Union Pacific CEO sees upswing, but still cautious
(The following story by Paul Davidson appeared on the USA Today website on October 6, 2010.)
Perhaps no industry has a better feel for the nations economic pulse than freight railroads, which transport much of the countrys grains, metals, chemicals, cars and lumber. Union Pacific (UNP), which is the nations No. 1 freight railroad and serves the western U.S., is benefiting handsomely from the recovery, posting record second-quarter profits.
But the company faces legislation in Congress to toughen regulations on the industry and an Obama administration proposal to use the freight rail network for a planned high-speed passenger rail system.
USA TODAY reporter Paul Davidson spoke with Union Pacific CEO Jim Young about these and other issues.
Q: How is the economy doing?
A: Things are better today than they were a year ago. Were running about 14%, 15% (more carloads) in the third quarter vs. a year ago. Clearly, the economy is stronger. At the peak, we were handling 200,000 (carloads) a week; at the bottom, we were running 130,000; and were running 180,000 right now. Weve had a nice pick-up, but were still a ways from where (we) were 21/2 to three years ago.
Q: How strong will the recovery be?
A: I believe the slope of the line will be positive, but its going to be a pretty shallow slope. Slow growth at best. But my confidence is not real high with that. Ive got to be prepared, if things turn down, to take action. Ive got to be prepared if it were to turn up stronger than that.
Q: You had record second-quarter profits even though carload volume has not returned to pre-recession levels. Why is that?
A: We spent a lot of time on efficiency. Our capital investment over the years has started to pay off in (increased) velocity and (better) service. Weve been able to get the pricing up. Price is a function of the value provided to the market.
Q: Youre also being more productive with fewer employees after cutting staff in the downturn.
A: Our company went from 52,000 (employees) to 41,000 and (recently) back up to 43,000. We had no choice. You had to take significant action to reduce costs. The competition is going to continue to be there. If you read this industry doesnt have any competition, its baloney. I have (competition) thats all water to the Panama Canal, that moves (by rail) over Canada. We lost business to truckers several years ago.
Q: Is there anything you can do to increase railroads market share vs. trucking, which moves a majority of freight in the U.S.?
A: Trucking has always been the majority, and I guess its always going to be the case. We need to continue to invest in new infrastructure. Its only recently that this industry has earned the kind of financial return that can justify these investments.
Q: How cost-competitive is rail compared with trucking?
A: At 700 miles distance-plus is where we get more efficient. One double-deck train is equivalent to 300 trucks. The fuel efficiency of moving a ton of rail vs. highway is about three or four to one.
Q: Many shippers have complained that big freight railroads impose large rate increases and provide poor service in so-called captive communities where they face no competition.
A: Captive shippers today are protected by the STB (Surface Transportation Board). Theres a formula limit on rate increases, and if the customer believes rates are too high, they can go to the STB, file a complaint and let the STB work through it.
Q: Some say STB standards make it very difficult to prove rates are too high.
A: They have simplified (rate challenges) and made it more timely. Im fine with making certain that works.
Q: What do you think of legislation in Congress that would require railroads to provide captive shippers access to competition?
A: The private-sector model has worked, hands down. I guarantee you if we see regulation starting to go negative in this industry, if they get it wrong, I will cut capital investment in this business, because you have very little room on the margin to reduce our profitability.
Q: Union Pacific, along with other railroad companies, has opposed an Obama administration proposal to use the nations freight railroad network to create a new high-speed passenger rail system. What are UPs concerns?
A: Limiting our growth opportunities has far-reaching effects, including impact on our ability to meet our customers and this nations increasing freight rail needs. We are committed to working through the issues (related to) this new high-speed rail service. We may not be able to get there on every project, but we will work toward that goal.
They gotta be doin' pretty well, they're plannin' on an $18-mil expansion (double-tracking) of the old SP "Sunset Route" in Cali.
UP to recommence double-track project on historic Sunset Route Wednesday, October 06, 2010
Union Pacific will continue its aggressive investment in American transportation infrastructure by reigniting its double-track initiative on the Sunset Route in the Southwestern United States. With an investment of roughly $18 million by the end of this year, Union Pacific will complete the double-tracking of nine miles of this premium line in Imperial County, Calif., and another nine miles in Maricopa County, Ariz., with more work planned for 2011. This project is part of $2.6-billion to be spent by Union Pacific in 2010 to support current and future freight transportation needs of its customers.
Known as the "Stormy" for its wild summer thunderstorms, historians dubbed it the Sunset Route. It has become a vital link in the 32,000-mile Union Pacific system. To respond to returning traffic volumes, Union Pacific is in the midst of an ongoing effort to add capacity to this critical 760-mile corridor between Los Angeles and El Paso. With 24 percent of all freight cars handled by Union Pacific originating or terminating in Southern California, the Sunset Route is a key corridor for North American railroads. Double-stack trains dominate the route, but construction materials including lumber, plywood, steel and cement, are also common cargo. Gasoline additive ethanol is another important commodity, as well as automobiles and automobile parts moving through the Mexican gateways at Nogales, Ariz., and Calexico, Calif.
The Sunset Route is also an important transcontinental route for the package express business, finished automobiles and grain. Less than one-quarter of the Sunset Route had a second double-track when Union Pacific acquired it in 1996 as part of the merger with Southern Pacific. Since then, Union Pacific has built 292 miles of new main line double-track through this corridor to handle the nation's growing freight traffic.
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Hmm. That address doesnt look right. It looks like the link pointing here was faulty.
Gah. Your tab just crashed.
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