Logistics woes persist as Midwest flood waters recede

Union Pacific re-opens rail line but damage is done, shippers say

By Dave Hannon -- Purchasing, 6/19/2008 12:58:00 PM

Union Pacific Corp., the nation's largest freight railroad, said Thursday that shipments have begun moving on its main East-West line and lifted its embargo after flood waters in parts of the Midwest began to recede. But UP warned in a note to shippers that “We anticipate continued slow orders throughout the area over the coming weeks to allow for repairs to our track, yards and signal systems.”

According to the company's Web site, a drop in water levels in Cedar Rapids made it possible to restore service on one main track Wednesday and another Thursday morning, although operations still remain limited. The Association of American Railroads said freight carried on the tracks for the week ending June 14 was down 4.4%, primarily due to the floods.

Burlington Northern Santa Fe (BNSF) said it was dealing with the flooded tracks by rerouting as many trains as possible. "But all traffic that would normally be using those routes are facing major delays," BNSF spokesman Steve Forsberg told the Associated Press. "I don't know if I could quantify it at this point, but we're trying to get shipments through on longer routes."

Iowa newspapers are reporting that most major highways are beginning to reopen again, but some roads have become severely damaged (see photo here). And most of the locks and dams on the Mississippi River are opened or reopening, according to news reports.

But shippers tell Purchasing.com that their supply lines have already been impacted by the rail and road closures in the region. “The rail line between Chicago and the west has been underwater for days,” says one respondent to a Purchasing.com survey. “This has halted intermodal traffic. I ship to the West Coast by rail exclusively. The cost to ship there by truck is double the intermodal price.”

Another said: “We are based in central Iowa and the floods closed road in our town as well as in Des Moines, Cedar Rapids and Waterloo. We order and ship material from all of these towns to our location, so our supply chain was messed up for over a week. Things are returning to normal now. Hopefully we won't see any more rain for a while.”

Another survey respondent says containers that originated in Asia have been stalled in Missouri for several days due to floods. And another said employees at his firm were asked to fill and stack sandbags around their business in addition to their normal daily duties.

Market experts say that while several railroads adjusted their quarterly earnings forecasts based on flood-related volume declines, there will be no impact on rail rates or pricing. JPMorgan analyst Thomas Wadewitz points in a note to clients out that "While the flooding will clearly hurt rail second-quarter earnings, the impact is largely temporary and does not meaningfully change the positive railroad pricing and earnings growth stories.”

More bad news for shippers is the possible impact of flooding on fuel prices. As corn-based ethanol prices rise refiners blending ethanol into gasoline incur higher costs, which could be passed on at the pump.

Food buyers take note: Cargill Inc., the largest U.S. agriculture company, declared force majeure on its corn-syrup supply contracts after flooding forced it to shut down its corn-milling plant in Cedar Rapids, Iowa. The Minnetonka, Minn.-based company won't be able to fill all of its customers' contracts, Cargill spokeswoman Liz Pearce said in a Bloomberg report.