Railroads Expect Growth in 1988

The second half of last year was one most railroads would like to forget. Problems, a residual of Union Pacific’s acquisition of Southern Pacific, created long delays for some rail shipments. While the problems spread to include other railroads, and even other modes of transportation, the brunt of the problems were felt in the Southwest and Southern California.

Moving into the first quarter of this year, the situation appears to have eased. Although the Union Pacific is still under a service order (see sidebar) to adjust its shipment practices until the congestion and shipment problems improve, for most railroads attention can be turned to expanding the rail movement of ferrous scrap.

Virtually all railroad metals marketing managers contacted feel that 1998 will be a positive year for the rail industry. Market specialists point to the number of new facilities opening up as one of the big reasons for the improvements. Others point out that several labor problems have been resolved and business should improve due to increased buying.

Stacy Danstrom, market manager for ferrous scrap metal for Norfolk Southern, Norfolk, Va., sees strong growth this year. “The majority of the growth will come from new minimills. Trico Steel (Decatur, Ala.) is a big one.” Other steel mills she cites as expected to have a major positive impact on the movement of rail movement of ferrous scrap include Nucor’s Berkeley, S.C., mill; Gallatin Steel in Kentucky; and the Birmingham Steel melt shop in Memphis, Tenn.

To capitalize on the expected growth, the NS is building additional gondola cars to move ferrous scrap. The “Big Jim” gondola cars have 40 percent more cubic capacity. The railroad, which already has several hundred gondola cars in its fleet, will be adding several hundred more during the next year. The benefit of the higher volume car is its ability to move more scrap at better freight rates.

The railroad plans to spend a total of more than $900 million this year for capital improvements. The figure is up significantly from last year’s capitalization program, which totaled $781 million.

As noted earlier, Norfolk Southern is in the middle of increasing the sides of its gondola fleet, increasing the cubic space by around 40 percent, according to Danstrum, NS’s marketing manager for ferrous scrap.

The advantage to these new cars is the ability to fill more material while at the same time using fewer cars. Another advantage is that with the existing gondola cars in place it is more likely that a company will “cube out before weighing out.” The “Big Jim” gondolas, as they are being called, will increase the cubic size from 2,350 cubic square feet to 3,350 square feet. The goal is to introduce more than 600 of the larger cars this year. And, with more of NS’s rail approved for a maximum weight of 286,000 pounds, Danstrom feels the advantages will be significant.

Broken out, according to David Goode, chairman, president and CEO of Norfolk Southern, “We expect to spend more than $44 million to support our ongoing program to get better utilization of existing equipment.” Those improvements will include the modification program for the ferrous scrap gondolas, among other programs.

Jim Titsworth, manager of scrap metal for the Burlington Northern Santa Fe Railroad (BNSF), Fort Worth, Texas, also notes that the BNSF is looking to increase its capital improvements to move more ferrous scrap. The company is allocating capital there due to the significant growth in the number of new mills either coming on line or increasing production in the West and Midwest. North Star Steel’s Kingman, Ariz., plant; Oregon Steel’s expansion in Oregon, and CF&I (now called Rocky Mountain Steel Mills) resuming full production in Pueblo, Colo., among others, are reasons for strong optimism this year by Titsworth.

Adding to the upbeat nature has been the decline in exports from the West Coast. With more material being turned inward to domestic sources, there is a greater demand for gondola cars to move material. Countering that, a large portion of the scrap that typically is exported from the East or West coasts travels shorter overland distances, which often means railroads often can’t compete with trucking.

While the shortage of gondola cars is a recurring problem, the situation is improving, Titsworth says. “As to the gondola car situation, right now we are somewhat short. But we are getting there. Every year we have expanded our fleet. We are getting to a manageable level.”

BNSF is also involved in adding larger gondola cars to its fleet due to geographical reasons and lighter density scrap in BNSF’s service area.

BNSF’s track is located primarily in the Southwest and the Northwest, with a major portion of its track in the agricultural Midwest and the Rocky Mountain regions.

As for increasing capital spending to improve BNSF, he points out that beginning in 1996 and continuing for several years, the railroad will be spending around $2 billion per year. “All that goes to expanded capacity, locomotives, and maintenance to improve service.”

KEEPING THE CARS MOVING

Along with gondola availability, the biggest complaint by shippers involves cycle times. The key to gondola cars is being able to keep them moving promptly from site to site.

Unfortunately, according to a number of shippers, some consumers use gondola cars as additional warehousing space. Even with demurrage charges being assigned to those holding the cars for too long a period of time, for many consumers it is better to pay the demurrage charge rather than having to move the scrap multiple times in their own yards.

Concerns about cycle times—the period of time it takes for a car to pick up, deliver and return—became most acute during the second half of last year when logistics nightmares slowed deliveries, in some cases trebling the time it took to deliver material to end sources. According to the railroads, these problems are easing as Union Pacific, as well as other railroads, work together to alleviate problems in congestion areas, principally the Southwest and Southern California.

Adding to the problems with longer cycle times, most railroads say the areas from which they pull ferrous scrap continue to grow, making it more of a challenge to keep track of all the gondola cars.

A number of shippers, however, are less sanguine about the gondola situation. Denise Maggio, in the traffic department for Hugo Neu Proler, Terminal Island, Calif., says the situation with gondola cars is bad. “Everything should have gotten better,” Maggio says. In fact, she adds, there are expectations that the situation will get even worse in February and won’t improve until March.

She points to the difficulties UP has been undergoing since acquiring Southern Pacific as a major problem that still needs to be worked through.

Exacerbating the problem, according to Maggio, many steel mills in the West are maintaining a stock of full gondola cars. “I hear whole trainloads are sitting at some mills,” she says.

Christine Adams-Holton, president of Scottsdale, Ariz.-based Rail Logistics, a rail consulting firm, feels there is a slight improvement at Union Pacific, as well as at BNSF, the two railroads that dominate the western half of the U.S.

Despite the improvement, Adams-Holton feels parts of Southern California continue to be plagued with a shortage of gondola cars. Some steel mills in the western U.S. have gondola cars “that just sit there.”

While at the present time the gondola availability in the East is better, one ferrous scrap shipper expressed concern that Conrail, which CSX will be acquiring along with the NS, has a reputation as a rail line with gondola shortages.

The author is senior editor of Recycling Today.

Sidebar

UP Delays Force Changes to Movement

With Union Pacific going through a sometimes turbulent absorption of Southern Pacific, shippers have been clamoring on Capitol Hill in front of the Surface Transportation Board over lingering problems with the merged railroad, as well as other rail-related problems.

While problems were most acute this past fall, the problem is far from over. For starters, while the railroad has been able to shave some time off its delivery times, there still are many inventories that continue to remain backed up.

To address the situation, the Surface Transportation Board held a hearing Dec. 3 to decide whether to modify a service order that was entered Oct. 31. That order grew out of proceedings that addressed the problems the Union Pacific was going through as it incorporated the Southern Pacific as a merger.

Decisions that came out of the meeting include the following:

·Authorize the Texas Mexican Railway Co. to accept traffic routed to it by Houston shippers that are switched by the Port Terminal Railroad Association or the successors to the Houston Belt and Terminal Railroad Co. In connection with the authorization, the STB directed the UP/SP to release from their contracts all shippers capable of being switched by PTRA at Houston who desire to be served by the Tex Mex. The Tex Mex to was also authorized to use trackage rights over the Algoa route south of Houston to mitigate congestion over UP/SP’s Sunset Route.

·To facilitate rerouting of traffic around Houston, UP/SP was required to continue to permit Burlington Northern and Santa Fe Railway Co. to operate over the Caldwell-Flatonia-Eagle Pass line (Tex.), and to permit BNSF to interchange Laredo run-through traffic with Tex Mex at Flatonia if it desired to do so.

·UP/SP was required to continue to file reports including information on its performance in general, and to report more specific information on movements of grain and coal, and terminal information for the West Colton Yard in the Los Angeles area.

·UP/SP and BNSF were required to file papers detailing their plans for handling movements associated with the imminent grain harvest and the seasonal traffic.

The board also noted the following: more focused reporting will help evaluate the progress of the service recovery. Accordingly, the board requires the UP/SP to expand its informational reporting in the following respects: the siding report shall include sidings blocked between Houston and Beaumont, Tex. And between Los Angeles and Tucson, Ariz.; car terminal dwell time shall be reported individually for each major terminal; the interchange reports shall include Laredo, Tex. And Stockton, Calif.; UP/SP shall show the number of containers and trailers at the major ports awaiting rail equipment; and UP/SP shall add the East Yard (Los Angeles) to the major terminal report and the Port of Long Beach/Los Angeles to the Port Intermodal Terminal Report.