Regulators want Union Pacific to explain big jump in embargoes

The Surface Transportation Board wants Union Pacific to explain why it has been issuing substantially more embargoes over the past five years.

The board is asking UP President and CEO Lance Fritz; Kenny Rocker, EVP of marketing and sales; Eric Gehringer, EVP of operations; and Bradley Moore, vice president of customer care and support, to testify at public hearings on Dec. 13 and 14. STB also asked shippers and other stakeholders for testimony about UP’s embargo practices.

Freight railroads deploy embargoes as a temporary means to control traffic because of congestion or weather-related issues. Embargoes restrict how much traffic is moved.

STB has received reports that the embargoes are hampering shippers’ operations, according to a Tuesday announcement of the hearings. UP (NYSE: UNP) also is a key rail carrier whose freight rail volume share is approximately 27%. In addition, UP is responsible for 10.7% of all long-distance freight volume.

The vast majority of issued embargoes cite congestion as the cause, according to an STB chart.

The agency also noted Tuesday that between Nov. 1 and last Thursday, UP had issued an additional 126 embargoes, with congestion being the stated cause. 

“The Board understands that embargoes may vary in scope and that all carriers do not report and use embargoes in the same way. Nevertheless, the use of embargoes by all other Class I carriers, combined, pales in comparison to the number of embargoes issued by UP,” STB said in its Tuesday decision. “Given UP’s sizeable role in freight rail, its increased use of embargoes in recent years, and the considerable increase just this month, 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.”

STB is seeking testimony on topics such as “the railroad’s decision-making process in determining whether to issue an embargo, data inputs, its consideration of shippers’ operational needs, and explanations for the dramatic increase in embargoes since 2017.”

In response to STB’s decision, UP said it is looking forward to explaining to the board the factors that contribute to embargoes.

“Union Pacific welcomes the opportunity at the upcoming STB hearing to explain the robust process we use to regularly monitor our network for elevated railcar inventory levels and the action we are taking to protect the nation’s supply chain,” UP said in a statement to FreightWaves.

“Due to our unique geographic span, number of yards, customer facilities, and commodity mix, embargos are one of the few tools, and last steps, to manage and meter customer-controlled railcar inventory levels, helping alleviate network congestion. We also reduce Union Pacific-controlled railcar inventory as demand ebbs and flows,” UP said. “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 embargos that allow Union Pacific to fairly serve everyone.”

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