STB hears reasons for, impact of UP rail embargoes
12/19/2022
[Editor's note: On Dec. 16, UP Chairman, President and CEO Lance Fritz informed the STB that the railroad has suspended its use of embargoes as a traffic-control measure.]
By Julie Sneider, Senior Associate Editor
The Surface Transportation Board held a two-day hearing last week to hear from Union Pacific Railroad, their customers, labor and shipper associations about the impact of UP’s use of embargoes to reduce rail traffic congestion on its network.
The number of embargoes UP has issued have climbed from five in 2017 to more than 1,000 this year, according to the STB. Consequently, the board this year has received numerous reports that shippers are having supply-chain problems as a result of railroad embargoes that are hampering their operations. Although UP is not the only railroad to use embargoes to reduce traffic congestion, most of the complaints received by the STB have involved UP operations.
UP carries nearly 27% of freight served by rail and nearly 11% of all long-distance freight volume in the United States, according to the STB.
"The board has been closely monitoring UP’s usage of embargoes and has noticed a disturbing upward trend in their usage in recent years,” STB officials said in a press release when it called the hearing.
Held Dec. 13-14, the hearing opened with warnings from STB Member Robert Primus and STB Chairman Martin Oberman that the board has heard from rail customers concerned they could face retaliation by railroads for speaking to the board about the poor quality of rail service.
“If anyone feels that they’re having any sort of retaliation or intimidation, we will get to the bottom of it,” Primus said.
The board this year has held a number of hearings at which shippers have complained about a significant decline in the quality of rail service in recent years and the negative impact the decline has had on their businesses, as well as on the supply chain in general.
“We did not have enough crews and did not have them in the right places at the beginning of the year.” — Lance Fritz, Union Pacific Railroad up.comDuring the hearing, the board heard from representatives of Cargill, Univar Solutions, Ag Processing Inc. and ElectroChem. In addition, spokespersons from the following associations that represent rail customers also spoke: National Grain and Feed Association, the Fertilizer Institute, the National Mining Association, the American Fuel and Petrochemical Manufacturers, and the American Chemistry Council.
Appearing on behalf of UP to explain when, why and how the Class I implements embargoes were Chairman, President and Chief Executive Officer Lance Fritz; Executive Vice President of Marketing and Sales Kenny Rocker; EVP of Operations Eric Gehringer; and VP of Customer Care and Support Brad Moore.
For years, UP has used embargoes when it determines customers have accumulated rail cars in serving yards. In November, the Class I implemented a program to address excess rail cars in its pipeline. The railroad tries to work with customers to avoid embargoes. But, when necessary, they are used to control traffic movements temporarily when needed to address congestion, help customers receive shipments and respond to “actual or threatened physical or operational impairments,” Fritz said.
UP created a Customer Inventory Management System (CIMS) after experiencing congestion problems in its serving yards in the late 1990s. CIMS is a car demand management process designed to match car flow to and from customer facilities with track capacity at those locations to reduce switching, improve throughput and decrease terminal dwell time.
This year, the data-driven system was deployed to address rail-car accumulation “due to the inability of receivers to process cars as quickly as we are delivering them,” EVP Gehringer told the board.
Earlier this year, certain UP customers voluntarily reduced their excess rail-car inventories. Still, congestion on the UP network continued, requiring additional action. The railroad took various steps, including rolling out a “pipeline management tool” that established rail-car inventory targets for customers based on their average release rates and transit times. UP reached out to 311 customers whose inventories exceeded those targets; of those, 230 worked with UP to reduce their operating inventories. Embargoes were issued for 81 customers that didn’t respond or reduce their inventories.
Like UP’s CIMS process, the pipeline management system “is not about limiting traffic,” Gehringer said.
“It is intended to allow customers to continue shipping while they address the excess cars on the network,” he said. “Consistent with Union Pacific's overarching goal to provide the service product that our customers expect and deserve, we anticipate using both CIMS and our pipeline management system on a continuing basis when warranted by the circumstances.”
Shippers: Embargoes alone aren’t the problem
Cargill’s North American rail transportation leader Brock Lautenschlager told the board UP service to Cargill facilities has improved since last spring, “but we believe there is more work to do” to restore reliable and efficient rail service to the supply chain.
“Cargill is not opposed to the use of embargoes in some situations; however, we believe the use of embargoes should be the exception, not the norm,” Lautenschlager said.
Cargill provides food, agricultural, financial and industrial products to businesses around the world. In North America, the company operates more than 200 facilities served by rail. Of those, 60 are served or accessed by UP and about 80% of those sites are single-served by UP, he said.
When Cargill received notices in November that it faced temporary embargoes of rail service at some of its facilities, the company worked with UP to put temporary measures in place to avoid an embargo. Those measures included delaying the release of loaded private rail cars; ordering UP hoppers to ship product; and remove some empty cars on UP’s network.
Even though it was able to avoid an embargo in November, Cargill officials are concerned about the uncertainty of the process, Lautenschlager said. For example, UP was unable to provide Cargill with a clear timeframe for how long an embargo would last.
Other shippers also received notices to help reduce rail-car inventory on UP’s network, they told the STB. But for some shippers, reducing the number private rail cars is not always simple. Chemical shippers often use private rail cars specifically designed to ship chemical products. Shippers also told the board about embargoes affecting their rail delivery of raw materials used to create products that protect public health and safety — products used at water treatment plants, for example.
Train crew shortages remain a major concern
A number of speakers suggested that ongoing train crew shortages at UP and other Class Is are a key reason for rail traffic congestion and the railroads’ use of embargoes. Fritz acknowledged the workforce shortage has affected UP service. The Class I’s network “is not operating at the levels our customers expect and deserve” in large part because of a shortage of train crews, he said.
“We did not have enough crews and did not have them in the right places at the beginning of the year,” he added.
Since then, UP has hired 1,400 train, engine and yard employees and graduated 1,109 of them from post-hire training.
Between mid-April and the week of Dec. 2, UP logged a 39% reduction in the number of trains waiting for crews, Fritz said. Also, train speed has increased by 13%, which generated more power to improve the rail network’s fluidity by reducing rail cars by 22,000.
“We have continuously adjusted our transportation plan to achieve balance in the workload across the network,” he said.
However, speaking to the STB on behalf of several railroad workers unions, Richard Edelman disputed UP’s reported staffing levels and questioned whether the Class I is doing all it can to recruit and retain workers. Based on union membership information, the number of Class I workers in the crafts remains 20% below what it was before the pandemic, he said.
“How does all this affect service? If you don’t have enough employees to run the trains and maintain the infrastructure and the equipment, you’re not going to be able to meet the demands for service,” Edelman said.
Class Is, customers not on the same page
Rob McRae, vice president of transportation at Univar Solutions and vice chair of the Private Railcar Food and Beverage Association, testified that the business interests of Class Is and their shippers are not always aligned. He called for a “real dialogue between shippers and railroads that prioritizes collaboration and recognition” that both sides need to be profitable to offer a reliable service or product.
The Class Is need to have some “guardrails,” McRae said.
“Lower rail-car volumes and the opportunity costs associated with embargoes and [staff] furloughs have had little impact on [Class Is’] profits entirely because of the pricing power they have over captive shippers,” he said. And with no broad reciprocal switching plan, those shippers have little remediation of their own, McRae added.
On the other hand, shippers need to understand that if the railroads add train crews on a permanent basis, it will add “legitimate costs to the railroads,” he continued.
“Effective, efficient and reliable service requires an investment,” McRae said. “Without better collaboration and communication … we will all be right back here in a few months talking about these very same issues.”
A number of speakers raised the prospect of the STB mandating reciprocal switching rules — something the Class Is oppose — as a possible solution to the increasing use of embargoes. Among those speakers was Jeffrey Sloan, senior director of the American Chemistry Council (ACC). Some ACC member companies have been able to work with UP on solutions to avoid or mitigate the impact of embargoes, Sloan told the board. Still, ACC shares the board’s concern about the increasing use of the practice to manage congestion.
“Over the past year, ACC members have been subject to multiple embargoes by UP and other railroads. These embargoes disrupt [customers’] operations, impose significant costs on customers and prolong the nation’s supply-chain problems,” Sloan said. “They are yet another manifestation of the chronic service problems that are plaguing the U.S. rail network.”
Such problems reinforce the need for the STB to use policy — “including long overdue rules for reciprocal switching” — to address systemic conditions that lead to embargoes, he said.
