t far behind.”
Broughton added, “It’s costing many of (their customers) significant amounts of profitability. Heavy manufacturing is trying to have a renaissance.”
And there’s no quick solution.
It can take 14 weeks to train a new train conductor or brakeman. And it takes six months to train an experienced conductor to become a locomotive engineer, Union Pacific executive vice president of marketing and sales Jack Koraleski recently explained to customers in a series of service letters. “This time-consuming process severely limits our ability to ramp up quickly in response to sudden increases in demand and prevents a quick fix,” Koraleski said.
After carload numbers peaked in 1998, the railroad industry cut its workforce to lower operating costs during a downturn that lasted through 2003.
Rail employment among the five biggest operators totaled nearly 177,000 in March 1999 and stood at about 147,000 in March 2004, reflecting a 17 percent reduction.
Union Pacific only cut 11 percent during that time, but cut more workers with critical functions, said Broughton.
“Other rails had been more aggressive in cutting staff, but if I lose an accounts payable clerk, it doesn’t slow the train down. But if I lose experienced train crews, and I see a surge in demand, that’s a problem.”
Some railroad operators, however, were not caught sleeping at the switch.
Norfolk Southern Corp. is not apologizing to customers, just crowing.
Henry C. Wolf, vice chairman and chief financial officer of Norfolk Southern, told a gathering of Wall Street analysts and investors last month that the company’s rail system was running like a “thoroughbred” as it secured better prices from customers asking for more rail cars.
Last year, Norfolk Southern’s average number of employees declined, but it still had a net increase of 453 train service workers.
At Union Pacific, it’s a different story.
With a shortage of crews and locomotives, average train speeds on Union Pacific lines slowed nearly 11 percent to 21.37 mph in the second quarter, compared to the year-earlier period. The overall decline among the five biggest railroads, with Union Pacific included, was only 6.9 percent.
Reduced capacity and slower trains means poor service for railroad customers.
The rail slowdown hit Arch Coal Inc. of Creve Coeur harder than expected. Arch, the country’s second largest coal producer, said it has had trouble supplying customers throughout the country.
While much of the attention nationally has centered on Union Pacific’s troubles in the western United States, a near-mirror slowdown at CSX has hampered Arch’s eastern coal mining operations.
Last week, Arch warned that the disruption of service would cut second-quarter profit by about $8 million.
“The sun is shining and only a couple of rails are making hay,” Broughton said.
Reporter Jack Naudi of the Post-Dispatch staff contributed to this report.