(The following article by Suzanne Marta was posted on the Dallas Morning News website on August 24.)
DALLAS — Shippers who depend on trains to transport bulky goods have spent much of this year grappling with delays in rail service.
But as the summer months close, many worry the worst is yet to come. In September, the shipping business kicks into high gear in advance of the busy holiday season for retailers.
“It’s approaching a gridlock situation again with shipments getting delayed, cars not getting back on time for reloading and trouble getting raw materials in,” said David Harpole, a spokesman for Houston-based Lyondell Chemical Co.
The congestion and delays come at a price to businesses nationwide, just as they had begun to enjoy a boost from a recovering economy.
Although it’s hard to put a number on the total bill to the economy for the delays, rail-related issues cost Lyondell nearly $1 million during the first half of the year.
The company, which produces chemicals used in plastics, automotive parts and housing materials, was forced to shut down some production temporarily because materials weren’t in place.
Experts don’t anticipate a repeat of the gridlock that plagued Texas rail lines in 1997, following the merger of the Union Pacific and Southern Pacific railroads.
Still, if the problems are sustained, they could harm the ability of U.S. manufacturers to compete against overseas rivals, said Ray Perryman, a Waco economist.
This year, Union Pacific Corp. – the nation’s largest railroad – has again faced some of the worst congestion.
Mr. Harpole said Lyondell hasn’t received any assurances from Union Pacific that things are going to get better soon.
“We hope this is as bad as it gets,” Mr. Harpole said.
Union Pacific officials directed questions about the railroad to a series of letters the company has written to its customers.
Making adjustments
Union Pacific has been forced to turn down some of its most profitable business and scale back service to other clients as it wrestles with fast-growing demand that’s outpaced forecasts and capacity.
The company, based in Omaha, Neb., has scrambled to hire and train enough workers to handle the added demand and to secure enough locomotive power.
Union Pacific is set to add 5,000 employees this year, with 804 graduating this month and in September, Jack Koraleski, the railroad’s executive vice president of marketing and sales, wrote customers on Aug. 11.
The railroad has added 142 new locomotives and leased nearly 350 others. About 250 more locomotives will be added before the end of the year.
Those efforts have helped Union Pacific make strides to restore its system, with improved results along the West Coast and on the Sunset route between Los Angeles and El Paso.
But the railroad continues to struggle with chokepoints in Houston and South Texas.
“We’re already at high levels of volume and at capacity,” said Phil Marlino, who chairs the rail committee for the National Industrial Transportation League. “The question is, ‘Will these plans help as much as they need to?’ ”
Fort Worth-based Burlington Northern Santa Fe Corp., a Union Pacific rival, has said it expects to be able to handle the forecast growth during the peak shipping season.
Alan Cramer, a supply chain manager for Atofina Petrochemicals Inc. in Houston, had to start working 12-hour days to keep up with all shipping-related problems that have plagued the company for the last several months.
“Anytime there are problems with the rail networks, we immediately feel it,” said Mr. Cramer, whose company operates three Gulf Coast plants that make plastic pellets. “Everything becomes crisis mode.”
In an economy where there’s a premium on “just-in-time” inventory controls, rail delays can threaten the manufacturing process by causing work stoppages if products aren’t there in time.
Supply chain
“The whole supply chain is slowing down,” Mr. Marlino said. “Products aren’t getting to market in time and in some cases are spoiling or being rendered useless.”
Routine trips across Houston that used to take two days are now stretching to a week.
“We’ve had some close calls with our customers,” Mr. Cramer said. “At that point, we just have to figure out the closest place we can get our product off the train and truck it in.”
Trucks work in a pinch but are costly. It takes four trucks to carry what one rail car can hold.
“You’re probably at least doubling your costs for transportation due to transloading, additional rail car commitments, adjustments to lead time, plus a lot more in labor to manage those changes,” Mr. Cramer said. “It becomes exponential in its impact.”
Last month, Union Pacific reduced by 30 percent the number of rail cars used to haul rock in South Texas to relieve congestion.
Mr. Koraleski said in the Aug. 11 letter that despite fewer cars, the railroad is moving the same volume of rock, has increased train velocity, and has reduced the number of blocked tracks.
Michael Stewart, president of the Texas Aggregates and Concrete Association, said those improved results reflect how much congestion had hindered shipments before the railroad took cars off the system.
“Peak season is only going to exacerbate things,” he said.
Union Pacific executives met with about 60 Texas Aggregates and Concrete Association members earlier this month to discuss what the railroad is doing to cope with congestion.
“They told us it was going to be at least six months before we see any significant improvement,” said Michael Stewart, association president. “I think it could take more than a year.”
He said some smaller aggregate companies have also been hurt by Union Pacific’s decision to make fewer stops to streamline operations.
One company operating west of Houston, for example, has been forced to switch to truck service to get the aggregate it needs to produce concrete. Union Pacific decided the company’s biweekly shipment of 16 carloads wasn’t large enough to warrant a stop, Mr. Stewart said.
“It greatly increases costs, but he’d have to shut the doors otherwise,” Mr. Stewart said.
Traditional peak?
High levels of demand during typically slow periods this year have caused some industry analysts to wonder whether there will be a traditional peak this fall.
“We’ve never seen such a big off-peak season,” said Anthony Hatch, an independent rail analyst based in New York. “Maybe some of that seasonality has smoothed out.”
Railroad officials say they’re already seeing traffic volume surge above 2003 peak levels for international intermodal shipments, which are typically associated with the holiday retail season.
But those results may reflect a changing schedule for peak season, rather than foreshadow another spike in demand.
“The demand curve for peak season appears longer, rather than higher,” Mr. Koraleski wrote in his letter to customers earlier this month.
Mr. Hatch predicted shippers will probably see more delays but “nothing cataclysmic” during the next few months.
“You’re going to have late nights and angry phone calls, but I think the system will come out OK,” Mr. Hatch said.