Letter From Jack Koraleski

December 8, 2005

To our Customers:

As 2005 draws rapidly to a close, I thought I would take one last opportunity to wrap up the year, as well as provide an update on a number of recent developments across Union Pacific’s network.

Despite the fact there were times we felt Mother Nature had us squarely in her gun sight, in many ways, 2005 was a year of improvement for Union Pacific. We close the year with a full complement of engineers and trainmen, and a larger fleet of locomotives to meet the transportation needs of our customers. Our capacity improvements on the Sunset Corridor, the Iowa east-west main line, and the Texas triangle from Houston to Dallas to San Antonio have helped ease the capacity strain in these high demand areas. Our velocity is improving in our Southern and Western Regions, and the stage is set for even better performance in 2006.

On a more recent note, I wanted to bring you up to date on a couple of key developments. These include:

• Lifting of the Force Majeure caused by the repair work on the Southern Powder River Basin Joint line,
• Significant effects of a winter blizzard and freezing temperatures in Wyoming and Nebraska,
• Improved fluidity in operations at the Mexican gateways, and
• Operational improvement in and around the Houston terminal.

The Force Majeure on the Joint Line that serves the Southern Powder River Basin was lifted on November 23, 2005. This action had been in place since May 11, 2005, when extensive repair work began after two derailments. Repair work has stopped for the winter season but significant work remains to be done. Work will resume next spring. In the meantime, every effort will be made to maximize the number of coal trains being loaded each day. In addition to repair work on the Joint Line, we continue to invest in projects to improve the capacity of our Coal Network.

The 2005-2006 winter season hit Wyoming, Nebraska, Kansas and Iowa hard and early with several post-Thanksgiving Day blizzards all but shutting down our operations across the Central Corridor. This Corridor is facing continued snow, high winds and daytime high temperatures in the low single digits. Record below-zero nighttime temperatures are causing dozens of broken rails, which must be repaired before trains can move. All commodity groups are affected by these conditions with coal trains especially delayed. The winter weather related Force Majeure for coal shipments remains in effect.

We are taking extreme measures in response. For example, we are rerouting trains from the Central Corridor to routes via El Paso. We have brought back maintenance forces who had been released for the season. And we are adding management and staff in numerous disciplines to keep trains moving. With more resources in place, the network is more resilient and our recovery time from the weather challenges of winter should be greatly improved. But the timing of that recovery will still be dependent on how long the current blizzard conditions last.

Severe congestion of the last several weeks on the TFM system in Mexico was delaying our traffic to and from Mexico via Laredo and Brownsville. Laredo is our busiest border crossing. UP took a number of actions at TFM’s request to help it restore fluidity. With that help and numerous actions of its own, TFM has eliminated the backlog of cars in the pipeline and flows have returned to near-normal levels.

Finally, the operations in the critical Houston area, and on our line south to Brownsville, Texas, are more fluid than at any time in the last couple of years. This is having a positive effect on customer service throughout our Southern Region. We have reduced locomotive terminal dwell and revised our transportation plan in a way that expedites rock trains and other shipments. Most of the customers suffering damage from the hurricanes in this region have resumed near-normal business levels.

Particularly with the current deep freeze, we still have work to do before we will be satisfied with our performance. Our priority for the remaining weeks of 2005 is to recover from the weather and continue to reduce the inventory of railcars on our network, which should increase the system velocity and improve throughput. We also intend to do all we can to move as much coal as possible.

We close 2005 in better shape than the year began and are looking forward to an even better year in 2006 without the unprecedented assaults that Mother Nature inflicted upon us this year. Thanks to all of you for your business, your patience, and your sense of partnership that have helped us make the progress we did this year. We hope that you and your families and friends enjoy the holiday season.

Thank you,