(The following article by Paul Monies was posted on the Oklahoman website on October 10.)
OKLAHOMA CITY — Labor shortages and increased demand from a rebounding economy are stretching capacity for many railroads at the end of the fall shipping season, all of which could translate into higher prices for consumers.
Railroads are reporting record volumes, including two of the state’s largest: Burlington Northern Santa Fe Corp. and Union Pacific Corp. But labor shortages, bottlenecks and higher fuel costs have caused problems throughout the system.
“All major transport on the ground is highly constrained right now,” said Jack Waldo, trucking analyst for Stephens Inc. in Little Rock, Ark. “We’re seeing a lot of truckload carriers operating at 100 percent capacity and less-than-truckload carriers operating between 85 percent and 100 percent. The rails seem to not be able to take on very much more freight due to capacity constraints resulting from service levels.”
Late summer and early fall make up the busiest shipping times for many retailers and manufacturers, who want to get their products in stores in time for the busy holiday season.
“Even if a particular railroad is not suffering from its own capacity issues, it is usually affected to some degree by problems at its rail partners,” Standard & Poor’s analyst Lisa Jenkins said in a report last month.
Rail capacity problems across the country have already squeezed Oklahoma businesses, especially those in agriculture, said Mark Hodges, executive director of the Oklahoma Wheat Commission. Some grain elevator managers were hit with a $100 surcharge per railcar in April, then another $100 per car surcharge in June, he said.
“Agriculture isn’t a large volume of most rail traffic in the state and doesn’t get the attention of the major railroads as much as other industries,” Hodges said.
Mike Cassidy, manager at Cassidy Grain Co. in Frederick, said he doesn’t expect the rail capacity problems to ease next season.
“Equipment is very scarce and very expensive,” Cassidy said. “They’ve reduced their service, which has gotten poor as the rates have gotten higher.”
Short-line railroads, which feed into national networks, are also being affected by record volumes. The Stillwater Central Railroad, whose main line runs from Tulsa through Oklahoma City to Snyder in southwestern Oklahoma, has seen traffic rise almost 30 percent. The railroad now averages four BNSF trains each day from Oklahoma City to Tulsa. BNSF didn’t need those trains two years ago, Stillwater Central officials said.
“We’re very pleased and excited about it, but nonetheless it does pose a challenge,” said Ed McKechnie, chief commercial officer for Stillwater Central. “Most of our customers have seen little or no interruption of service, but some transit times may be 24 to 36 hours longer on a long-haul just because of congestion in yards.”
The Stillwater Central is one of the state’s main industrial railroads. It carries gypsum from southwestern Oklahoma to cement plants. It also carries tires from Goodyear in Lawton and ships cement to customers in Oklahoma City and Tulsa. McKechnie said most of the railroad’s customers have been able to deal with tight capacity through extra planning.
“They might have to order the cars six days out rather than five,” he said. “Everybody’s been working together. We think we’ve got a handle on it.”
BNSF runs a major train-to-truck terminal in Oklahoma City. That line of business, called intermodal, is the railroad’s fastest growing segment, BNSF spokesman Joe Faust said.
“We are experiencing some issues that are impacting all railroads,” Faust said, “but overall, we are not seeing any major delays in our shipments or timing to customers.”
Railroads have struggled to attract new workers, in part because many didn’t anticipate so many of their older workers would take advantage of a change in the Railroad Retirement Act in 2001. It allowed workers with 30 years of service to retire at 60 with full benefits.
“A lot of our employees did that, and more than we thought,” Union Pacific spokesman Mark Davis said.
The early retirements took a while to impact railroads, in part because demand wasn’t as strong during the recession. Now railroads are scrambling to add and train workers and raise capital for extra railcars and locomotives.
In the next few years, Davis said Union Pacific plans to add about 4,000 workers each year for train operations, and another 1,500 for other railroad jobs. BNSF also is ramping up employment by 2,300 this year, Faust said. The Stillwater Central, which has about 60 employees in Oklahoma, has plans to add a few workers.
“Hiring people in the rail industry is always a challenge, and it’s even more so today,” said Stillwater Central’s McKechnie. The company has a zero tolerance policy for drugs and alcohol. Weather and round-the-clock hours also are challenges in hiring, he said.
McKechnie said he expects growth to continue, although maybe not at the same rapid pace as it has this year. He doesn’t expect capacity to ease until politicians start talking about a national transportation plan that addresses railroads.
“The last time we talked about a transportation policy was when we built the interstate system in the ’50s,” McKechnie said. “How many more lanes of highways can we afford to build? It doesn’t have to be a head-to-head competition between us and trucking. Railroads are good at what they do, and trucks are good at what they do, and we need to devise a national transportation policy that reflects that.”
Meanwhile, higher fuel prices have pushed shipping costs higher, which will no doubt start hitting consumer’s wallets.
“As we continue through the peak shipping period, I don’t see these types of factors waning much,” Stephens analyst Waldo said. “If anything, I think they’ll put some pricing pressure on the consumer and help improve rates for the truckload, less-than-truckload and rail carriers.”