(The following story by Don Jepsen appeared on the Mail Tribune website on March 19.)
MEDFORD, Ore. — When the House Transportation Committee held a hearing in Salem on freight and passenger rail service in Oregon, no one expected the bitter reaction that followed testimony by a Union Pacific official.
Chris Peterson, director of government affairs for the Omaha-based line, had opened with an overview of Union Pacific’s operations and the line’s investments in the state. “For Union Pacific Railroad,” Peterson said, “Oregon is absolutely a key component to our network.”
Then the knives came out.
Ray Barbee, vice president of sales and marketing for Roseburg Forest Products, which operates nine plants in Oregon employing 2,600, said there are few viable alternatives in rail service, making his company a captive of Union Pacific.
Increased rates, surcharges and a lack of cars all are having a negative impact on business, he said.
“If we can’t get the service we need in Oregon and if we can’t get to our customers via rail, what we’ll do is go outside of Oregon and invest somewhere else,” he said.
He said his company is heavily dependent on rail to get its products to market.
“Plywood, lumber, engineered wood products, all are shipped by rail,” he said. “We do ship some by truck, but our preference is always rail.” He said customers prefer to have their shipments delivered that way.
A spokesman for Union Pacific said the company tries “very hard” to respond to the needs of the shortlines and shippers.
“We have spent nearly a quarter of a billion dollars for improvements in Oregon,” Roger Martin, lobbyist for the company, told the Mail Tribune. “About $50 (million) to $70 million has been for repairs, maintenance and upgrades.”
Another witness at the hearing, Monica Isbell of Portland, a transportation consultant, cited a confidential survey of 21 Oregon companies dependent on rail service that she conducted for a client.
Some of the findings:
* All but one of the shippers experienced service problems with the railroads, some indicating these issues were severe, long-standing and persistent. Problems included insufficient supply of cars, failure to deliver empties when needed, loaded railcars that are not picked up from the rail spur when requested, delays in getting shipments to customers, sometimes forcing discounted or cancelled orders, unresponsiveness of the railroads in solving problems.
* While rail service has declined over the past few years, rates have increased, often dramatically.
* Service from the shortlines was rated slightly higher than the Class I lines by respondents. Isbell said shippers understand that the shortlines often are unable to make improvements because of the service failures of the Class I lines. (A Class I railroad is an interstate line with annual operating revenues greater than $256 million annually. Shortlines operate intrastate.)
“Most of these companies feel powerless to change the situation, and they are afraid to complain for fear it could jeopardize further their already substandard service,” Isbell said.
She said all the shippers believe service will worsen, or at best remain the same. “They don’t believe the railroads will invest enough to meet growing customer demand,” Isbell told the committee.
Kelly Taylor heads up the Oregon Department of Transportation’s rail division. “It’s a lack of competitive access that the shippers are really suffering from,” she said.
Prior to deregulation in 1980 by Congress, there were 45 Class I railroads in the United States. Through acquisitions and mergers, that number has been reduced to seven, with only two — Union Pacific and Burlington Northern Santa Fe — operating west of the Mississippi.
“Because of an aging infrastructure that has capacity issues, they can only take on so much business,” Taylor said. To ensure profitability, the long haul lines employ a service they call “demarketing.”
“They will raise rates in order to push business to other modes,” Taylor said. “It’s their way of congestion control, so to speak.”
Also more profitable and less labor-intensive are unit trains, some up to 100 cars or more. “They’re not picking up as much of the loose carload,” Taylor said, an issue that frustrates rural legislators.
Union Pacific operates in 23 states and in 2006 had total revenues of $15 billion, $2.8 billion of which went for capital improvements. It is the dominant Class I carrier in Oregon. There are 21 shortlines, including the Central Oregon & Pacific Railroad serving Southern Oregon.
Steve Hefley is president of Central Oregon & Pacific (known as CORP). Asked about his line’s relationship with Union Pacific, he chose his words carefully.
When CORP acquired the old Southern Pacific line after Southern Pacific was merged with Union Pacific, it signed what is known in the industry as a “paper barrier.” The agreement prohibits the shortline from doing business with any other Class I railroad.
When Union Pacific is short on cars, or has congestion problems, Hefley said his company suffers and his customers suffer. “I simply cannot get to anybody else,” he said.
Hefley said he could link up with BNSF in the Portland metropolitan area via the Portland & Western shortline for long haul service. “But, because Burlington is a competitor, the answer is always no,” he said.
“You’re basically an extension of the UP, and that can be frustrating at times,” Hefley said.
Union Pacific lobbyist Martin said there is a “disconnect” between what the Class I lines are equipped to do and what shippers expect.
“Growers expect us to show up on a certain day with three or four cars to move their crops,” Martin said. For a line operating more than 32,800 miles of track in 23 states, “that’s just not realistic,” Martin said.
The complaints about car shortages is a “two-edged sword,” Martin said.
“Two years ago the wood products industry wanted more single board rail cars for lumber and plywood shipments. We sent 3,000 to Oregon. Then the housing market collapsed. Those cars are now in storage,” he said.
Hefley acknowledged the railroads had to deregulate. “They couldn’t set their own rates, and no one would invest in them because they weren’t making money,” Hefley said. “Now they’re making lots of it. That’s America, I guess.”
Two years ago the Legislature took a major step in helping railroads and rail-marine connector systems enter the 21st century. A program called ConnectOregon was passed. It authorized the issuance of $100 million in lottery bonds to finance air, rail, marine and transit infrastructure.
Of that amount, $40 million was allocated for rail upgrades and another $10 million for rail-marine linkages. “That was huge,” said Taylor of ODOT. The 2007 session is now considering a second round of funding for ConnectOregon — another $100 million, maybe $150 million.
Another proposal is to take revenues from the sale of vanity license plates and use them to help — and possibly save — two roundtrip Amtrak runs between Eugene and Portland. The money, some $4.3 million, would be used to provide longer sidings that freight trains could use to allow Amtrak to keep on schedule.
“There’s not enough passing lanes in the system,” said Taylor.
Gov. Ted Kulongoski has also included in his budget a request for $2 million to finance a comprehensive rail study. “We need to find out how to keep Oregon in the game,” Taylor said. California and Washington have done their own studies.
“If this is funded,” she said, “it will give the policy makers … a strategic blueprint to know where to make the investments that will yield the greatest benefits.”
The need for rail service is becoming critical in America, said John Watt of Medford, a former legislator. Now a consultant, one of his clients is CORP.
Much of the manufacturing of goods has moved offshore. “It’s cheaper to do business and produce things in Southeast Asia,” Watt said. It then comes back as container cargo to ports already at or over capacity.
And Americans are buying. “This country’s appetite for goods is as strong as ever, if anything it is increasing,” Watt said.
Martin said one of Union Pacific’s main concerns is upgrading the aging infrastructure — rail lines, tunnels, bridges. “We’re going to need more double tracking and longer sidings,” Martin said. Another priority is clearing up “choke points” primarily in the Portland, Salem and Eugene areas.
“These are major priorities. This is something we have to do,” he said.
Watt said he is “heartened” by the new recognition in the Capitol of the importance of rail, as demonstrated by ConnectOregon and what he senses is a new spirit of cooperation between the shortlines and the two Class I lines.
“Just like the rest of us, UP and other long-haul lines see the handwriting on the wall. They’ve got to expand,” Watt said. “And that’s a good thing for us and for Oregon.”