Union Pacific Reorganization Designed to Cut Delays at Ports

Union Pacific Corp.’s decision to loosen the supervisory grip of its centralized operations by giving autonomy to regional divisions is designed in part to avert the costly rail delays and cargo pileups that cost Southern California’s economy $750 million over the last year.

“We feel the railroad is too large to be managed from one central location,” company spokesman John Bromley said. “Basically it is putting the administration of the railroad out where the action is.”

Bromley said the company hopes that the plan to decentralize operations into three regions will prevent further problems in California, which accounts for the railroad’s largest volume of imported cargo. “California is one of the places where we are concentrating the most,” he said.

Shippers in Southern California are hopeful that Union Pacific’s plan will resolve the ongoing problems that have slowed Pacific Rim trade through the nation’s busiest ports at Los Angeles and Long Beach.

“The problems have been so big, we’re hoping it helps without question,” said Tony Hupfeld with the steamship company “K” Line America Inc., which operates a terminal at the Port of Long Beach.

Since last year the company, like nearly all shippers at Long Beach and Los Angeles harbors, has been plagued with frequent freight delays largely because of equipment and labor shortages at the region’s largest railroad. While the worst of the cargo snarls occurred last year, Hupfeld said, delays of three days were still common as recently as two months ago.

Earlier this week, Dallas-based Union Pacific Corp. announced plans that it hopes will prevent such delays.

Cargo delays in the Golden State, however, have been just part of a larger, nationwide logjam that hit Union Pacific last fall as the railroad was absorbing the giant Southern Pacific network it acquired in 1996. The merger left Union Pacific the largest and, perhaps in the short-run, the most troubled railroad in the nation.

Texas and the Gulf Coast were also hit hard by the slowdown, and federal regulators became so alarmed that they put the railroad under emergency oversight. The delays have cost the U.S. economy an estimated $2 billion.

By most accounts, however, Union Pacific has since made steady progress toward alleviating the tie-ups, partly through the purchase of new locomotives and implementation of capital improvements funded through $1.5 billion in securities sold earlier this year.

“K” Line’s Hupfeld and other local shippers said cargo has been flowing more smoothly on the company’s rail lines since the end of July.

In a report earlier this week to the federal Surface Transportation Board, the railroad listed only seven train delays last Friday on one Southern California line compared to 28 delays the Friday before.

In addition, officials at both ports reported that Monday marked the first time in recent memory that the railroad was able to move all cargo off-loaded at the ports over the weekend, traditionally the harbors’ busiest days. Hal Hilliard, marketing manager for the Port of Long Beach, called the feat especially significant because cargo levels at the port are up 17% over a year ago.

Improvements in cargo flow made for an upbeat backdrop for the company’s announcement of its decentralization plans, which will allow managers in the field to make decisions on personnel and equipment, among other matters, without having to check with administrators in Omaha. The exact boundaries of the regions have not been finalized, Bromley said, but the Western area will be run out of offices in the Sacramento suburb of Roseville.

The company’s move is in sharp contrast to cost-cutting efforts last year that sought to consolidate in Omaha the operations of both Union Pacific and former Southern Pacific networks.

Bromley defended the move: “We don’t think that attributed to the service problems, but we think decentralization will certainly help solve them.”

Shipper Dan Pendleton agreed: “We think it’s a good move,” said Pendleton, with Oakland-based APL Ltd., which operates a terminal at Los Angeles Harbor.

Shippers such as Pendleton and others in the region that rely on Pacific Rim trade will be following the outcome of the decentralization plan closely, said Jack Kyser, chief economist with the Los Angeles Economic Development Corp.

Union Pacific “is a critical part of our region’s economy because of the international trade at the ports,” Kyser said. “A lot depends on how well UP does.”