Union Pacific (UP) on April 27 submitted a year-to-date progress report on embargoes, inventory management and system fluidity to the Surface Transportation Board (STB), which last year ordered the Class I to explain its escalating use of embargoes as a method of reducing rail traffic congestion.
An embargo suspends a shipper’s right to common carriage by restricting freight movements. Issued by a railroad when weather, congestion, labor strife, natural disasters or track conditions prevent fluid operations, embargoes may not be used as an alternative to seeking regulatory approval for line abandonments, to avoid handling unprofitable or undesired traffic, or to influence routing. Shippers may ask the STB to cancel an embargo.
The STB in November reported that UP embargoes had increased from a total of 27 in 2017 to more than 1,000 as of Nov. 17, 2022. According to the agency, between Nov. 1, 2022, and Nov. 17, 2022, UP issued 126 embargoes with congestion as the stated cause. Of those, 89 were issued on Nov. 16; as of Nov. 17, UP had 128 active embargoes in place and, for all, congestion was the stated cause, the agency reported. “The Board understands that embargoes may vary in scope and that all carriers do not report and use embargoes in the same way,” the STB said. “Nevertheless, the use of embargoes by all other Class I carriers, combined, pales in comparison to the number of embargoes issued by UP. Given UP’s sizeable role in freight rail, its increased use of embargoes in recent years, and the considerable increase just this month [November], it is imperative that the Board hear from UP directly about this matter and how UP plans to reduce, if not eliminate, the use of embargoes to control congestion.”
The agency ordered a Dec. 13-14 hearing on the matter. It sought information on:
- “UP’s decision-making process in determining to issue an embargo, including underlying causes (e.g., network issues and crew shortages), whether UP’s market power plays a role in the decision making, and UP’s consideration of alternatives to embargoes.
- “How UP measures congestion and total excess cars throughout its system.
- “The explanations for the dramatic increase in embargoes since 2017, including whether UP has maintained sufficient resources during that time period.
- “UP’s practices and policies with respect to notification and outreach to shippers.
- “UP’s consideration of shippers’ operational needs, including alternative avenues to meet their shipping requirements.
- “UP’s implementation and use of the CIMS [Customer Inventory Management System].
- “Whether UP has considered the impact of its embargoes on its common carrier and other legal obligations, and if so, the specifics of that consideration.
- “UP’s plans, if any, to decrease the need for embargoes going forward.”
Prior to the hearing, UP filed a 13-slide PowerPoint presentation of explanation (download below) that addressed private car inventory and pipeline management and customer inventory management systems, as well as its approach to embargoes—“data driven, narrowly tailored and equitable.” STB Chairman Martin J. Oberman, finding that the presentation “failed to provide any detail,” sent a letter to UP Chairman, President and CEO Lance Fritz on Dec. 8 stating that the railroad’s response “has hindered the Board in its efforts to understand this increase in the use of embargoes, and their causes and impacts.” Oberman said he would “look forward to a productive hearing and a good-faith exchange of information and views from all participants.”
In written hearing testimony (download below), Fritz and other UP executives outlined the challenges of early 2022, including not having enough crews and slower cycle times, which prompted some customers to add more cars. UP removed system cars and reached out to customers to reduce excess private car inventory. While that “incrementally improved” performance metrics, the railroad said, ”we are not improving fast enough and need to take action.”
Fritz told the STB that UP has used embargoes ”when we see customers accumulating cars in
serving yards.” For nearly 20 years, its customer inventory management system has helped to monitor and address elevated local serving area inventory. In November, the railroad implemented a pipeline management tool that establishes inventory fluidity targets for each customer location based on their average release rates and transit times, and asked 311 customers to reduce car numbers based on it; 230 did so, while 81 were issued embargoes with permits, allowing them to continue shipping while addressing excess cars. Fritz stressed that ”[i]n both cases, we try to work with customers to achieve these aims without issuing an embargo. The decision to embargo a customer facility is not one that we take lightly or without engaging the customer beforehand. An embargo is a last resort.”
The hearing included comments from various groups, among them the U.S. Department of Transportation; Freight Rail Customer Alliance; National Coal Transportation Association; National Association of Chemical Distributors; National Stone, Sand and Gravel Association; Corn Refiners Association; and Amtrak. Oberman and his fellow STB members grilled Fritz repeatedly on the eight key topics, at times appearing frustrated and dissatisfied with the explanations.
Just two days after the hearing, Oberman received a letter from Fritz, who reported that UP was “taking a hard look at our use of congestion-related embargoes. To facilitate that hard look, we are immediately pausing any additional embargoes under the pipeline inventory management program we began in November.”
During that pause, UP “assessed the feedback” from customers and the STB, and “evaluated how to incorporate enhancements to our inventory management program,” according to the April 27, 2023, embargo update, which UP said covered its “significant progress” (download below).
UP told the STB that technology and process improvements have “already yielded positive results, with over a 65% reduction in customer embargoes when comparing January through April year-over-year data [see charts below]. Further, while in 2022 approximately 29% of the customers notified of potential inventory issues ended in embargoes, the various enhancements in 2023 have reduced that embargo number to 14%.” The railroad noted that it is now averaging fewer than five embargoes per week, and in the last eight weeks, it has been averaging four per week.
UP reported the following improvements:
• “Customer Visibility With Technology Improvements and Notification.” The Class I said that customers can now view data impacting their shipments “via enhanced Shipment Management Tools. The enhanced data provides manifest customers with more information to effectively manage their inbound inventory pipeline through access to the number of cars in a serving yard, average release rates, and available capacity.” UP explained that this data accessibility “empowers customers to address inventory capacity constraints proactively.” UP said that it also added “graphical illustration of historical releases and inventory trends.” So far, more than 1,500 distinct users have accessed these tools. In late May or early June, UP said it will roll out technology upgrades enabling notifications regarding serving yard capacity.
• “Customer Embargo and Embargo Removal.” UP said that it has identified and shared its embargo reduction initiatives to support customer planning. “Customers have the opportunity to increase consumption, reduce inbound flow, or provide other actionable plans to address the inventory levels and help Union Pacific avoid impacts to serving yard operations,” according to the railroad. Additionally, any new serving yard or congestion embargoes issued by UP now have a 30-day expiration, rather than the Railinc default of one year, the railroad reported.
• “Customer Engagement.” UP said it is piloting a program to collaborate with customers on opportunities for inventory reduction. So far, “customer feedback has been positive, and customers are eager to engage in actionable solutions,” the railroad reported. Among those solutions: “level loading to smooth out fluidity, and customers utilizing pre-blocking to minimize time cars spend in their respective serving yards.” UP said it continues to evaluate day of week switching opportunities based on customer demand.
• “Service Metrics Analysis.” The Class I reported that it has “incorporated additional service metrics into the evaluation of Union Pacific performance (a vital part of the Union Pacific call on whether an embargo is appropriate). Prior to customer engagement, Union Pacific has raised verification of our performance for the industry spot and pull thresholds (IS&P) from 80% to 85%. The higher IS&P threshold triggers an evaluation of any service-related root causes prior to initiating the engagement of customers.”
In its April 27 filing, UP also discussed system fluidity. It pointed out that a “series of weather events throughout the first quarter had a real impact on our ability to capture demand, as well as added costs to the network. Through those events, our service product showed greater and greater resiliency, quickly rebounding each time as we were better positioned with crew resources to support our customers.” With April 1-27 freight car velocity at about 200 miles per day, “we are operating a network that is positioned for consistent and reliable service,” the railroad said.
UP concluded that its objective remains maintaining “a fluid network operating with high levels of consistency and reliability.” To do so, UP said it will focus on its “five critical resources—employees, locomotives, freight cars, line of road, and terminals—to ensure goal alignment and sound execution of our transportation plan.” Additionally, UP said it has ceased using the pipeline management program, and will continue working with its customers “to identify continuous improvement and engagement opportunities.”