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STB Hearing into Regulation

The Surface Transportation Board will decide by September wether re-regulation and forced divestiture are good ideas

The railroads predictably told the hearing that more competition or federal regulation would starve them of the revenue needed to lay more track and improve service. Shippers predictably asked for more choice; The Port Authority of Houston said every port and shipper should have access to at least two carriers and suggested a nationwide system of reciprocal switching as the way to achieve this.

The Houstoners were not alone:

"If there are shippers out there that are happy, I have not heard from them,'' said Linda Morgan, Chairman of the Surface Transportation Board. Ominously for the railroads, she also said that "There is a problem out there that needs to be responded to," and that it is "clear that the great majority of the users of the larger railroads are not happy. The railroad industry cannot ignore this reality.''

It isn't:

  • UP is spending $15.7 million on restoring 17 miles of track between Fort Worth and San Antonio, Texas. Trains will begin using the route in late October. The restoration will help avoid congestion caused by increasing traffic to and from Mexico in the wake of the North American Free Trade Agreement. The increased capacity also will help improve local service for aggregate customers in the area and enable UP to better use locomotives and employees on this corridor.
  • A nine-mile section of double track in Iowa will open this fall. It is part of construction that will soon close the single-track gap that existed for decades between Denison and Missouri Valley, providing UP with double-track capacity from the Mississippi to the Missouri Rivers in Iowa.
  • This spring, 130 miles of track in Texas will be renovated with new ties and ballast.
  • UP will spend $570 million in Texas and Louisiana over the next two years for capacity expansion, track upgrade and new facilities. UP will spend a total of $1 billion in 1998 on improving and maintaining its 35,000 miles of railroad track
  • UP's embargo on shipments to Mexico may be lifted in the near future due to an agreement by Mexico's department of agriculture to conduct inspections in the railyard and not on the tracks, which slows down traffic. The change in routines has increased capacity on the Mexico line by a quarter, UP says.
  • The Burlington Northern Santa Fé railroad will let UP use its track in Iowa and Nebraska until July 15. BSNF has also granted overhead trackage rights between Hastings and Northport, Nebraska, until September 30.

However, both big western railroads -- BNSF and UP -- are facing falling revenues and may find it tough to find the money needed for investment. Once the money is found, some empty track has to be found before work can start. Improvements to track are difficult in the best of times -- for UP and BNSF it will be even harder.

Both are feeling the heat in a big way since the STB announced on Monday the 30th that it will be reviewing the SP-UP merger and won't rule out a forced divestiture. This would affect BNSF as well, since the two biggies share extensive trackage rights. The STB will make up its mind by September.

Our previous Freightworld Rail News story on UPRR from last week has elicited many e-mails and comments on the webboard. Keep them coming! Join the debate at Rail News Forum.

Here follow some excerpts from Dick Davidson's speech to the STB hearing. Mr Davidson's speech is available in full at Yahoo News.

To his credit, Davidson admitted that congestion on UP's network was bad, and so was the company's handling of the situation:

"I am acutely embarrassed, and our company is embarrassed, at the time it has taken to recover from our congestion crisis. We had absolutely nothing to gain from projecting a faster recovery than could be accomplished."

He also admitted that optimization methods, doing more with less, had been pushed to the extent that the railroad had become oversensitive to stress:

"What we did not realize is just how vulnerable to extraordinary stresses our streamlined railroads, confronted with demands to handle more and more traffic with greater and greater levels of service quality, had become. We no longer had the vital cushion -- the surge capacity -- to cope with the kinds of multiple stresses that swamped Southern Pacific in the Houston/Gulf area last summer."

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