Union Pacific railroad shipping embargoes raise complaints

Federal regulators and shippers are calling Union Pacific's decision to temporarily limit some businesses' shipments — an effort to clear up congestion across the railroad — into question. 

Union Pacific has ordered companies to remove some of their rail cars from the network more than 1,000 times this year, according to the U.S. Surface Transportation Board.

The number is reportedly up from 140 times in 2018.

"The customer is bearing the brunt of the pain. You guys are still making money," Surface Transportation Board member Robert Primus said, addressing Union Pacific executives this week.

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The board's leader, Martin Oberman, said he was concerned about the railroad franchise's increased use of embargoes because they disrupt operations of the businesses that rely on the railroad and have not seemed to make a significant positive impact.

Union Pacific has used more embargoes than any other railroad. 

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However, Union Pacific has defended its practices, with executives arguing that the embargoes are necessary. 

"We only use embargoes when necessary and, when no longer necessary, we end them," CEO Lance Fritz said, noting that the embargoes are targeted and temporary measures he said shouldn't place an undue burden on individual businesses.

While it is accepted practice for railroads to temporarily place limits on shipments in extreme conditions due to circumstances outside their control, shippers and trade groups have testified that the embargoes are hurting their businesses.

"We believe embargoes should be the exception, not the norm," Cargill executive Brock Lautenschlager said.

Greg Twist with Ag Processing Inc. said the grain processor should have "the freedom to decide how we operate our facilities" without having the railroad dictate how much they can produce with its shipping limits.

Oberman said there appears to be a direct correlation between the sharp drop in Union Pacific employees and the increased use of embargoes.

The number of train crews the railroad employed went from roughly 18,000 in 2018 to about 13,000 today.

Union Pacific told FOX Business in an email Thursday it relies upon a robust process to regularly monitor its network for elevated rail car inventory levels and to guide actions needed to protect the nation's supply chain.

"Due to our unique geographic span, number of yards, customer facilities and commodity mix, embargoes are one of the few tools, and last steps, to manage and meter customer-controlled rail car inventory levels, helping alleviate network congestion," the railroad said. 

"We also reduce Union Pacific-controlled rail car inventory as demand ebbs and flows. By working with customers one-on-one to understand their evolving needs, many concerns can be resolved as customers act to better align supply and demand; however, in some cases, for a small percentage of customers, we create embargoes that allow Union Pacific to fairly serve everyone."

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Union Pacific delivered 13% more profit in the third quarter, but the railroad predicted its customers would ship fewer items than it expected.

In June, the Nebraska-based railroad said it would spend more than $1 billion to upgrade 600 of its old diesel locomotives over the next three years to make them more efficient.

The Associated Press contributed to this report.