Gulf Coast Railroad Crisis Plagues Chemical Shippers

March 1, 1998
THE GULF Coast rail crisis continues to plague transportation and complicate operations for numerous chemical companies and truck fleets across the United

THE GULF Coast rail crisis continues to plague transportation and complicate operations for numerous chemical companies and truck fleets across the United States, according to officials at the third annual Transportation and Distribution Conference in San Antonio, Texas.

Rail-related issues were discussed in detail during the conference, held January 13-15. The conference was sponsored by ChemicalWeek.

Chemical shippers heard more discouraging news. Rail industry officials announced that competitive services, especially in the Gulf Coast sector, appear unlikely.

"We're not sure we have the proper tools for effective competition," said Steve Bobb, Burlington Northern Santa Fe Corporation vice president, chemicals business unit. "We need to establish both short- and long-term pla nning processes."

Bobb predicted the crisis is likely to last at least a year in the Houston-New Orleans sector, although routes between Houston and Memphis are showing improvement.

Edward Sims, vice-president and general manager of chemicals for Union Pacific, reported that progress is being made as the $3.9 billion Union Pacific integration with Southern Pacific is coordinated. Last year, Union Pacific, one of the largest US rail carriers, failed to provide adequate service, sending business to rival railroads.

The establishment of a $350-million capacity budget for 1998, a decentralized management, and a four-part region, including a new office in Houston, were part of UP's reorganization to improve operations and safety. The reorganization was also an attempt to satisfy an order by the Surface Transportation Board to show tangible improvements by the end of 1997, Sims said.

UP's problems are expected to cost shippers more than $1 billion. Thousands of railcars were stalled for weeks in backups and traffic jams throughout UP's 36,000-mile system.

Michael Grimm, executive vice-president of sales and marketing at Montgomery Tank Lines, said rail problems include enormous service failures, serious safety concerns, and pricing quandaries. "We're very uncertain about the end to the rail problems. Problems are dissipating slowly, but the scars will create mode re-evaluations," he said.

The railroad-service breakdowns brought additional business to trucking, he said, but the windfall came with strings attached. For example, the newly accrued business is expected to return to rail when problems are settled. "We heard from a lot of shippers that wouldn't let us in the door in the past."

Some new customers are expected to remain after the crisis ends, but more are expected to return to rail, he said, noting that 200-mile shipments benefit from trucking while 400-500 miles or more usually call for loads to be handled by rail.

In addressing reactions to the rail crisis, Philip Ringo, president and chief executive officer of Chemical Leaman Tank Lines Inc, said that the US distribution industry lacks the ability to adjust in a distribution crisis, which exacerbated the rail predicament.

"What did we expect to happen in the Texas-Louisiana Gulf Coast region during 1997?" he asked. "All the flex has been taken out of the distribution system. We really responded, pared costs, have grown, but the reality is that there's not as much flex."

Steven Blue, publisher of Progressive Railroading, said railroads have an aversion to change. Even though some shippers are incensed by the UP/SP consolidation problems, they and others in the industry should attempt to overcome animosity, he said. "We need to find better ways to work together in true partnerships."

Sims, in addressing safety concerns, said UP is working toward safety improvements to eliminate what he described as "terrible incidents" that have occurred. A capital plan for the merger included $2.4 billion targeted for locomotives in 1998.

He agreed that customer service still needs improvement, along with expanded efforts toward effective and efficient management. "We think we know what we need to do," he said.

One difficulty experienced by all transportation companies, not only in the current crisis, but perennially, is the pressure for qualified personnel. While UP has reached labor agreements, Sims said the company suffers from manpower shortages and new training requirements that are becoming more restrictive.

The workforce is aging and younger people are less likely to be willing to perform in the demanding industry. Grimm said that the driver "generation gap" means that an estimated 40 percent of the people at the wheel of tank trucks are 55-65 years old. "It's no wonder that exhaustion is a huge problem for us," Grimm said.

He tagged employee recruitment as the most important issue facing carriers today. Working conditions are physically exacting, qualifications and training are intensive, environment can be dangerous, and schedules are trying. "Clearly, there's an erosion of qualified applicants," he said.

Ringo noted a 26 percent driver turnover in 1997 and suggested that 3.5 million drivers float from one trucking company to another.