Tied to the Tracks
What a Way to Run a Railroad
On a recent Monday afternoon, Longhorn Railway owner Don Cheatham drove past his rail yard near McNeil Road in Northwest Austin and noticed that Union Pacific Railroad had just delivered 47 hopper cars. That was the good news. The bad news was that Cheatham had expected to get those cars -- which he uses to haul aggregate and other stone products -- on Sunday. By getting the cars a day later than expected Cheatham lost nearly $1,000. Why? Because UP charges him a lease fee of $20 per day per car. Because they didn't arrive until late Monday afternoon, Cheatham was not able to put them into service until Tuesday morning.
"Do you think Union Pacific is going to pay me that $1,000?" Cheatham asked with a laugh. "I sure don't." If Cheatham didn't laugh, he'd surely be crying. The Union Pacific mess has cost Cheatham's railroad $2 million worth of business over the past year. And despite ongoing promises from UP officials that their service would improve, Cheatham says, "Things are worse now than they have ever been."
Cheatham operates his railroad on 160 miles of track stretching from Llano to Giddings. The right of way is owned by the city of Austin, which bought the rail line in 1986. Cheatham pays 15% of his gross revenues into an escrow account which is used to maintain the railroad right of way. (The city is currently selling the rail line to Capitol Metro, which plans to use part of the right of way for the city's light rail project). Cheatham's primary business is hauling aggregate and stone products for area quarries. Longhorn, which employs 27 people, also hauls waste paper, beer, and lumber.
To break even, Cheatham says, he needs to move 700 to 800 cars a month. And he says Longhorn was handling that many cars shortly after he formed the company in 1996. Then, last year, UP's service began to deteriorate. Right now, Longhorn is handling about 500 cars per month. His customers want more cars. He wants more cars. But UP can't provide them. "I'm constricting in an expanding economy," he said. "I'm running five locomotives right now. I could run seven if I had the freight."
Cheatham is one of several businesses in the Austin area that have been hurt by the UP logjam. The nation's largest railroad, UP has been hamstrung since last summer by long service delays, fatal accidents, and overloaded rail lines. And Texas, which contains one-sixth of UP's track, continues to bear the brunt of the rail crisis. A study completed late last year by economists from the University of North Texas estimated that Texas businesses have lost more than $1 billion since the rail tie-up began, and losses continue to mount at the rate of $100 million a month.
Lumberyards have been particularly hard hit. Don Strickland, the purchasing manager at Stripling-Blake Lumber Company on MoPac, says that under normal conditions, his business will get four to eight rail car deliveries a week. Over the past few months, Strickland says, "We feel fortunate if they bring two or three cars every two weeks."
Strickland says that the normal transit time for a carload of lumber from the West Coast is 14-21 days. "Each lumber car represents about $40,000 of our money. And we pay for it 10 days after it's shipped," explains Strickland. "The longer the transit time, the longer our money sits. And we've had transit times as long as 60 days since the first of this year." And even if the lumber makes it into the Austin area, Strickland says, there's no guarantee that the cars will make it into Stripling-Blake's yard. In early April, Strickland said, his company had 14 carloads of lumber sitting in rail yards in Taylor and at McNeil Road that it couldn't get delivered the final few miles to its yard on MoPac.
UP spokesman Mark Davis assures that the railroad "continues to see improvement overall." And although Davis admits the railroad is having problems, he insists that UP "will not be happy until our customers -- including ones we have lost and hope to regain -- see dependable rail service."
For Cheatham, an affable, talkative lawyer, the failures of UP to provide adequate service to him and others requires drastic action. If UP "can't provide the service," he says, "they should have those parts that they can't service divested from them forcefully." But so far, the Surface Transportation Board -- the federal agency that regulates the nation's railroads -- has been reluctant to take any action that would force UP to permanently relinquish its tracks.
Forced divestment is the only option, says Cheatham, because without competition, the railroad has no reason to improve its operations. "Competition is the mother of cheap prices," says Cheatham, who seems to have an aphorism for every occasion. And he points to the grocery business as an example. "Competition is why we have great grocery stores in Texas. I love H.E.B. I love shopping there. But H.E.B. can only bring products to consumers because of its transportation systems." And offering up yet another aphorism, he says, "Transportation is commerce. Without transportation, there is no commerce."
Cheatham admits a passion for railroads. His father and grandfather were both in the railroad business. And there are few things that get him as excited as talking about the future of rail service in Austin. A big supporter of commuter rail, Cheatham wants the city to connect the railyards on Fourth Street east of I-35 with the railyards that lie just east of the Seaholm Power Plant. With a connecting rail line on Fourth Street, he points out, the city will have a complete loop around the northern part of the city with the Missouri Pacific line that runs up MoPac on the west and the line that runs along Airport Boulevard on the east. So far, he says, city officials and Capitol Metro officials haven't heeded his arguments. But he isn't giving up.
Despite his problems with UP, Cheatham has no plan to bail out, even though he is losing money. He helps support Longhorn Railway by practicing law for a few clients. And he insists it will be a long time before he throws in the towel. "I love this business. I really do," he says earnestly. "I think I'm doing something that is good for the city of Austin. For the first time in my life, I'm really content. And unfortunately, UP is screwing me like a tied goat."