No End in Sight for Railroad Crisis

July 1, 1998
There appears to be no end in sight for the rail crisis that began in the Gulf Coast region last year, has spread to the rest of the United States, and

There appears to be no end in sight for the rail crisis that began in the Gulf Coast region last year, has spread to the rest of the United States, and is costing shippers billions of dollars, said Maureen Healey, director of transportation issues for the Society of the Plastics Industry.

"Things are as bad as they ever have been," said Healey. "This is a multi-billion-dollar national disaster and the worst rail crisis of this century." She discussed the issue at the National Tank Truck Carriers annual meeting May 18-20 in Washington DC.

Losses of about $35 million per month are being reported by the petrochemical industry. In Texas alone, the economic derailment is calculated at $1 billion. The United States faces more than $2 billion in missed industry revenue.

The chemical industry and other related industries affected by the crisis are demanding a return of railroad efficiency to 1995-96 levels that existed before the $3.9 billion merger of Union Pacific Railroad (UP) and Southern Pacific Lines (SP). The merger is blamed for the crisis.

Shippers want more competition between railroad companies, a proposal that rival railroads have voiced since the crisis occurred. Healey said that in 1980, there were 41 Class I railroads. Today, there are nine with anticipated mergers expected to reduce that number to seven.

UP carries almost all of the 60 billion pounds of resins produced by the chemical industry, which stalls competition from other rail companies, Healey said. The Texas Mexican Railway Company would like to share in that business.

About 80% to 85% of all raw materials, including coal and gravel, are shipped by rail. Seventy-five percent of plastics shippers are captive to one railroad, she said.

At the same time, The Burlington Northern and Santa Fe Railway Company (BNSF), UP's major competitor in the Gulf Coast, doesn't have the infrastructure to provide truly competitive service. The chemical industry argues that all railroads must have access to all available rail infrastructure.

"Kansas City Southern and Tex-Mex want to get into the Houston area," said Healey. The railroad crisis was precipitated by the UP/SP merger after UP/SP failed to resolve inherent conflicts, including union contracts and computer systems.

Before the merger, delivery of loaded cars was accomplished in about three days while today the same delivery requires 17 days, said Healey. None of the services are running on schedule.

The Surface Transportation Board (STB), which oversees rail activity, waited too long to intervene, she said. Last year, the STB ordered UP to show tangible improvement by the end of December 1997, and asked shippers to submit reports of service performance. The result was that UP was unable to meet the demands of shippers. An extension granted to UP by the STB expires August 2, 1998. However, the crisis isn't expected to end without significant reshaping of laws governing the railroad industry.