July 30, 2010
Letter from Jack Koraleski - Executive Vice President, Marketing & Sales
To our Customers:
As we move into the Second Half of 2010, I thought it would be a good time to give you a quick update on our railroad.
An improving economy pushed our Second Quarter volume up 18% from the same period last year, when our business levels bottomed out. It was encouraging to see stronger volume across all six of our businesses, but we're still looking for signs of recovery in some key markets as overall volumes tracked 10% below those we handled during better economic times in the Second Quarter 2007.
As the economy fell into recession, we committed to being volume variable - prudently scaling back operations while remaining resourced for the economy's eventual recovery. At the same time, we continued to invest in our infrastructure and tighten our processes to drive sustainable service improvement.
I hope you would agree that the benefits of that approach were evident in our Second Quarter performance measures. As volume strengthened – and against tightened schedules and on-time standards:
- Our Service Delivery Index – a composite measure of our performance against customer commitments – was at 92, up 3 points from the First Quarter and just shy of record levels.
- Industry Spot & Pull - which measures actual performance to and from industry from our local serving yard - was at record levels for the quarter.
- Velocity was 26.4, up 0.2 miles per hour from the First Quarter, although down some from the record train speeds we saw in the Second and Third Quarter last year.
We’re working to continuously strengthen the value proposition we offer you, our customers, and are pleased that our Customer Satisfaction measurement reached "best-ever" levels in the Second Quarter.
Our service performance in the Second Quarter also demonstrates our improved resiliency and recoverability, as that performance was achieved against a backdrop of significant weather interruptions. Our network experienced weather delays 15 out of 30 days in June, compared to just one day of disruption in June 2009.
Unfortunately, weather has continued to disrupt operations in July. Throughout the month, rail traffic to and from Mexico has been impacted by the aftereffects of Hurricane Alex, which struck Mexico and South Texas four weeks ago. While the direct impact to UP was minimal, the impact of the devastating rains to connecting lines and Mexico gateways was substantial. As a result, embargoes for Mexico traffic have only been lifted in the last few days and operations are now returning to normal at the Laredo and Brownsville gateways.
 KCSM Anahuac Bridge Between Laredo and Monterrey |
 Hurricane Alex Flooding |
This past weekend, our network was impacted by two additional weather events. Preparation for the expected landfall of Tropical Storm Bonnie along the Gulf Coast led to the closing of the New Orleans flood gates – blocking off rail traffic – and preparations along the coast to secure rail equipment and stage resources for recovery. As it turned out, the real weather story for the weekend was a storm 900 miles north of the Gulf that left parts of Chicago with waist-deep floodwaters. Although Chicago operations are returning to normal as the waters recede, as I write this, we continue to hold trains out of our Global II intermodal facility in Chicago. As a result of the flooding, customers were prevented from accessing the facility, creating a backlog of containers and exhausting ground capacity until the backlog can be cleared.
 Global II - Chicago Flooding |
 Global II - Chicago Flooding |
Looking ahead, it appears the economy will "stay the course" through the Second Half and we’re expecting a more "normal" peak season than we’ve experienced the past two years. We have the resources in place to handle the expected increase in volume, while maintaining the surge capacity and recoverability that has helped us weather this summer’s storms. In May, our Board of Directors approved an increase in our growth capital spending for this year that included purchase of additional intermodal equipment. Truck and container capacity have tightened as the economy has picked up and our 7,000 new containers will be coming on line over the next several months. Additionally, our new Chicago-area Joliet Intermodal Facility, opening in a few days, will increase capacity for both international and domestic intermodal shipments and increase efficiency.
 Chicago-Area Joliet Intermodal Facility |
As always, we appreciate your business and look forward to working together.
Union Pacific
Executive Vice President, Marketing & Sales