Chantal Cookware Corp. makes a global product: colorful enamel-on-steel pots, pans and other kitchen items manufactured in Germany, China and Japan but assembled, inspected and shipped from this Texas port city.
With cookware components and orders coming in from all over the world, Chantal Cookware has a business recipe to follow that’s as demanding as any gourmet concoction. So, the months-long, massive traffic tieup on Union Pacific Corp.’s railroad from Los Angeles to New Orleans and north to Chicago has been disastrous.
“We have had the worst year ever in our history, as far as delivery time,” said Ruth Davis, purchasing director for Chantal Cookware. The privately held company figures Union Pacific’s shipping problems have cost it 2.5 percent of its fourth-quarter revenue.
That’s just the effect on one small firm in Houston. Altogether, the city estimates that the Union Pacific traffic jam is costing local companies $100 million a month in lost sales.
Houston is ground zero in the railroad’s attempt to repair problems rooted in its merger with Southern Pacific Rail Corp. last October.
The stakes are high. If the railroad fails, it stands to lose much of what it hoped to achieve by adding Southern Pacific’s operations stretching from New Orleans to Los Angeles–namely, control of 36,000 miles of track and dominance in most freight markets it serves.
What happens in Houston is critical. This is a city that railroad people liken to the shipping version of a big storm sewer. The rail lines between the Rocky and Allegheny Mountains drain to Houston and its port, which is three hours’ sailing time from the Gulf of Mexico. When Houston backs up, eventually the Midwest gets clogged.
Beginning last summer, Houston got backed up. The blockage got worse in the fall after Union Pacific, which dominates railroad operations in Texas, took over Southern Pacific Railroad, dismissed hundreds of workers and tried to rapidly force the two rail systems together.
The problems have relentlessly worsened. Already under federal oversight, Union Pacific announced last week that it would stop most southbound shipments to the Mexican border to allow its system to clear out. It warned that it might quit accepting all shipments in two weeks if the railroad is unable to clear the tracks.
The result in Texas has been repeated proposals from powerful coalitions of governmental and business interests to take away control of Union Pacific track so that rival railroads can move halted goods. Those proposals are being closely monitored in other states, notably Oklahoma and Kansas.
At worst, Union Pacific could find its competitive advantage being eaten away. One reason why Union Pacific wanted Southern Pacific was that it gave the Dallas-based railroad a virtual shipping monopoly over Texas’ 250 plastic resin manufacturers.
Just as Wyoming coal bound for Chicago provides the railroad a captive flow of revenue, the pellets of polyethylene, polypropylene and other poly-based resins produced by the smoke-belching factories lining the Houston Ship Canal and bound for the Upper Midwest would provide Union Pacific with untold cash.
Now that virtual monopoly along the Texas Gulf Coast is in jeopardy. Repeatedly, producers in the past few months have had to shut down operations because of a shortage of railcars at their plants, despite thousands of cars sitting on sidings around Houston, according to Mark Levine, a spokesman for the Society of the Plastics Industry.
Midland, Mich.-based Dow Chemical Co., which has extensive resin operations here, has sued Union Pacific in Texas state court for $25 million in damages to compensate for losses it said it has suffered because of delays and meltdowns. Other lawsuits are expected.
The Texas Railroad Commission has offered two plans designed to break the Union Pacific’s domination of the Houston area.
In the latest, the commission proposes to force the three railroads left operating here–Union Pacific, Ft. Worth-based Burlington Northern Santa Fe Corp. and tiny Texas Mexican–to hand off switching–that is, control of which railroad uses the tracks–to an association the three railroads would own.
Meanwhile, the Port Authority of Houston said Thursday it wants its little Port Terminal Railroad to take over switching in much of Houston.
The Port Authority plan is backed by the Republican-dominated city government and the powerful Greater Houston Partnership, an association of the chief executives of this city’s 2,400 largest employers that includes the likes of Texaco Inc., Exxon Corp., Continental Airlines Inc. and Dow Chemical.
“If government doesn’t intervene at this point, it would be anti-business,” said Rob Todd, a member of the Houston City Council whose office contains dozens of GOP souvenirs.
The port authority will file notice of its plan this week with the federal Surface Transportation Board. The transportation board is the successor to the Interstate Commerce Commission, which has been blamed for allowing Union Pacific to create its monopoly here.
But H. Thomas Kornegay, executive director of the port authority, says Houston-area shippers have to share some of the blame that has all but derailed shipping in the western United States as well as the nation’s Heartland.
Last summer, when the delivery of railcars began slowing, area shippers, rather than waiting for their cars to be returned, ordered more cars repeatedly until the Houston rail system choked, he said.
On top of that, Union Pacific was instituting multiple changes simultaneously, including dissolution of Houston Belt & Terminal Railroad, which had handled switching for decades in the Houston area.
“When something went wrong, UP had no idea where to look,” Kornegay said.
Union Pacific, for its part, has repeatedly said that all it needs is a little more time to get things operating the way they are supposed to in Houston and the West. In fact, it points to the improvements throughout the rest of its system as evidence that it’s gaining the upper hand on the problems that have plagued the merger.
Still, the implications of the Houston fight have taken on such importance that the railroad last week staged a demonstration for a journalist who rode one of its freight trains with the railroad’s Houston-area general manager from Lake Charles, La., to Houston.
“I’ve never seen the railroad so clear,” said Rodney Stutes, local chairman of the Brotherhood of Locomotive Engineers. “They were getting everything off the road for this one train with the general manager and the reporter.”
Publicity stunts aside, Stutes said things on the railroad are improving, compared with a few weeks ago: “We’re getting trains in and out now.” he said.
Sidings throughout the Houston area finally are beginning to be emptied of long-abandoned railcars, a fact that Union Pacific noted in its most recent filing with federal officials.
“But what happens when San Antonio clogs up, as it’s now doing?” asked Stutes. “Just one little clog up the line is going to create the same problem again.”
