Struggling to Get Back on Track

Union Pacific Corp. is struggling again to be the engine that could.

For the second time in six years, the nation’s largest railroad is dealing with major congestion problems, particularly in Southern California. The snags have delayed deliveries of everything from imported car parts to paper products, aggravated its customers and eroded its earnings.

Union Pacific blames the logjams on train crew shortages, combined with an unexpectedly big jump in freight volumes generated by the rebounding economy. A surging flow of cargo through the region’s huge agriculture and trade sectors overwhelmed the railroad this spring.

About one-quarter of Union Pacific’s freight either originates in Southern California or ends up here.

The railroad said Thursday that it was adding 4,000 workers to bridge the shortfall and that the bottlenecks were starting to clear. Union Pacific’s sprawling switching yard in west Colton, about 50 miles east of Los Angeles, “has been functioning normally” in the last three or four days, said Robert Turner, a spokesman at Union Pacific’s headquarters in Omaha.

But some shippers continued to grumble about delays.

“I wouldn’t say it’s fluid yet, that’s for sure,” said Randy Armstrong, grain division manager at Agri-feed Industries, an Imperial County distributor of animal feed products.

Agri-feed takes corn and other feed off Union Pacific cars and distributes it to livestock firms. Union Pacific delivers the feed from Iowa and Nebraska, along with myriad other freight picked up elsewhere, to its El Centro switching yard for sorting, a process that normally takes a day or two.

Lately, it has taken up to two weeks, during which Agri-feed’s supplies -- along with tons of other freight -- sit idle less than two miles from the company’s terminal in the city of Imperial, Armstrong said.

The service backup “is as bad as I’ve ever seen it,” he said. “I have a bunch of angry customers.”

Steve Stewart of Dana Point has been tracking Union Pacific’s logjams. The president of Interwest Commodities buys cotton seed, grain and other products for sale to California dairy farms, filling hundreds of rail cars a month with orders that he monitors online.

“We would watch UP traffic from east to west and see groups of cars bunching up in places like Fort Worth and Tucson,” he said. “Or unaccountably, a whole batch of cars would just stop for days, or go meandering through the countryside.”

Such frustrations prompted Union Pacific Chief Executive Richard Davidson to agree to meet with customers Monday in San Francisco to discuss the gridlock. Davidson, a career railroader, also was running Union Pacific the last time it suffered system problems in 1997-98.

This time, the snarl came during the slow season for Southern California’s enormous ports in Los Angeles and Long Beach. And so far, it hasn’t seriously affected retailers’ inventories or shortchanged consumers, analysts said.

Yet in the summer and fall, the ports’ volumes will surge 30% or more as Asian goods arrive for the back-to-school and holiday seasons, and some observers fear that the increase will overwhelm Union Pacific and disrupt the economy if the bottlenecks aren’t fixed.

“We’re concerned that if it’s this bad now, will it be that much worse at peak season?” said Art Wong, a spokesman for the Port of Long Beach.

Union Pacific expects to be ready. In an open letter to customers last week, Jack Koraleski, the railroad’s executive vice president for marketing and sales, said Union Pacific would “continue to do whatever we can to improve our service.”

The railroad has asked some customers to shift their business to trucks or delay shipments to alleviate the strain. And it canceled a nonstop train dedicated to hauling United Parcel Service Inc.’s packages from Los Angeles to New York, to free the flow of other goods.

Toyota Motor Corp.’s U.S. sales arm in Torrance said it had experienced delays with moving engines and other vehicle parts out of Southern California. But Toyota is putting those parts on trucks, and “it’s not a huge difficulty -- yet,” spokesman Greg Thome said.

The bottlenecks have affected some commuter lines. Metrolink’s Los Angeles-to-Riverside train has seen delays because it runs on Union Pacific-owned track, Metrolink spokeswoman Sharon Gavin said.

About 3,450 miles of Union Pacific’s 33,000 miles of track are in California. The only other major freight railroad in the state is Burlington Northern Santa Fe Corp.

The congestion is reminiscent of a massive service breakdown Union Pacific experienced after it acquired Southern Pacific Rail Corp. in 1996. That crisis began at Union Pacific’s big Houston complex and spread west, clogging Southern California’s ports and delaying shipments. The debacle cost the railroad and its customers more than $2 billion, analysts estimated.

Union Pacific’s current problems began when changes in railroad retirement laws prompted more of its workers to retire last year than the company had expected. Union Pacific also had kept hiring to a minimum as the economy remained flat.

Then late last year, the economy rebounded more than Union Pacific and many of its shippers expected. “When the volume began to pick up, we just didn’t have the people,” spokesman Turner said.

The snags added $90 million to Union Pacific’s costs in the first quarter, and its profit plunged 62% from a year earlier to $165 million, despite a 6% increase in revenue to $2.9 billion.

The congestion probably will damage the railroad’s second-quarter financial performance, and “a complete recovery will probably not occur until 2005 or beyond,” analyst James Valentine of Morgan Stanley said in a note to clients last month.

The railroad’s stock, which traded near $70 a share in January, has been slumping as the congestion woes mounted. Shares rose 74 cents Thursday to $57.52 on the New York Stock Exchange.

But Union Pacific vows to get back on track, and to be better prepared next time.

“Going forward,” Turner said, “our belief is that we need to really plan on [economic] surges.”

Times staff writers John O’Dell and Debora Vrana contributed to this report.