Last year's merger between the Union Pacific and Southern Pacific railroads was supposed to create a 35,000-mile transportation system with greatly improved service west of the Mississippi River (HCN, 8/5/96).


But shippers are complaining that they're losing millions of dollars because of bad service from UP, now the nation's largest railroad. Service is so bad that some customers have sued. Others have taken their complaints to the federal Surface Transportation Board, the three-member regulatory body which approved the UP-SP merger in 1996 and retains oversight.


The board responded with an Oct. 27 hearing and a decision set for Dec. 3. Actions could range from letting UP come up with its own solutions to ordering the railroad to divest some of the trackage it has acquired in the past 15 years of mergers.


Texas complaints dominated the hearing. Charles Matthews, president of the Texas Railroad Commission, said UP's poor service - further marred by a spate of fatal accidents - had cost his state's enterprises $400 million in the preceding three months.


In an interview before the hearing, Matthews said rail service in Texas was so poor that "even the hoboes won't ride the trains."


Riviana Foods, a Texas-based rice producer, tried to ship a carload of rice from Missouri to Tennessee in August - a shipment that took less than a week before the merger. A month after leaving Missouri, the car was spotted on a siding in Utah, and after that, it was rumored to be sitting somewhere in Texas.


In September and October, the Texas snarl spread throughout the West, Pacific Coast, Gulf Coast and Midwest. Two Arkansas electric plants, unable to get coal by rail, had to burn more expensive natural gas, and have sued UP for the difference. UP admits that on a given day, 10,000 rail cars are stalled on its system.


Ports on the West Coast, where containerized goods from Asia are transferred to rail, are so backed up that serious consideration was given to loading the containers back on ocean-going ships for transport through the Panama Canal to East Coast ports.


Sawmills in the Pacific Northwest usually ship lumber to Southern California by rail - but with UP's service problems, they've had to rent barges. Grain elevators in the Midwest are overflowing, and feedlot operators in Nebraska worry because UP hasn't delivered tank cars of molasses, which makes cows eat more when it's added to their grain.





UP tries to explain


UP's response includes apology, promises and prevarication.


The apology came in late September, after UP President Dick Davidson went to Houston to meet with 200 angry chemical-company executives. "I never imagined in my wildest dreams I'd be down here apologizing for our service," he said after the meeting.


The promises come from a "Service Recovery Plan" announced on Oct. 1. UP said it will temporarily shift some customers to other railroads, primarily its biggest rival in the West, the Burlington Northern Santa Fe.


UP will also temporarily eliminate some service, such as coal deliveries to Texas from the Powder River Basin of Wyoming and to West Coast ports from mines in Utah.


The railroad also will reduce the number of locomotives on most trains. Trains will run more slowly, but engines will be available for trains that haven't been running at all. And UP plans to hire more train crews and buy or lease more locomotives.


As for the prevarication, Davidson claimed UP's service problems are not related to the merger, since the merger really hadn't been implemented in Texas, where the problems supposedly originated.


Where merger plans had been fully implemented, such as in Colorado, Davidson told the board that the railroad had "instituted shorter, faster routings for Utah and Colorado coal traffic." UP's third-quarter merger status report to the STB said "coal shipments from Utah and Colorado ... had experienced improved service after the merger and were strong in September."


The "improved service" is news to ARCO Coal, which operates the West Elk Mine near Paonia, Colo. Terry O'Connor, ARCO vice president for external affairs, said, "We've seen a serious deterioration in rail service during the past few months at the West Elk Mine."


Before the merger, the mine generally shipped two 100-car trains each day. After the merger, the trains quit arriving regularly, O'Connor said, "and there are only so many places you can store the coal. When we ran out of space, we had to curtail production."





Gas shortages, beer shortages


Matters got worse on Oct. 30, when UP derailed 23 cars of a 100-car train, blocking the line ARCO's coal trains use. The accident took place along the Gunnison River, between Delta and Grand Junction. It was only an hour after a UP freight train loaded with chemicals rear-ended rail cars in a small east Texas town. That latest Texas accident led Barry Williamson of the Texas Railroad Commission to say, "Obviously, Union Pacific is breaking apart at the seams."


Greg Berwick is fuel supply manager for the Colorado Springs Utility Department, which operates two electric-generating plants with coal hauled in 105-car trains from the Craig area in northwestern Colorado. "We were contracted for 12 trainloads a month, and we were getting only eight or nine last summer," he said. "At one point I was down to a 10-day supply, and normally we like to have 30 to 45 days."


Berwick said his frequent complaints have gotten action. "The squeaky wheel gets the grease, and I've been squeaking like crazy."


Other squeaking wheels were in Grand Junction, largest city on the Western Slope of Colorado. Most of its gasoline - the supply for 21 counties in western Colorado and eastern Utah - arrives by rail from the Conoco refinery in Denver.


Before UP took over the Denver-Grand Junction line in the merger, the tank cars made the trip in less than 24 hours, according to Conoco spokesman John Bennitt. After the merger and UP's abandonment of one rail line across the state, "it took two or three days for the tank cars to reach Grand Junction."


The shortage pushed prices up to $1.50 a gallon and more.


Another vital liquid was also in short supply. Central Distributing in Grand Junction normally kept its coolers full with beer shipped from the Anheuser-Busch brewery near Fort Collins. But the UP failed to make deliveries and the distributor was forced to switch to trucks - adding thousands of dollars in shipping costs and Interstate 70 congestion.


"Sometimes government must intervene," said Linda Morgan, chairwoman of the Surface Transportation Board. "And the extent of the rail service problems that are the subject of this hearing suggest that this may be one of those times."





* Ed Quillen





Ed Quillen writes from Salida, Colorado. His lead article, in the Aug. 5, 1996, issue was headlined: "Disappearing railroad blues: Merger may leave a working region high and dry."