(The following article by Stacie Hamel was posted on the Omaha World-Herald website on July 23.)
OMAHA, Neb. — A ready-mix concrete plant in southeastern Texas used to receive 16 rail carloads of aggregate material every two weeks.
Now, it gets none.
Union Pacific Railroad has reduced rock and aggregate shipments in Texas as part of its plan for dealing with the peak shipping season. But what is hurting some customers – and it definitely hurts, industry representatives said – is helping to finally free parts of the rail system from congestion it has fought since fall.
For example, traffic has been moving fluidly for several weeks on the critical Sunset Route, said spokeswoman Kathryn Blackwell. The route runs from the busy Los Angeles port to El Paso, Texas, and had been one of the most congested stretches of U.P.’s nearly 33,000-mile system in 23 states.
“It’s still not moving as quickly as we’d like it to, but it is fluid,” Blackwell said Thursday.
Although congestion has worsened in the Houston area, the Pacific Northwest has improved, she said. And U.P. is caught up on seaport cargo.
Dealing with congestion and slow service has been cutting into earnings since last fall. The Omaha-based railroad announced second-quarter earnings Thursday of 60 cents per share, a 43 percent drop from the same period last year.
Even record revenue and shipping volume in the second quarter couldn’t overcome the costs of hiring thousands of train service workers, adding hundreds of locomotives and burning 346 million gallons of high-priced diesel, said Chairman and Chief Executive Dick Davidson.
The railroad also has reduced the number of trains in some areas, limited some types of shipments and stopped seeking new customers as demand shot beyond expectations.
“We know we aren’t living up to the potential of this great company, but we remain absolutely focused on resolving the operational issues that have temporarily limited profitability,” Davidson said.
Limiting shipments is having a profound effect on companies such as the ready-mix plant, which can’t operate without shipments of aggregate materials, said Michael Stewart, president of the Texas Aggregates and Concrete Association.
“He’s a typical example,” Stewart said of the plant’s owner. “Does he just shut his facility down or does he truck his aggregate in, which is extremely costly for an operation like that?”
Union Pacific agreed Thursday to send Railroad President Jim Young and industrial products vice president and general manager Greg Barbe to meet with the group in the first week in August. Senior executives have met with other customers in recent months.
Marty Durbin of the American Chemistry Council said his members are struggling to get railcars: “One of our facilities was literally going to have to shut down if they didn’t get cars last night.”
Many rail shippers are served by only one railroad and can’t turn to competitors.
Now, U.P. is raising prices.
“At a time when you can’t get the service you need to serve your customers, and the talk now is a rate increase. That just adds insult to injury,” Durbin said.
Young said that June was U.P.’s 10th month of record carloadings, despite slowdowns in parts of the 23-state system.
Davidson said the company expects third-quarter earnings of 75 cents to 85 cents a share.
By the end of 2004, Davidson said, the railroad will have trained 5,000 more train crew workers, will have acquired nearly 750 more locomotives and will manage volume better.
“We believe these efforts will eventually allow us to catch up with the strong demand, improve network fluidity and operate more efficiently so that we can translate this demand into bottom-line results,” he said.
U.P. reported net income from continuing operations of $158 million, or 60 cents per diluted share, on a record $3 billion in revenue for the quarter ended June 30. For the same period in 2003, U.P. reported earnings of $275 million, or $1.05 per share.
The reduced number of rock shipments also is affecting highway projects, said Stewart of the rock shippers group. Making matters worse, penalties can be assessed if projects are late.
“The clock is running. No matter what the situation is, fines can be assessed. You have to hold up your end of the bargain,” he said.
Stewart said his group wants to work with the railroad.
“We worked with them through the problem in 1997 and ’98,” he said. “There were a lot of groups out there that really criticized the railroad, and we didn’t see the value in that. . . . By working in concert together, we can get there a lot faster.”
He said the group still has confidence in U.P.’s management, even though he expects the current problems to worsen.
“In 1997, those were trying times, but we were able to put our shoulder to the wheel and overcome,” he said. “We strongly believe they have the right people in place.”