(The following story by Stacie Hamel appeared on the Omaha World-Herald website on March 31.)
OMAHA — Union Pacific Railroad’s service has slowed to the point that its system is near capacity, and it even has suggested that some customers ship by truck instead.
“We really have to protect the whole network,” said Jim Young, Union Pacific’s new president, even if that means declining some business in order to keep current customers satisfied.
The problem – created by train crew shortages coupled with high shipping demand – does not approach the crisis Union Pacific experienced in 1997 and ’98 in the wake of its Southern Pacific merger. Young acknowledged, however, that the focus on fixing service problems has prevented U.P. from grabbing a larger slice of the nation’s rebounding economy.
“We’re not meeting our customer requirements right now for service. We have more demand than we can handle. We’re going to fix that.”
The Omaha-based railroad – the nation’s largest – doesn’t want to repeat the service crisis of 1997, when shippers filed suit and freight nearly came to a halt.
“I’m confident we’re doing the right things,” Young said. “We very much understand what the issues are and have plans to correct the issues.”
Those plans include bumping up the purchase and lease of 121 new locomotives from the 2005 budget to this year and hiring nearly 4,000 train-service workers. In 2003, U.P. also boosted the number of locomotives it acquired and hired about 1,500 employees.
Even with those steps, the railroad will be pressed to meet summer demand, Young said.
“If volume continues to be very strong, we will be challenged in the short term,” he said. “It takes about six months to get an employee trained and available for work.”
Young declined to set a timetable for when the railroad will again reach operating levels of 2002, its last best year for performance.
James Valentine, a transportation analyst for Morgan Stanley, last week downgraded Union Pacific’s stock, citing what he called operational inefficiencies and network congestion that he said continue to build and could plague the railroad into 2005.
Valentine was traveling Tuesday and could not be reached for comment.
U.P.’s stock price has generally declined since reaching a 52-week high of $69.56 on Jan. 2. It closed Tuesday at $60.42.
Service problems have centered on the Sunset Corridor, which runs from Los Angeles to El Paso, Texas, although other parts of the West also have been affected.
Young noted that when one part of a network is stressed, “the whole network can be stressed.”
Average train speed was 21.5 mph for the most recent week, down from about 25 mph for first quarter 2003.
That’s faster than the 12.3 mph average train speed during the worst of the 1997 crisis. At that time, congestion was worst around Houston and grew out of the difficulty of putting two railroads together.
Current service problems grew from crew shortages created when larger-than-expected numbers of engineers and conductors took advantage of a newly enhanced federal retirement plan.
Then the economy started to rebound more quickly than expected.
“It really took off toward the end of the third quarter,” Young said of shipping demand. “It’s really strong now.”
Union Pacific will show an 8 percent to 9 percent increase in volume for March, Young said. “That gives you a feel for how strong the business is right now.”
The railroad is working with shippers to better manage the amount of freight coming into the system.
“Our goal is not to simply recover but to significantly improve our service to customers long-term,” Young said.