Copyright 1999 The Omaha World-Herald Company
Omaha
World-Herald
September 12, 1999, Sunday SUNRISE EDITION
SECTION: ;BUSINESS; Pg. 1m
LENGTH: 1570 words
HEADLINE:
Eastern Rail Merger Avoids U.P. Woes Norfolk Southern, CSX so far haven't
repeated the disastrous traffic tie-ups of 1997 and 1998
BYLINE: JIM RASMUSSEN
SOURCE:
WORLD-HERALD STAFF WRITER
BODY:
The latest big
railroad merger has done little to quiet criticism of an industry that has been
under fire for service glitches in recent years.
But, to the relief of
the West's two biggest railroads - including Omaha-based Union Pacific Corp. -
the merger in the East hasn't been a disaster, either.
To be sure, there
have been problems since East Coast rail giants Norfolk Southern Corp. and CSX
Corp. divided the former Conrail Inc. between them. Norfolk Southern and CSX
began operating Conrail's former lines June 1, consummating a complex, $ 10.2
billion purchase.
Service delays and misdirected freight cars on the
former Conrail tracks have irked freight customers and slowed
Amtrak passenger service. One of the nation's largest railroad
shippers, United Parcel Service of America Inc., has diverted part of its
Conrail business to trucks, which are more expensive, because of delays in rail
service. The eastern railroads' service problems also may have dented investors'
confidence in the industry. Railroad company stocks have declined sharply in
price this summer. The Standard & Poor's Rail Index, made up of the stocks
of U.P., Norfolk Southern, CSX and Burlington Northern Santa Fe Corp., dipped
10.6 percent in August alone. It's probable that the service problems in the
East played a part in that decline, a Merrill Lynch & Co. Inc. analyst said
last week.
But the news isn't all bad for railroads. Shipper groups and
railroad officials said the problems on the former Conrail lines are much less
severe than the gridlock Union Pacific experienced in 1997-98. That traffic
meltdown came as U.P. was melding its operations with those of Southern Pacific
Rail Corp., which the Omaha railroad acquired in 1996.
After significant
early problems with the Conrail merger, railroad spokesmen and some customers
said, service is improving. However, the railroads' own operating statistics
indicate that progress is slow.
"Things are getting better in an overall
sense," said Ed Emmett, president of the National Industrial Transportation
League, one of the nation's largest shipper groups. "There are fewer complaints.
"But every time we put that word out in our newsletter, I immediately
get several hostile e-mails and phone calls saying, 'Things aren't any better
for me.' "
The service problems aren't what the industry wanted as an
encore to U.P.'s traffic woes in '97 and '98, which were among the most severe
in railroading history. Traffic congestion began on U.P.'s lines in the Gulf
Coast region in mid-1997 and spread by the fall of that year to much of the
company's 36,000-mile system. The service problems led to heavy losses for the
railroad and its shippers and damaged the industry's image in Washington and on
Wall Street.
U.P.'s traffic problems sparked calls for tighter federal
regulation of railroads. Some shippers and others saw the traffic snarls as
symptomatic of reduced competition in an industry that has rapidly consolidated
in recent years.
Those groups wanted federal officials to force Union
Pacific to sell some tracks to competitors. And some shippers called for new
regulations to spur more price competition among railroads.
But U.P. and
the industry were able to fight off those efforts, mainly because the company
untangled its traffic jams by late 1998.
As it licked its wounds from
the U.P. disaster, the railroad industry hoped for the best this summer as CSX
and Norfolk Southern prepared to split up Conrail. Despite two years of
planning, though, glitches cropped up soon after the split-up.
Computer
problems hampered the eastern railroads' ability to track cars on the former
Conrail lines. Errors in computer data meant that "there were cars on the system
that had inaccurate information with them," said Rudy Husband, a Norfolk
Southern spokesman in Philadelphia.
"Sometimes, data would change from
showing them as loaded to showing them as empty, and they'd be sent back to the
shipper (still loaded)," he said. "Other times, data would direct the cars to
locations where they weren't supposed to go."
As a result, the speed of
the former Conrail network slowed. Rail yards became congested. On Norfolk
Southern's portion of the system, trains were held outside yards that were
clogged with cars.
CSX experienced similar computer problems in the
first two weeks after the Conrail split-up, said Bob Haulter, an assistant vice
president with the Jacksonville, Fla.-based railroad. The yards on CSX's portion
of the system didn't become as congested, however, and, Haulter said, the
computer problems on those lines were corrected.
Norfolk Southern, based
in Norfolk, Va., continues to have some problems with computer data and is
working to correct them, Husband said. The company also recently announced it
would expand a rail yard and lease more locomotives to try to ease congestion.
John Bromley, a spokesman for Union Pacific in Omaha, said that despite
early problems, CSX "has done remarkably well" in improving traffic flow.
Norfolk Southern has not improved as much, he said.
U.P. and its chief
competitor west of the Mississippi River, Burlington Northern Santa Fe, were
rooting for the eastern railroads to have a successful merger. Bromley said
railroad officials understood that another service crisis could cause railroads'
critics to push for regulations that could hurt the industry financially.
And, if the eastern railroads became congested, service would suffer to
a degree in the West as well. Lots of traffic flows between the eastern and
western carriers as freight moves across the country.
Consequently,
"We're doing everything we can to help them," Bromley said of CSX and Norfolk
Southern.
Union Pacific loaned the eastern carriers locomotives and
train workers to help move freight during the early difficulties after the
Conrail split-up, he said.
Neither U.P. nor Burlington Northern Santa Fe
reported major traffic problems related to the eastern merger.
Executives from the eastern railroads spent time with U.P. and
Burlington officials in planning the Conrail split-up, hoping to learn from
their experience and mistakes. Burlington Northern acquired Santa Fe Pacific
Corp. in 1995.
"We learned a lot from the western mergers," CSX's
Haulter said. "Both U.P. and BN were very receptive and were of great help to
us."
Among the lessons from those mergers, he said, were that the
railroads needed to: tap the knowledge of the former Conrail employees; make
changes slowly to avoid major disruptions; add train crews and locomotives to
handle traffic congestion; and communicate openly and often with customers.
That planning made for a smoother merger, Haulter said, despite problems
that developed. Now, he thinks CSX's share of the former Conrail network is
running about as it normally would during the current heavy shipping season, as
goods move in advance of the holidays.
"Is service where we want it to
be? No. But we're back to what I would say would be a normal fall peak, " he
said.
UPS, however, remains unhappy with the service it's getting on the
former Conrail lines. Delays of several hours led the company recently to divert
nearly 40 percent of its usual rail shipments from Conrail lines to trucks, said
Norman Black, a UPS spokesman in Atlanta.
Sporadic train delays of up to
several hours have frustrated UPS.
"We would have thought that we'd have
avoided this," Black said. "There had been a lot of planning."
Despite
the service glitches, Black said, UPS isn't pushing for increased government
regulation of railroads. He said railroads offer a more efficient, economical
and environmentally friendly mode of transportation than trucks.
When
service improves in the East, "we will bring this volume right back," he said.
Some shipper groups say they will continue to support changes in
regulations governing railroad competition. The National Industrial
Transportation League, for instance, wants shippers served by only one railroad
to have more competitive options.
The group would like to enable such
"captive" shippers to route their rail traffic to the nearest competing
railroad, creating price competition for long hauls. That would require getting
a relatively low rate for the short trip to the connecting railroad, however -
something that railroads are not currently required to provide.
Other
shipper groups, including the 2,000-member Society of the Plastics Industry,
agree that captive shippers need such an option.
Railroad executives
argue that the current system is necessary if they are to remain profitable
enough to attract investment capital. Regulations that would cut their revenue
also would cut investment in track and equipment needed to maintain efficient
service, they say.
"Somebody's got to pay for the rail system," U.P.'s
Bromley said.
Observers don't expect big regulatory changes to be
approved anytime soon. That's partly because the eastern railroads' recent
service glitches haven't been severe enough to set off alarm bells in
Washington.
Said Maureen Healey, director of transportation issues with
the Society of the Plastics Industry: "Congress only reacts to emergencies. And
we have not had an emergency."
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September 13, 1999 
