Railroads Raise Rates Despite Long Waits for Delivery Dates

By DAVID GREENBERG
Staff Reporter

Despite a nationwide bottleneck that's causing major shipment delays for their largest customers, the two railroads serving the ports of Los Angeles and Long Beach are raising rates.

Burlington Northern Santa Fe Corp. will boost rates for moving goods from California to all destinations served by the Fort Worth, Texas-based railroad by an average 8 percent, or $95 per container, on Aug. 17.

Union Pacific Corp. has already increased its rate by 9.5 percent.

Peak-season rate hikes are nothing unusual in the railroad industry, but the increases usually drop back down after the last holiday goods have arrived generally in October.

This time, though, Burlington Northern plans to roll the increase into its regular rate on Jan. 1. Union Pacific is also contemplating whether to make the rate increases permanent after the Christmas shopping season.

Importers are bothered by the new pricing structure, especially because it comes at a time when their goods are arriving up to a week late. A lack of railroad staff and equipment is part of the problem, along with staffing troubles at the ports, which have kept arriving steamships stacked up at sea.

"It doesn't make sense for them to do this," said Tony Minyon, national manager of parts logistics for Torrance-based Toyota Motor Sales USA Inc. "You don't have service failures and then ask for more money."

Congested rails

Importers have already seen the two railroads turn away some of their goods amid peak season labor shortages.

Since May, the trains belonging to Union Pacific, especially, have been bunching up at cities throughout the U.S., while the railroad has struggled to keep up with booming traffic. The problems have led to reported delays as long as 20 days for some customers.

The situation has gotten so bad that federal regulators want the two railroads, which control 49 percent of the nation's rail traffic, to develop a plan for keeping up with the growing demand for their services. The delays run the gamut of industries, from agriculture to retail to automobiles.

In Los Angeles, a shortage of longshoremen created additional problems getting cargo transferred from ships to rails. On Aug. 9, 12 vessels arriving at the ports of Los Angeles or Long Beach were unable to unload their cargo. That left 60 ships at the ports as of Aug. 10, including 35 carrying containers that would be transferred to rail.

No less than 57 additional ships, including 25 container vessels, were scheduled to arrive through the end of last week.

(Steamship lines agreed late last month to hire 2,000 additional part-time workers at the ports, although union officials said 10,000 additional workers are needed.)

Officials at both railroads said their rate hikes were based largely on market conditions.

"I don't think anybody likes higher prices," said John Bromley, spokesman for Union Pacific. "We have to charge enough so we can encourage re-investment in the system and build the capacity that the shippers want."

On the Burlington Northern line, the cost of shipping a container from the ports to Chicago will jump to an average of $1,289, from $1,194. Union Pacific did not release its exact rates but company officials said they are competitive with Burlington Northern.

Both companies are also levying surcharges to make up for high fuel prices.

From the view of importers, the lack of consistent arrival times creates additional overhead costs to store merchandise.

Minyon said he is weighing the cost effectiveness of abandoning rail service in favor of trucks. "Service is bad right now," he said. "If we could figure out how to do it cost competitively, then I would definitely switch rail routes over to trucks."

Calling all conductors, engineers

The railroads have been battling a labor shortage since 2002, when they underestimated the number of employees that would take advantage of a federal rule change that granted early retirement with full benefits to some railroad industry veterans.

The departures left thousands of conductor and engineer positions open.

To fill the employment gaps, Burlington Northern plans to add 2,300 workers this year and 1,500 more in each of the next four years, while Union Pacific plans to hire 5,000 workers this year and at least 2,400 next year.

After about four months of training, new hires can become conductors, who ensure that the cargo on a train reaches the correct destination. But to become engineers, who operate the locomotives, experienced conductors need another six months of training. (Engineers make an average annual salary of more than $75,000.)

"It's difficult to find people with experience in the industry, so we bring them in and train them," said Lena Kent, spokeswoman for Burlington Northern.

The railroads also need to buy new equipment. Estimates of each company's requirements were not available, but each new locomotive costs $2.1 million, and each freight car $50,000 to $60,000.

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