March 21, 2007

To our Customers:

From the beginning of our fuel surcharge program in 2002, Union Pacific's goal has been to have a fuel surcharge that recovers incremental fuel costs as a result of the extraordinary increase in energy prices.   Our program was designed to be responsive to our customers; fair and equitable; and simple to administer for both Union Pacific and our customers.  The Surface Transportation Board (STB) has now ruled that railroads can no longer apply a fuel surcharge as a percentage of the freight revenue on regulated traffic. Accordingly, Union Pacific has redesigned its fuel surcharge program to conform to the STB ruling. 

For all regulated traffic that is publicly priced in various price documents, Union Pacific intends to publish new rates that will be effective as of April 26, 2007.   These new rates will be published at increased market levels reflecting fuel costs at higher base levels, with each new rate subject to a new Union Pacific fuel surcharge provision, as outlined below:

  • The fuel surcharge (FSC) will apply when the Department of Energy (DOE) Highway Diesel Fuel (HDF) monthly average price reaches or exceeds $2.30 per gallon for all mileage-based FSC programs.
  • No fuel price adjustments will be made to base published rates if HDF prices average below $2.30 for any given month.
  • Mileage-based FSC rates will be changed on the first day of each month based on the monthly average Highway Diesel Fuel cost per gallon from two months prior.
  • Once HDF prices average $2.30 per gallon, an initial cents-per-mile-per-car surcharge will apply.  As HDF prices increase beyond the initial price-change increment, an additional cents-per-mile-per-car charge will be added to the FSC.
  • In addition to our single line business, we will be seeking concurrence from our rail connections to utilize the following approach on through rate business with each of them that is governed by UP price documents.  Mileages will be calculated using rail miles contained in the ALK Technologies' PC*MILER | Rail program.
  • Customers will have access to PC*MILER | Rail through the Union Pacific web site by April 10 to allow for mileage-inquiry capability.
  • For supporting detail, the total mileage, fuel surcharge rate and total fuel surcharge amount will be provided on customer freight bills.
  • In general, the FSC increases $0.01 per mile for each $0.05 per gallon change in HDF after the initial surcharge.   The applicable FSC is outlined on the attached table.

This new fuel surcharge does not apply to freight moving under Union Pacific's Circular 111.   Customers moving under UP Circular 111 will receive separate notification of the new FSC that will apply for that business. 

With respect to the remainder of our publicly priced business, it is our intent to convert to a mileage-based FSC program no later than January 1, 2008.   Our private agreements will be transitioned to a mileage-based FSC as those existing agreements expire.

I hope this letter provides sufficient information for you to make the necessary changes to your payable systems to meet the requirements of the STB's ruling.   If you have any questions concerning our fuel surcharge plans, please contact your Union Pacific Sales Representative.

HDF Mileage Fuel Surcharge Table