UPS Says CSX, NS Delays Worsening

RICHMOND, Va. (AP) - Rail giants CSX Corp. and Norfolk Southern Corp. are losing half their business from one of their largest customers - United Parcel Service - because of delays and problems since the railroads carved up Conrail's Northeast routes.

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Atlanta-based UPS, the nation's largest parcel service, has diverted about 50 percent of the traffic normally handled by the railroads to trucks, spokesman Norman Black said Wednesday.

"For efficiency, for economical reasons, for environmental reasons, we much prefer to rely on our rail partners," Black said. "But the first thing we have to worry about is delivering these packages the day we say we're going to deliver them.

"If the railroads can't step up to that, we have no choice."

Richmond-based CSX and Norfolk-based Norfolk Southern have struggled to integrate the systems of Conrail since taking them over June 1. Both companies' earnings have been down because of

osts associated with the $10.2 billion acquisition.

"There are signs here of deterioration," said Michael Lloyd, a railroad industry analyst at Merrill Lynch in New York. "It's not dramatic. But week by week it's not getting better, it's getting slightly worse. And this is of course before the peak shipping season in October.

"They better show some noticeable improvement one of these weeks," Lloyd said.

Black said UPS's service problems began immediately.

UPS had shifted about half of its business to trucks late last month, but saw improvement by the railroads in early August and reduced that figure to 20 percent.

But the delays returned last week and UPS is now back up to 50 percent diversion.

"It just went totally downhill again," Black said. "Every train started running late again and the maximum delays started to grow again, forcing us to respond as of this past Monday by resuming the diversion of more of our volume."

UPS ships 9.5 million packages a day on surface transportation and spent more than $500 million on all shipments in 1998. The company did not release how much of that figure goes to CSX and Norfolk Southern, but Susan Terpay, a spokeswoman for Norfolk Southern, said UPS is one of the company's five largest customers.

Officials at CSX and Norfolk Southern insisted the problems are being addressed.

"We're exhausting all of our efforts to meet UPS's requirements," Terpay said.

CSX spokesman Dan Murphy blamed recent problems on a variety of factors, including maintenance work scheduled for the slower summer months. He said the company intends to add 105 locomotives, 44 designated for intermodal transportation.

"Since June 1st we've been on a learning curve in the process of melding the Conrail territory into CSX territory, and we're getting better and better at it every day," Murphy said.

The split of Conrail was the most complex transaction in modern railroading and followed a problematic merger of Union Pacific with Southern Pacific in 1996. That merger also led to severe congestion and delays.