The supply chain disruptions occurring in the international intermodal sector are likely to persist until the end of the year, according to Union Pacific chief executive officer Lance Fritz.
UP (NYSE: UNP) has taken many steps to mitigate the impact on customers and has worked with all parts of the supply chain, but UP’s ability to meet demand is limited, said Fritz during UP’s second quarter 2021 earnings call. Thursday.
“These issues are likely to persist until the end of the year as the ability to move boxes from our ramp to the final destination falls short of demand,” said Fritz.
UP recently decided to temporarily suspend international intermodal service eastbound from the west coast port terminals at the Global IV intermodal facility in Chicago to help alleviate “heavy congestion” at inland terminals, particularly in Chicago, and in ports. The suspension is intended to help shipping lines reduce backlogs. The suspension began last Sunday and is expected to last for seven days.
UP has temporarily reopened the Global III facility in Chicago to serve as indoor storage.
The supply chain disruptions, and in particular those to the intermodal space, that started in west coast ports have started moving east and are affecting inland terminals, including Chicago, according to Eric. Gehringer, executive vice president of operations at UP.
“We are working proactively with our sales team and our ocean carrier customers to alleviate congestion, while continuing to maintain shipping volumes to and from ports,” Gehringer said.
To alleviate the congestion, UP added more short and long shafts as well as more chassis, and it increased train starts, according to Kenny Rocker, UP’s executive vice president for marketing and sales. UP also communicated with customers on a daily basis, meeting with ports and bringing in subsidiary Loup Logistics to work with BCOs to provide on-ramp dotting solutions, Rocker said.
Although congestion may persist for the rest of the year, UP executives said they believed the congestion was “transient.” Executives also noted that they had also been able to attract more business away from trucks as well as “market price”, although they indicated they wanted improved service levels.
“We can still convert [from] truck with our current service product, but that does not in any way mean that the current service product is adequate or appropriate for long-term truck conversion, ”said Fritz.
These service improvements include the reopening in late August or September of the Dry Canyon Bridge in Hotlum, Calif., Which had been closed due to fire damage. UP had to reduce train lengths and reroute some of the traffic following the bridge closure, according to Gehringer.
As UP looks into the second half of 2021, the railroad said it does not anticipate any substantial issues with its workforce. Unlike CSX (NASDAQ: CSX), which said in its second quarter 2021 earnings call on Wednesday that it was actively seeking new hires, UP sees its workforce remain at around 30,000 employees, and the railroad does not Don’t expect to undergo major hiring programs, said Fritz.
However, in the long run, “we have to make our jobs more attractive over time so that we can continue to attract a very large pool to our jobs,” Fritz said, noting possible measures such as removing an employee from the locomotive cab and bring the person to the ground, which would turn the role into shift work.
UP is also “encouraged” by interest in the Inland Empire intermodal terminal in Southern California, which opened in late June, as well as the Twin Cities intermodal terminal which provides domestic intermodal service between Minneapolis-St. Paul and Los Angeles.
The railroad has also secured business that travels less than 500 miles, and it looks forward to a new, reported intermodal partnership with full-load carrier Knight-Swift starting next year. Knight-Swift previously had a relationship with competitor UP BNSF (NYSE: BRK.B).
In response to a question about how UP views an executive order from President Joe Biden that targeted ocean carriers and freight railroads, among others, Fritz replied that he was working with the Surface Transportation Board, the body of regulation which will seek to implement the directives, to show how the regulations affect the freight rail industry.
“We are trying to help the whole administration to understand the impact of some of what they have inside the [executive order] in terms of urging the STB to re-regulate the railroad, ”Fritz said.
“And so, taking a step back, we’ve helped the STB see the impact of potential regulation and the multiplicity of regulation, and the delaying impact that might have on our ability, for example, to help to relieve the freeways, to take trucks off the freeway and put them on the railroad, to continue to help industries reduce their greenhouse gas footprint. And do everything with the ability to invest in our own infrastructure, ”said Fritz.
To learn more about UP’s second quarter 2021 financial results, click here.
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