Within the industry, we have seen the effect of a backlog of traffic on UP's rail system. Even company chairman and chief executive officer Dick Davidson admits to the challenges facing Union Pacific. "One fact that stood out clearly this quarter is that Union Pacific, and the entire rail industry, is experiencing unprecedented levels of demand," Davidson said in his quarterly report. "Unfortunately, operational challenges associated with these record volumes and our resource shortages, are preventing us from making the most of this increasing demand."
Now, as the effects of this crunch are being felt in other industries, Union Pacific's struggles are receiving national press coverage. As pointed out in the online Time Magazine, October 3, 2004, "The nation's four largest railroads, UP, Burlington Northern Santa Fe, CSX and Norfolk Southern, are a linchpin of the U.S. economy; when they don't run smoothly, it's tough for the economy to grow." The article goes on to describe issues faced by UP customers. Due to delays on UP's rail lines shipments are back logged in railyards and ports. Some arrive late or not at all. UPS has shifted some parcel shipments to trucks and Dow chemical has cut back production at a Michigan plant until distribution lines are clear.
Houston remains one of the hardest hit areas. When UP executive Koraleski spoke to a regulatory meeting convened by the federal Surface Transportation Board in Kansas City, Missouri he admitted that the railroad has not cleared congestion in the Houston area and expects additional delays. This crunch prompted the Houston Chronicle to publish an October 21, 2004 article detailing the effects of UP's operations. The article quotes Harris County Judge Robert Eckels calling UP's crisis "a huge issue for Houston, The economy of this region is dependent upon an effective rail operation." He adds that not only is Houston affected by Union Pacific's situation, but the rest of the country as well because so many goods move through the Port of Houston. A takeover of Southern Pacific Railroad in 1997 leaves Union Pacific as the owner of most of the rail lines through Houston. Several shippers have joined with Burling ton Northern to propose the creation of a new line in the Clear Lake area. A court ruling blocking this proposal has is being appealed.
The press coverage points to two major contributing factors in UP's current troubles -- a lack of resources and inaccurate forecasting by UP. UP seems to agree. Chief Operating officer Dennis Duffy stated that "predicting capacity is more art than science" and indicated that UP is attempting to purchase equipment and hire needed employees as quickly as possible. UP chairman Davidson alluded to this in his quarterly report stating, "We are focused on making improvements and we continue to believe the resource plans that we are implementing will make a difference. As fluidity to the network is restored, our follow-on challenge will be to improve efficiency and profitability while providing quality service to our customers."