(Bloomberg News circulated the following article by Rip Watson on July 9.)
OAKLAND, Calif. — Union Pacific Corp., the biggest U.S. railroad by sales, will turn away cargo and reduce the number of trains it operates in another effort to reduce congestion.
The actions include an allocation system to limit some shipments through “key terminals” for all cargo categories, the Omaha, Neb.-based railroad said in statement, without giving details.
Union Pacific said the moves are needed to prepare for a peak season starting this month, with freight expected to exceed last year’s record volumes.
Union Pacific stopped running three trains in March for United Parcel Service, and cut back other customers’ shipments. The railroad is adding workers, locomotives and railcars to cut delays. The average train speed at Union Pacific, which cut its second-quarter profit forecast in June, has slowed more than 10 percent from last year.
“This is likely to send panic into the minds of some shippers,” said James Valentine, a Morgan Stanley analyst in Chicago who rates the company an “underweight” and doesn’t own its shares. “There are no alternatives because of tight capacity at other trucking and rail companies. This is further confirmation that it is going to take Union Pacific longer to fix its problem.”
Company spokeswoman Kathryn Blackwell wouldn’t say which customers will be affected or how many of the railroad’s 2,500 daily trains will be cut. She said the targets for cuts are terminals such as Los Angeles, Houston and Portland, Ore., which are the most congested.
Traffic that moves by a rail-truck combination is the biggest business in Southern California.
Houston is a center for chemical shipments.
Union Pacific’s shipments this year have risen 2.5 percent, the slowest growth rate among major U.S. railroads, and Chief Executive Richard Davidson said last month that the company had to forgo some shipments because of lack of train crews that contributed to delays. Burlington Northern Santa Fe Corp., the second-largest U.S. railroad by sales, has increased shipments more than 10 percent.
Union Pacific said in its statement Thursday that it still expects revenue to rise 4 to 6 percent this year, and expects record shipments in the second half. The company didn’t forecast earnings or say when it expects congestion to ease.
“The steady increase in demand for carloadings has meant that we have been unable to gain on the situation,” Executive Vice President Jack Koraleski said in a letter to customers. “Our velocity has remained stubbornly flat. It was our hope that these increases in critical resources would help to restore our velocity.”
Burlington Northern has said it will limit shipments at its terminal near downtown Los Angeles for rail-truck cargo and hasn’t announced any other cuts.
Separately, Union Pacific and Fort Worth, Texas-based Burlington Northern, the biggest railroad by shipments, said they will boost prices on shipments that travel by a combination of rail and truck, their busiest freight category, as demand rises from customers starting to ship holiday goods.
Union Pacific shares fell 71 cents, or 1.2 percent, to $57.59 in New York Stock Exchange composite trading. The company’s actions to reduce congestion were announced after the close of trading. Burlington Northern shares declined $1.09, or 3.2 percent, to $33.53.