Railroad Snarls in Southwest Cost Texas Businesses Big Bucks

Call it the case of the missing plywood. More than $3 million dollars of lumber is missing somewhere between Seattle and Texas. Meanwhile, at least two Texas utility companies have had to raise prices because they can't get their coal delivered on time.

And in the tiny Texas panhandle town of Dumas, local farmers worry that for the second summer in a row, grain will pile up because they can't get it to market.

The culprit in all these problems: the congested rail lines of Union Pacific (UP) - the nation's largest railroad. Ever since last summer, when a mess of long service delays, fatal accidents, and overloaded rail lines began, businesspeople in Texas and all across the Southwest say they have lost money because of UP's bad service. By one estimate, Texas businesses alone have lost $1.1 billion since last summer, and losses continue to mount at the rate of $100 million a month.

UP says it is doing all it can to sort out its problems, but time may be running out. Last week, the Surface Transportation Board (STB) - the federal agency that regulates the nation's railroads - indicated it may be ready to force UP to sell key rail lines and switching yards in Texas. It's a move that has been long advocated by officials here in Texas who say that the railroad has become too big, inefficient, and unsafe since it merged with Southern Pacific Rail Corporation in 1996.

"What we have here is an unregulated monopoly that can do whatever they want to do," says David Swinford, marketing manager of the Dumas Co-op, a farmers cooperative that has lost $75,000 since last year due to freight costs and lost sales caused by the UP mess.

Critics of UP say that since the merger, the company has been spread too thin, with not enough cars, employees, or equipment to cover the demands of today's booming economy. For its part, UP maintains that the problems are not because its resources stretched thin by the merger, but rather a problem with the US rail infrastructure: There just aren't enough good miles of track for the current shipping demand. UP is spending heavily to ameliorate these problems. In February, it announced plans to spend $570 million to expand rail yards, upgrade tracks, and buy new equipment in the region between El Paso and New Orleans. In addition, the company plans to hire 1,000 new train operators this year.

But for now, snarls are everywhere. Earlier this year, trains waiting to get into southern California were lined up from Los Angeles to Phoenix. Logjams throughout the rail system have meant that average train speeds, which normally hover around 19 m.p.h., have fallen to 12.6 m.p.h.

This heavy traffic has already caused problems in the Houston area, where Dow Chemical filed a lawsuit against UP, claiming the company's service problems have cost it more than $25 million. The woes could also mean there won't be enough rail cars to transport grain to market - a prospect that has already depressed grain prices, Mr. Swinford says.

And safety issues have also been a concern. During a four month period last year, accidents on UP tracks in Texas killed six people and injured five others. In late February, the Federal Railroad Administration fined UP $131,000, saying that it "lacked many safety initiatives which may have addressed or prevented many accidents."

A decision from the STB is expected by summer's end. With the agency up for reauthorization in Congress this year, some hope the increased scrutiny will force the STB to show some resolve. Says Kathy Luhn of the National Industrial Transportation League: [The STB needs] to formulate a policy and do it very quickly,"