January 27, 2010
Service Update from Jack Koraleski - Executive Vice President, Marketing & Sales
To our Customers:
As we begin a new year, I'd like to provide you with an update on Union Pacific, as well as share my perspective on some of the issues railroads and our customers are facing in the year ahead.
Service Performance at Record Levels
While improved demand during the second half of 2009 was encouraging, our carloadings continue to reflect the overall softness of the economy. Forecasts for key economic indicators in 2010 predict improvement, but remain below levels we saw during better economic times just a few years ago. Today, our volumes are tracking about where we were last quarter.
Throughout last year, I highlighted our effort to match our working resources – crews, locomotives and freight cars - to our lower volume levels, while ensuring we could quickly restore resources to meet demand. With seasonal demand and a more stable economy driving stronger carloadings during the second half of last year, our focus on maintaining volume variability allowed network velocity and our Service Delivery Index - a composite measure of our customer commitments - to hold at record levels as volume grew. Volume variability has also aided recoverability, providing resiliency as our Operating Team battled a series of severe winter storms to deliver your shipments safely, efficiently, and in a timely manner.
For the full year, velocity averaged 27.3 miles per hour in 2009 - up almost four miles per hour over 2008. Our Service Delivery Index was at 92, up eight points over 2008. We appreciate your vote of confidence that we're headed in the right direction with our service, as our customer satisfaction level climbed five points to a record-breaking 88 for 2009.
While we're pleased with the sustained service levels we've seen over the past year, our focus is on continuing to improve our service and consistency. As an example, we have redesigned one of our key performance metrics - Industry Spot & Pull, which is the measurement of actual performance to and from industry from our local serving yard. The new measure tightens the "on-time" window in our metrics, and more closely aligns the schedule with our improved service performance. As a result, the 2009 Industry Spot & Pull performance that was reported as 97 will be re-calibrated to 90, with this tightening of the standard driving the increased discipline to further reduce the variability of our service delivery. This will make us a more truck-competitive transportation provider and improve the value we offer customers.
Service performance in 2010 should also benefit from our continued commitment to strategic capital investment targeted to improve safety, strengthen our infrastructure, and support growth. We’ve invested over $14 billion since 2005, and our initial plans are to invest another $2.5 billion in 2010. As the economy recovers and volume strengthens, these investments and process improvements should help sustain our performance.
Issues Facing the Rail Industry in 2010
I also wanted to take the opportunity to provide an update on two issues we are dealing with in Washington D.C. and how you might be impacted. The first concerns efforts in the Senate to change our regulatory structure. As many of you know, we provided input to Senate staff for well over a year on legislation that would reform the STB, and late last year, this bill was reported out of the Senate Commerce Committee. We have a number of concerns about this bill, particularly its impact on our ability to invest, and its reliance on increased government involvement in our operations. We are working to address these issues, and our goal is to see changes made to this bill so that we can continue to invest and make prudent operating decisions that allow us to best serve all our customers. Without changes, we will not be able to support the legislation.
The second issue is the federal mandate to install positive train control (PTC) on large parts of our railroad where we carry toxic-by-inhalation material (which we are obligated by federal law to handle) or where passenger operations exist. The Federal Railroad Administration (FRA) recently came out with final rules on implementation, which increase the cost of this already expensive mandate. In fact, the FRA itself calculates that the cost-to-benefit ratio is an astonishing 22 to 1, meaning that most of this huge investment will be unproductive. Since we must comply with this mandate by 2015 across our network, and have agreed to implementation by 2012 in the Los Angeles basin area, we are already focusing resources on this project - consuming about $200 million of this year's capital investment. This means that other projects may be pushed further down our priority list as we have a limited amount of resources for capital spending. As both of these issues have an impact on Union Pacific's future ability to invest, I wanted to make you aware of them, and I'll likely provide further updates from time to time.
As always, we appreciate your business and look forward to providing you outstanding service performance in 2010.
Union Pacific
Executive Vice President, Marketing & Sales