Letter From Jack Koraleski
December 15, 2006
To our customers:
As 2006 draws to a close, I'd like to take the opportunity to thank each and every one of you — thank you for your support and thank you for your business. I hope you will agree that 2006 was a year of progress for Union Pacific as we wrap up the year with some of the best service performance we've seen in quite some time.
Demand Pressure Eases
In June, when we broke our record for the largest volume month ever, we thought we were headed for a record-shattering peak season. Instead, 2006 will go down in the history books as the year with no peak. Demand stayed flat throughout the third quarter and has actually fallen off over the past few months. The reduction in housing starts, commercial construction, automobile sales and lower domestic intermodal demand drove most of the softness. Interestingly enough, while we have seen some softening, volume levels remain historically high as this will be our biggest fourth quarter ever. It's a somewhat surprising end to a record-setting year.
Key Operating Metrics Have Improved
System velocity in November was 22.2 miles per hour, the best we've seen in quite a while. Combine that with our best performance in the amount of time a car spends in a terminal and the best first mile/last mile switching performance in three years, and the result is a significantly stronger network compared to where we were just one year ago.
Improved fluidity and service performance are the culmination of the steady progress we've made throughout the year, driven by added resources, process improvement and capital investment. During the first half of the year, these actions allowed us to handle all-time record volumes while maintaining our velocity. During the second half, we took advantage of lower-than-planned volume to complete capacity expansions and maintenance programs while we improved service and eliminated failure costs. By year-end, we will have 50 percent of the Sunset Corridor double tracked — an important milestone in our record capital spending to add capacity.
A Look Ahead
For 2007, we expect more of the same. We still expect to see record volumes in 2007, but not of the magnitude we've seen over the past couple of years. As such, we are taking steps necessary to "right size" our operations. Today we have over 12,000 freight cars in storage to free the network of congestion. We are reassessing our short-term locomotive leases, seeking to eliminate the least productive and unreliable units. We have trimmed our hiring plans back to 4,000 new hires and will carefully monitor economic conditions to increase hiring as needs dictate.
We will make good use of this breather from record demand levels to move ahead with our maintenance programs and continue adding capacity in critical corridors like the Sunset and the
We Appreciate Your Support And Your Business!!!
All that being said, we know we still have a ways to go. But, we are encouraged by our progress and we hope that you are as well. Our customer satisfaction scores in November reached a three-year high so we're pleased that you, our valued customers, have seen our improvement and are reflecting that progress in your satisfaction ratings.
I'd like to close where I began — by thanking you for entrusting us with your business. We look forward to the opportunity to work with you in 2007 to not only grow our business, but also to improve our service. On behalf of the entire Union Pacific team, I wish you, your families and your co-workers a safe and happy holiday season.