UTU News Digest - Tuesday, February 2,1999

UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Tuesday, February 2, 1999

Journal of Commerce: Union Pacific loses pretrial motion over 1997 service failures

WASHINGTON -- A Louisiana utility that waged the most high-profile legal battle against the 1997 service breakdown on Union Pacific Railroad won a victory during pre-trial skirmishing in U.S. District Court.

U.S. District Judge Lyle Strom ruled late last week that the railroad effectively breached its contract to deliver coal from Wyoming's Powder River Basin to two Entergy Corp. plants in Arkansas.

The judge rejected UP's argument that the complaint should be dismissed because UP had the choice of living up to the contract by either hauling the coal or paying liquidated damages for the transport service it could not perform.

Entergy Corp., which is based in New Orleans, filed the first suit against UP, whose service problems were estimated by some of the railroad's critics to have cost more than $2 billion in damage to shippers.

Several chemical companies also sued UP, but those cases have been settled for an unknown amount. The railroad set aside more than $350 million to pay claims arising from the service problems that began in the late summer of 1997 and stretched into the middle of 1998.

The rejection of UP's move for a summary judgment means that the utility still has the opportunity to terminate the contract if it prevails in the trial, the utility company said.

A UP spokesman maintained that the railroad won a partial victory because the judge's ruling on a separate motion by the utility blocked the shipper from collecting actual damages for the additional cost of purchasing alternative fuel to replace the coal that was not delivered.

However, the utility believes the judge left open the prospect of collection of additional damages in the future if the utility proves definitively that the railroad breached the contract.

UP has agreed to pay liquidated damages, which represents the amount the shipper would have paid for the coal that was not delivered. The contract between the parties was written to extend beyond 2010. A trial date has not been scheduled.

Traffic World: Who's Running Conrail?

WASHINGTON -- Customers can't get competitive rates from their carrier. Shippers' marketing efforts are put on hold. Fatalities jump from zero during all of 1998 to four in the last two weeks. Sound familiar? We're not talking about Union Pacific -- it's Conrail, the lame duck railroad in the East.

The decision by Norfolk Southern and CSX to push back the operational start date of their acquisition to June 1 - three months past their initial goal of March 1 - is a symptom of the ultimate "rock-and-hard-place" situation in which NS and CSX find themselves. It's being done precisely to avoid the mistakes that were made in the UP merger - namely, making sure that labor contracts are ironed out and computer systems are compatible before Day 1. But it makes the transition period no less difficult for customers and it extends the uncertainty about who's running Conrail.

"When all your top management is gone, and your lower management is reading about the culture of the new corporation he's going to work for, there's got to be a vacuum," said a long-time railroad employee who declined to be identified. That vacuum can manifest itself in how the railroad markets itself. This source saw it happen while he was at Southern Pacific. "When we were almost taken over by Burlington Northern, it was my impression the traffic department was under pressure not to solicit business that competed with the new railroad - that is, traffic moving between the Gulf Coast to California - because they didn't want their next boss to look bad," the source said. The problem was that was a significant piece of BN's business, he said, so there was not a lot of incentive for SP to sell a competitive service.

Those employees at Conrail who eventually will move to either CSX or NS are in a similar situation, and while there's no evidence that they're under any kind of pressure from above, customers are nonetheless having problems getting competitive rates.

"When we need something different from the normal book rates that are out there, everything's been frozen," said Dan Yost, president of CrossRoad Carriers, a third-party intermodal company. "Nobody will talk to us about anything special or new. If the book rate that's out there today will not get the business away from truck, and we have to go to the pricing people and ask them for a special quote, we can't get it."

Yost said pushing the start date to June will have an effect on shippers' marketing efforts. "We're telling our customers to hold up for two or three months, to be patient," he said. "We've got several pieces of business we want to negotiate something special on, and we've been able to pacify our customers until April 1. But now (the June 1 deadline) just delays that.

"I understand why they're doing it. They don't want to make the same mistakes that were made in the West -- we're all still suffering from that. But at the same time, this prolonging, prolonging - it goes back to what does the customer want? What does he need? There's got to be a balance somewhere," Yost said.

A large carload shipper suggested it might be more a case of not having enough people to do the job. "There's nobody out there who can work up a competitive rate for you. If you want a price you can look it up in the book just as easy as you can call them. That's all they're doing is looking it up in the tariff book," he said.

Could it be that with senior Conrail officials, including former operations chief Ron Conway, long since gone to CSX and NS, there's no one minding the store?

Far from it, Conrail says, asserting that every department is accounted for. Conrail is now headed up by Timothy O'Toole, former senior vice president, law and government. Douglas Greer, a former general manager at several Conrail field operations, oversees Conrail's five operating divisions. And the vice presidents of each business group retain pricing responsibility for their division.

George Turner, senior vice president, merger consolidation, maintained that Conrail will continue to have pricing authority for business that takes place between now and the closing date, and that it's Conrail's business to price competitively. "That's why we've retained the people that we have here in the marketing department," Turner said. "Virtually all the marketing analysts are still in place and are still responsible for handling the contracts and our customers, as are the customer service people. In fact, we see a number of opportunities to get short-term business, and we're going to go after it.

"I know we're doing a lot of land-bridge automotive business using short-term pricing as shippers look to adjust inventories around the country," he said. "We're addressing (the pricing issue.)"

Turner said Conrail is responding to special circumstances on the carload side as well. "For example, when rock salt suppliers go out and bid on state contracts (to de-ice roads), nobody's going to accept a bid that's good only for a couple months," Turner said. "So we received permission from NS and CSX to make those contracts for a year and put a cancellation clause in, so that they can deal with it later."

In addition, Turner said, many employees on the pricing side have elected not to take jobs with either CSX or NS. Those employees would have no reason to feel pressure to protect themselves against a negative reaction from their new company.

"Unless customers are asking the railroad for a price beyond a particular date, they should be getting a response," Turner said. "And if they're not, I'd suggest they're talking to the wrong person. Now, it may be the case that they didn't like the rates we gave them - that's a whole other issue. But we'll certainly give them a price."

As far as the latest fatalities on the railroad, Conrail officials did not address whether they were the result of a lack of safety and training practices during the interim period.

Not everyone has been growing dissatisfied with Conrail. "Everything is working like it's supposed to work," from an operations standpoint, said Al Guinchi, transportation manager for Hartz Mountain Corp., which uses both intermodal and carload service from the carriers. "We're having no problem switching in our inbound raw materials. And we're still getting weather reports once a week, as always."

Guinchi said that if a problem were going to show up, it would be at the union level. "And apparently there is some control there; somebody has their hand on the switch, so to speak. If all of a sudden we weren't getting our switches twice a week at our plant, then the red flag goes up," he said.

Any service disruption that customers saw during the last month was largely a weather problem, said Conrail Communications Director Bob Libkind. "When we had Elkhart (Indiana) locked up for the first two weeks (of January), you know that's going to have an effect on service," he said. "But the other railroads in Chicago that were delivering freight to us were in worse shape than we were - we were actually getting stuff through."

And some customers even see the delay of the takeover date as a blessing as well as a curse. "It gives us time, from a clerical, tactical standpoint, to service our systems," one shipper said. "We're still going through contracts lane by lane to develop new routes. This gives us a little breathing room."

Iowa passenger train boosters hopeful despite being left out of rail network

DES MOINES -- Iowa is not part of an initial $ 25 million effort by Amtrak to start a high-speed rail network in the Midwest. But that doesn't mean the state has missed the train entirely.

Amtrak said last week it hopes to develop a Midwestern version of the passenger railroad's Northeast Corridor, the express train line connecting Boston, New York, and Washington, D.C. The Northeast Corridor carries about 11 million passengers a year, and Amtrak predicts a completed Midwest Regional system would carry about 7 million.

Iowa transportation officials were not surprised that the first phase did not include money for Iowa. "Their first priorities are trains running from Chicago to St. Louis, Chicago to Milwaukee and Chicago to Detroit," said Dan Franklin, a policy specialist for the Iowa Department of Transportation. "Iowa is one of the 'other' lines," The comprehensive plan includes a Chicago-Omaha route over the Iowa Interstate Railroad. The current Amtrak investments do not include "anything specific for that route, but we hope it keeps the ball rolling," said Derrick James, government affairs officer for Chicago-based Amtrak Intercity.

Still, passenger rail boosters are hopeful passenger service could come to central Iowa soon. Iowa Interstate Railroad President Doug Christy said negotiations have been underway with Amtrak and a Chicago-to-Omaha route over their lines could come as early as next year. "It really was private negotiations that could not be released until this (Midwest Regional) study came through," said Christy. "Once the study came through, we were basically free to step up our negotiations another notch." Christy said negotiations are built on money generated from an express package service Amtrak expects it could generate and is not part of the Midwest Regional package.

That investment and package was announced at a Chicago news conference by Wisconsin Gov. Tommy Thompson, Amtrak's board chairman. "This is only the beginning. Amtrak will continue to make critical investments here in the Midwestern states to make this vision of a regional rail network a reality that will be a model for the rest of the nation," he said.

About $2 million will be spent to build a new station in St. Louis and $ 1 million will go for depot improvements in Milwaukee. Chicago's Union Station will be upgraded and about $5 million will go for a new rail connection on Chicago's south side to cut train schedules by 20 minutes. Amtrak will spend another $ 5 million to demonstrate modern "premium trains" and technology to Midwesterners.

Last fall, Iowa DOT Director Darrel Rensink unveiled the first phase of a nine-state Midwest railroad study which proposed a new Amtrak train operating with stops in the Quad Cities, Iowa City, Newton, Des Moines and Atlantic.