Union Pacific's ills sink its reputation Norfolk, CSX expect scrutiny of proposed deal


October 26, 1997|By Suzanne Wooton | Suzanne Wooton,SUN STAFF

With a sterling reputation for efficient service, the Union Pacific was once everything a railroad should be. Since taking over the ailing Southern Pacific Rail Corp. last year, however, it has become a model for disaster, its system paralyzed by gridlocked rail cars and blindsided by safety problems.

For CSX Corp. and Norfolk Southern Corp, the once-exemplary railroad picked a fine time to foul up, for its glaring problems undoubtedly will force federal regulators to take a much harder look at the Eastern railroads' proposed $10.2 billion carve-up of Conrail.

"I think the Surface Transportation Board [which regulates the rail industry] is coming under a lot of pressure to do something," said James Bronkenhoefer, national legislative director for the United Transportation Union, which represents thousands of railroad workers.

"Every day that UP has a problem, it's a problem for everyone who attempts to do a merger in front of the STB," he said.

Tough problems

And there have been almost unthinkable problems, including three fatal crashes in three months and a logjam of freight cars in the West so severe that the railroad considered chartering a ship to move goods through the Panama Canal.

Industry insiders believe that 500 of the Union Pacific's 2,000 scheduled daily trains have not operated at times because of insufficient locomotives, crews or track space.

Late delivery of raw materials has forced factory shutdowns and created huge financial losses for the company's customers.

Reminiscent of the months following the Penn-Central merger in 1968, freight has simply vanished for days.

Edward M. Emmett, president of the National Industrial Transportation League, which represents the nation's shippers, recently called Union Pacific's meltdown "one of the most significant issues to hit the NIT League in the last 15 to 20 years."

Under pressure from the Surface Transportation Board, the Union Pacific is being required to file weekly reports on efforts to correct its problems.

The agency also has scheduled a six-hour hearing tomorrow in Washington.

Effective and quick fixes by Union Pacific could boost the efforts by CSX and Norfolk Southern to split up the 11,000-mile Conrail ** system, creating two major railroads east of the Mississippi.

Worry continues

Last week, Union Pacific officials told federal regulators that they have turned the corner on reducing congestion and that trains were starting to move freely in parts of its 35,000-mile system.

But "worry has crept in" because of the fiasco, Emmett said. It has underscored the inherent difficulties of combining vast railroad systems, and gives more credence to criticism by shippers and union leaders about the Conrail takeover.

"Clearly, they have a much more credible standing now and will be getting much more attention than if we had not had the UP debacle," said George E. Hoffer, a transportation expert and economics professor at Virginia Commonwealth University in Richmond, Va.

With promises of merging the systems into a seamless link between the West Coast and the Midwest, Union Pacific bought the troubled Southern Pacific last year for $3.9 billion.

Effective in September 1996, the merger was the latest in the railroads' decade-long consolidation binge designed to help them regain a competitive edge against the trucking industry.

Understaffed, underpowered

The acquisition, the carrier said, would speed the movement of goods to consumers, saving them and shippers money. But, in its rush to blend the systems, Union Pacific ignored a shortage of engines and workers, critics say.

"Both carriers were understaffed and underpowered," said Bronkenhoefer. "Two halves didn't make a whole."

The takeover of Conrail is even more complicated, though Conrail, unlike the Southern Pacific, is not a failing railroad and its assets, including a near monopoly in the lucrative Northeast, are enormous.

But with railroads everywhere trimming their employees in recent years, federal regulators will be closely examining whether the three railroads have sufficient personnel to ensure efficient and safe service.

CSX is facing intense review by federal regulators who issued a report last week citing safety violations by the railroad. The Union Pacific's woes can only intensify the scrutiny.

"I would think the UP situation will be a red alert to the STB to learn from the experiences west of the Mississippi," said David L. Ganowski, manager of freight rail services for the Maryland Department of Transportation and a former CSX official. "There are a lot of details to pay attention to."

Will CSX and Norfolk Southern pay mechanics to fix locomotives they are inheriting, he asked. Will they retain the employees who are operating on segments of the railroad where they are most qualified? Will dispatchers be familiar with new territories? How much retraining is necessary?

"If they're smart, they'll go slowly," Bronkenhoefer said. "But there's a management attitude that says, 'I'm taking you over, so I'm smarter.' "

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