Rail Logjam Leaves Farmers, Christmas Retailers Stranded

Federal emergency order goes into effect today to ease Union Pacific merger woes.

At the end of another landmark year in the history of world capitalism, the American economy is faced with a crisis that sounds eerily Soviet.

Department-store inventories are dwindling just as the biggest shopping season of the year begins. Piles of freshly harvested grain have been left to rot on the ground in Nebraska. Petrochemical producers in Texas are shutting down plants.

In each case, the culprit isn't a lack of demand, but a massive traffic jam on America's railway system.

By most accounts, the shipping delays can be pegged largely to last year's federally approved merger between the Union Pacific and Southern Pacific railroads. Nobody, it seems, anticipated how difficult it would be for these two companies to combine their operations.

The ensuing gridlock underscores the economic importance of an industry that literally spans the nation. But for thousands of companies that depend on rail service for their livelihood, it's also a testament to sloppy US transportation policy.

"[Union Pacific] is in the public-service business," says Don Cheatham, general manager of a small Texas railroad, who says backlogs have cost his company $1.5 million. "If they can't provide the service, they should have those parts that they can't service divested from them forcefully."

Mr. Cheatham's ire is echoed throughout Union Pacific's service area. Because of shortages of crews and locomotives, more than 10,000 rail cars are being held up each day from the Midwest to the West Coast.

Although Union Pacific has arranged to add 300 locomotives and says the backlogs should ease by year's end, the crisis has taken an economic toll. By some estimates, delays have cost shippers $1 billion since July.

The problem has prompted the Surface Transportation Board in Washington to order Union Pacific to open one of its rail lines to a competitor - an unprecedented move that could cost the railroad as much as $400 million. The board's action, which takes effect today, is part of a 30-day emergency order.

The timing of the rail tie-up couldn't be worse for the Midwest, where farmers are reaping a record soybean crop, the third-largest corn harvest ever, and good wheat crops. With their silos full and few rail cars in sight, managers at the Aurora grain elevator in Grand Island, Neb., have had to pile 300,000 bushels of grain around the rail yard.

"We need to get it off of the ground before it gets really snowy," says scale operator Janet Stevenson.

At the nation's busiest container ports in southern California, conditions are no better. The roaring economy has boosted traffic here by 13 percent over last year, and a dearth of rail cars has produced some of the worst backlogs in 30 years.

"Cargo that normally went right out now takes five or six days just to catch a rail," says Al Fierstine of the Port of Los Angeles. Sixteen freighters are now anchored off the two Los Angeles-area ports waiting to unload, he says. Each idle day costs their owners as much as $50,000.

"Union Pacific is a crucial part of the transportation link in southern California, and I don't see this getting any better until this [crisis] is resolved."

The crisis has reopened a heated argument about the wisdom of allowing two of the nation's largest railroads to join forces. At present, the Surface Transportation Board is weighing a proposal from the CSX and Norfolk Southern companies to purchase Conrail.

Advocates of the Union Pacific deal argue that it saved Southern Pacific from possible ruin. It also created a railroad big enough to compete with the company formed by the 1995 merger of the Burlington Northern and Santa Fe railroads, they say.

Critics argue that the deal will produce shoddy service and higher prices. In addition, they say, federal officials should have known that Union Pacific would not be able to absorb its smaller competitor without encountering significant tracking problems.

Before Congress deregulated the industry in 1980 - sparking mergers that cut major carriers from 40 to five - railroads had been losing market share for 50 years, says Brian Routledge, transportation analyst at Prudential Securities. Since then, railroads have slowly reversed the skid and become profitable.

"Railroads are not likely to lose market share because of this," he says, "but it will be more difficult for them to gain the market share they should be able to."

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