Dick Davidson - The Newcomen Society - June 25, 2002

Houston

The following speech was presented by Dick Davidson June 25, 2002 at the Newcomen Society of the United States annual banquet, where UP was being honored as one of America's premier companies. The Newcomen Society is a nonprofit membership organization founded in 1923 to recognize outstanding accomplishment within the free enterprise system. It publishes and disseminates the histories of honored organizations and supports education in business history with academic fellowships and grants at Harvard Business School and elsewhere.

On behalf of the 60,000 employees of Union Pacific Corporation – which include the 48,000 men and women at Union Pacific Railroad – I sincerely thank the Newcomen Society for this extraordinary recognition of our company. I would also like to thank former President Bush for his very kind words. He is a true friend of Union Pacific.

Everyone who has ever worked for Union Pacific – as well as the five major railroads that we've merged with over the last two decades – is extremely proud of our history … our heritage … and our unique role in the growth of the nation.

I'd like to give you a feel for that pride by capturing 140 years of Union Pacific history – going beyond the most frequently depicted event, which is the driving of the Golden Spike at Promontory Summit, Utah in 1869.

I think the best way to organize our past and put it into some perspective is to look at four major challenges that we've faced down through the decades. Each of these tests is from a different era.

But each has a common theme, which is the major contribution made by our employees to the long-term success of Union Pacific. I've always felt that it is in the genes of railroaders to meet obstacles head on – no matter the size or scope of the challenges. And UP employees have done that for 140 years.

Let's start at the beginning … with the challenges of actually building the railroad and what it took to pull off the astounding and daring engineering feat that officially opened the West.

Most people know the basics – mainly from their grade school days or from numerous books, including most recently Stephen Ambrose's bestseller, Nothing Like It In the World.

As former President Bush said, Abraham Lincoln created Union Pacific on July 1, 1862, by signing into law the Pacific Railroad Act. Basically, the act awarded a grant of government land and a loan financed with government bonds for a new corporation that was called the Union Pacific Railroad Company.

So that is why we date our railroad back 140 years from next Monday. The railroad was already nearly seven years old by the time the Golden Spike was driven on May 10, 1869.

Ground was broken on the great enterprise in Omaha, Nebraska, in 1863, but actual construction was delayed for another 18 months … and the delay had nothing to do with Environmental Impact Statements. There simply wasn't enough money.

The first rail was finally laid in July of 1865. This is Thomas C. Durant, the railroad's vice president as well as the main visionary and financial genius of Union Pacific.

He is looking West .. to infinity .. across the Nebraska plains and judging by the look of those ties, probably asking himself – what have I gotten myself into?

Durant hired Grenville Dodge to quarterback actual construction. Dodge was a Union general in the just-concluded Civil War and a world-class engineer.

He had the incredible organizational and technical skills to get the job done.

So construction began, but it wasn't a very quick start. It took five months for the track gangs – which numbered just a few hundred men at the outset – to push the rails 40 miles west, to Fremont, Nebraska. One newspaper at the time called the completed work, "two streaks of rust across the Nebraska prairie."

With 40 miles down, there were still 1,046 miles to go to complete the Union Pacific portion of the greatest engineering feat of the 19th Century.

The big picture was this: Our track gangs moved West from Omaha and Central Pacific gangs moved East from Sacramento, California. Most people think the goal was for the two railroads to lay 1,800 miles of rail and meet roughly in the middle. But under the railroad act, the more track you laid, the more land you got for your company. So meeting more than halfway was the real goal of each railroad.

On the UP side of the project, we built 1,086 miles of railroad across prairies, deserts, 8,000-foot high mountains and rivers - some of the most difficult terrain on earth.

Imagine that along the entire route there was not one single settlement of any size. There also weren't any bulldozers, rock drills, modern explosives - or on the human level, modern medical facilities.

There was only mile after mile of barren land.

We began with a work force out of Omaha that numbered between 200 and 300 men, mainly Irish immigrants and Civil War Veterans. By the time we reached Promontory Summit, we had 10,000 workers and Central Pacific had the same number.

Pay scales ranged from $1 a day for pick and shovel workers to a whopping $4.17 a day for foremen. In today's dollars, a foreman would have been paid $54 a day.

At top speed, track gangs could lay four rails per minute across the prairie. That's if they could push through the below-zero temperatures of winter and the 100-degree days of summer. And that's if they weren't attacked by Indians or bitten by snakes and bugs … and they got enough to eat and drink and they didn't get sick.

In case you're wondering, no one knows for sure how many UP employees died while building the railroad, but it was a considerable number.

Indian attacks happened all the time in Nebraska and Wyoming. Indian war parties would swoop down on the gangs, mainly to grab the railroad livestock. But many workers were killed in the process.

Eventually, the U.S. Army and thousands of buffalo hunters arrived and decimated the bison population of the West. Bison were the source of food, clothing and shelter for the tribes, so in essence elimination of the herds limited the Indian attacks during the rest of the construction period.

Meanwhile the track gangs pushed forward. They laid one to three miles of track a day. They worked seven days a week, 12 to 16 hours a day. The crews lived in railroad cars converted into dorms. What little free time they had was spent drinking and fighting. One newspaper account said that in Cheyenne, Wyoming, murders outnumbered accidental deaths four to one.

Perhaps the most daunting challenge of all was logistics. You have to imagine that there was nothing – absolutely nothing – at the work site that could be used to build a railroad or support the men.

Everything – rails, ties, bridging, every bit of food and supplies for the workers – everything had to be brought up the Missouri River and then moved to the work site by train. What that meant was that every mile of progress meant another mile of supply line.

Grenville Dodge wrote that to build one mile of track required about 40 railroad cars of materials and supplies.

I should point out that the Central Pacific had it even worse. Most of the iron and all heavy equipment, like locomotives, rails, cars, and wheels, had to be made in the East and shipped around Cape Horn to California – which took five to six months.

 

Pushing West through Wyoming was exhausting and treacherous. A 650-foot bridge spanning Dale Creek had to be constructed. This was the longest trestle on the line. What you see pictured here rose 150 feet from the bottom of the Canyon. It swayed in the wind and those at the scene said it was terrifying to cross.

Weather was a constant opponent. In the Wyoming summer, it was often 110 degrees and temperatures inside the locomotives could reach 150 degrees. Some of the gangs had to haul water 50 miles. And the men worked in knee-deep alkali dust that would cover their entire bodies.

Winter weather was the big foe of the Central Pacific crews. During the winter of 1866, it took almost 5,000 men just to keep the track shoveled in the Sierra Nevada Mountains. They had to contend with frostbite, pneumonia, no shelter and avalanches.

One more comment about mountains. Building tunnels was no fun. Holes had to be drilled into solid granite. It took three eight-hour shifts to make 12 inches of progress. Tunneling was the most dangerous work on the railroad, and an untold number of employees were killed in explosions.

So every day was a physical challenge. But eventually both railroads reached the big prize – the Salt Lake Valley. There was a lot of jockeying by both railroads to be the first to claim Salt Lake business. In fact, both companies graded a line far beyond where the tracks would finally meet at Promontory Summit. The government, in its wisdom, compromised, selecting a site halfway between the ends of the graded lines.

The completion of the transcontinental railroad captured the entire nation's attention. Western Union offered coverage direct from the scene – the first major news event carried "live" from coast-to-coast.

The ceremony spotlighted Union Pacific's No. 119 meeting Central Pacific's Jupiter. This A.J. Russell photograph of that event is one of the most famous in American history.

Legend has it that the representative of the Central Pacific, Leland Stanford, tried to drive his golden spike – but missed completely. Nevertheless the telegraph operator, who could not actually see what was going on, sent out the word "DONE" to the waiting nation. Whistles were blown in San Francisco, the Liberty Bell was rung in Philadelphia, and a ball was held in Washington, D.C.

Forty-six months after they started, the two railroads had come together in the stark Utah desert and officially put the "united" into the United States. The unification of America was complete. The railroad had opened the heart of the continent, changing it forever.

The cost to build the UP portion of the new railroad was somewhere between $50 and $60 million. In today's dollars, including labor costs, that would translate into $5 billion. But that's just a drop in the bucket compared with what it would actually cost to build anything involving land stretching from Nebraska to Utah.

But the transcontinental railroad was worth every dime. It cut the time it took to travel from New York to San Francisco from six months to 10 days. More importantly, the railroad link meant new settlements for millions of Americans, new trade with overseas partners, and an incredible surge in industrial growth.

The building of the transcontinental railroad was a glorious tribute to American engineering and old-fashioned hard work. It was also the beginning of a transportation revolution that continues to this day.

Union Pacific had conquered its first and biggest challenge.

Challenge number two is somewhat unusual and has occurred throughout the history of the railroad. It involves the weather and natural disasters.

If you think about it, our railroad is really a 33,000-mile factory without a roof. Because the elements are so pivotal to our daily operations, we spend lots of time and money tracking the weather. We watch snowstorms. We keep our eyes peeled for tornadoes. We worry about flooding.

What we don't plan for is what happened in San Francisco on April 18, 1906 – the most devastating earthquake in American history.

Edward H. Harriman was chairman of the Union Pacific. At the time, UP was merged with Southern Pacific, so Harriman was really the boss of two railroads. In fact, Theodore Roosevelt claimed it was a monopoly and the companies were ordered to "unmerge" – which took almost until the start of World War I.

Harriman was in his New York City office when the earthquake struck 3,000 miles away. He immediately directed both railroads to do everything they could to help and then jumped on a train for San Francisco to personally direct his troops. That is Harriman on the left.

Helping out meant transporting food, medicines and people. The earthquake destroyed 200,000 homes in San Francisco, so you can imagine the chaos.

UP and SP collected supplies in the larger towns along the two systems and rushed them to the Bay Area. In the 35 days following the disaster, more than 1,600 carloads of relief supplies were moved on the rails. And so were 224,000 passengers who wanted out of the city.

In a letter to the SP board asking for another $200,000 in relief funds, Harriman praised the performance of railroad employees, calling the operation an example of "perfect discipline." He went on to say that "the prompt and efficient service rendered contributed largely to the feeling of courage and confidence with which the people of San Francisco faced this calamity."

As I said earlier, rallying to the cause when it's needed the most is a challenge that our employees have met, time and time again.

Winter weather and flooding are always threats to railroad operations and pose tests almost every year for our employees.

The blizzard of 1949 is the benchmark for us. For seven consecutive weeks in January and February, our service was interrupted by one storm after another.

Nebraska, Wyoming, Utah and Idaho were hit with heavy snows … winds up to 80 miles per hour … and temperatures that fell to 51 degrees below zero. Never before in our history had the railroad faced conditions where the best efforts of our employees and our machinery met with day after day of failure.

14,000 employees worked to clear the tracks using rotary plows … wedge and spreader plows … bulldozers … and even flame-throwers to try to keep the trains moving.

During those long seven weeks, the only traffic that moved was food, fuel, livestock feed and snowfighting equipment for communities on our line that were completely cut off.

Floods can be even a bigger threat. In 1993, some of you may remember that the United States was, in essence, cut in half by severe flooding of the Mississippi and Missouri Rivers, plus many smaller tributaries. It was the worst flooding in our history – and in fact, the worst natural disaster – and presented challenges that our employees had never faced before.

I took a nine-hour helicopter inspection trip from Topeka, Kansas to Cape Girardeau, Missouri. And it was the most devastating flooding I had ever seen. Systemwide, almost 1,700 miles of our railroad were damaged or completely underwater and out of service.

Some points in the river that were normally 150 yards wide, from bank to bank, were now four miles wide and our tracks were under 20 feet of mud and water. Near St. Louis, the waters of the Mississippi and Missouri converged, funneling one million cubic feet of water per second toward our tracks - 10 times the normal flow.

All told, the Midwest floods of 1993 cost American railroads $200 million in physical damages and untold millions in lost traffic. But once again, our employees were the driving force of our service recovery. It was their hard work, commitment, resourcefulness and spirit of teamwork that got us up and running again once the waters receded.

Let's move on to another challenge: Doing our part for the war effort during World War II.

Union Pacific played a major role in moving troops and supplies around the United States. The big challenge was that we were fighting the war on two fronts – meaning we had to route rail traffic in both directions at the same time and keep congestion clear at the ports.

One of our most visible contributions to the war effort was maintenance of canteens and USOs in places like Omaha, Pocatello, Boise and, as this painting depicts, North Platte, Nebraska – the most famous canteen of all.

This little town in the middle of Nebraska hosted as many as 10,000 servicemen and women a day between 1942 and 1945. All of them were on their way to war. In all, 6 million servicemen and women went through the North Platte Canteen.

The people from North Platte and surrounding towns met every train … fed every soldier … and all of it was free. It was truly remarkable.

Incidentally, the art you see here was painted by one of our employees named John Bromley, who is one of the leading railroad artists in the country.

As for train service, passengers, including most of the celebrities and noteable personalities of the day, rode our trains right after the war and into the 1950s and '60s.

The point here is that everyone who was anyone rode trains during this era. But the passenger train era was coming to an end. And by 1971, passenger service provided by freight railroads was over, and Amtrak was trying to make it work in the face of the new and improved interstate highway system and more frequent, convenient and inexpensive air service.

This chart tells the tale. In 1870, Union Pacific carried about 143,000 passengers. Now look at 1971, the last year of passenger service on the UP. Total passengers: 146,000 – just 3,000 more than 101 years earlier.

The peak traffic years, of course, occurred during the two world wars. For instance, in the three years between '43 and '45, we carried 21.6 million people, an average of more than 7 million a year. Even in the early '60s we averaged about 1.4 million every year. But from there, ridership fell like a stone, so we decided to concentrate just on freight.

Yes, the passenger business was romantic and harkens back to simpler times. But it's a flat-out money-loser. And if you're wondering, I think that Amtrak will last only as long as politicians continue to support it.

So in 1971, passenger service was history for us. We were looking ahead to our future as a freight-hauling transportation company. There were several milestones in the '80s. Each was significant and played a major role in how we run the railroad today.

In 1980, we expanded the largest classification yard in the world – Bailey Yard in North Platte, Nebraska. We added a 50-track westward yard and fully automated the entire facility, which vastly improved the flow of traffic.

Also in 1980, Congress approved the Staggers Act that deregulated the railroad industry. This was one of the most important developments in railroad history because it allowed railroads greater freedom to react to changing markets and enter into long-term contracts. It also paved the way for a series of mergers that changed the face of American railroading.

It was two years later – in 1982 – that the merger of the Union Pacific, the Missouri Pacific and the Western Pacific was approved by the government. At the time, it was the largest rail merger in history and expanded our reach from the Mississippi River to the Pacific Ocean and from the upper Midwest to the Gulf. I worked for the MP for more than 20 years. I should also mention that we made another acquisition in 1988 when we purchased the Missouri-Kansas-Texas railroad to help fill in our Midwestern network.

In 1984, we entered a joint venture with the Chicago & North Western to give us access to the coal fields of the Powder River Basin in Wyoming.

Today, coal is the largest of our six business groups, generating 23 cents of every dollar of revenue. Although our commodity groups are diverse, which helps to balance our overall financial performance, the coal network is the single most important element in the mix followed closely by chemicals produced here in Texas and along the entire Gulf Coast.

When we first entered the basin in 1984, we hauled 2 million tons of coal. I can remember thinking back then that if we could ever haul as much as 40 million tons we would hit the jackpot. In 2001, we hauled 164 million tons and we're headed for more than 170 million this year.

To support this valuable business, we've invested about $4.6 billion in capital dollars over the last six years – an average of $775 million every year.

In the '80s, technology made it possible for us to centralize two of our most important facilities – the National Customer Service Center in St. Louis and the Harriman Dispatching Center in Omaha, which you see here.

I could give an entire speech on the benefits of these two facilities. But suffice it to say that modern technology had made it possible to serve customers and operate trains in ways that were not even a dream just a few years earlier.

Perhaps the 1980s event that most caught the attention of rail buffs was our decision to begin phasing out cabooses. Once again technology was the trump card. After generations of faithful service, cabooses became unnecessary because of advances in monitoring train operations and safety. It was a sad day for many old railroaders, but it was inevitable.

Each of these events produced challenges for us. But in every case, the challenges have been converted to opportunities and improvements in the way we run our railroad.

Moving ahead to our most recent challenge – and the one that people here in Houston certainly remember because it began with a simple derailment in Englewood Yard, just a few miles from where we are tonight.

That yard derailment combined with several other mishaps, including washouts, traffic backups at the Mexican border and a variety of events – all of them bad – created gridlock in the Houston area. The congestion quickly spread to many other locations on the railroad, including Los Angeles, the Pacific Northwest and to our coal operations in Wyoming.

The difficulties of 1997 and '98 amounted to the biggest service challenge in our history – an 18-month period when we failed our customers, our shareholders and ourselves. None of us saw it coming until it was too late. None of us had the answers to end it quickly.

Plain and simple, the reason that we went into the ditch was a series of events that blindsided us while implementing our 1996 merger with the Southern Pacific – the largest merger in U.S. railroad history.

But ironically, it was implementation of the merger that also ended the crisis. We forged new labor agreements, we introduced a new computer system to jointly operate both the UP and SP, and we utilized the best minds from both railroads.

And we introduced directional running along a 1,000-mile stretch of track between Houston and St. Louis that utilized parallel UP and SP routes to create a divided super highway for rail traffic.

We have spent money to make sure something like that never happens again. Since the SP merger, we've spent $140 million dollars on capacity improvements in the Houston area alone and more than $1 billion along the entire Gulf region where our valuable chemical franchise is centered.

Today's Union Pacific is the largest and most successful rail system in North America. Fortune magazine recently honored us as one of America's most admired companies – no matter the industry.

It's almost like we are a brand new company. In fact, even though our history is grand and stretches back 140 years, I like to think that we are just four years old.

Our 33,000-mile rail network is running more fluidly than it ever has.

Our customer satisfaction measures are the highest they've ever been as customers tell us they can count on us and honor us with their most prestigious service awards.

Our financials demonstrate steady, consistent growth, quarter after quarter, even in the face of an economic downturn that hurt many of our largest customers. Wall Street investors have recognized this and are betting on our future.

Ever since the 1860s, Union Pacific has been doing much more than building a railroad. Employees of Union Pacific have been Building America. And that's a role we see for ourselves as we look ahead.

I'd like to close tonight by again thanking the Newcomen Society for this wonderful tribute to Union Pacific. I also want to show you what we're doing to publicly acknowledge the role that our employees have played over 140 years.