Jim Young - UP Historical Society Convention - July 15, 2006
It is indeed a pleasure to be here tonight and speak to you about Union Pacific and the role that it has played in Building America.
While Union Pacific's past is an extraordinary story to tell, I believe the real excitement is yet to come.
I would like to start off with a quick bit of history, knowing full well that most of you could stand up here and give this speech in much greater detail.
While our past is indeed a rich heritage, our future is the brightest it's been in decades, so I also want to share with you the critical role Union Pacific will play in keeping the economy moving and our Nation prosperous.
You can't talk about the history of the West without talking about the history of Union Pacific. They are linked together.
When I was first appointed President of Union Pacific just over two years ago, the head of our Corporate Relations department came in to my office and said, "Congratulations. You are the 30th President of Union Pacific." That really made the history and heritage of this great company hit home for me.
It's rare for a company to claim that one of our nation's greatest Presidents was a Founding Father. Abraham Lincoln created Union Pacific in July, 1862, by signing into law the Pacific Railroad Act. His vision was, in the face of the Civil War that was threatening to tear his country apart, to connect the Union states to the West.
Lincoln personally selected Council Bluffs, Iowa, as UP's eastern boundary. However, the first track was laid in Omaha, not Council Bluffs, because time was of the essence and this avoided the challenge of building a bridge, right off the bat, over the Missouri River.
President Lincoln did not live long enough to see the start of his vision come to life – the first rail wasn't actually laid until July of 1865, just three months after he was assassinated.
This photo shows early construction of the Union Pacific Railroad. Highlighted in this photo is Thomas C. Durant, the railroad's vice president and another key person in our history. He was the main visionary, albeit quite a controversial one, and the financial genius of Union Pacific. Of course, Durant operated without the benefit of Sarbanes-Oxley and Regulation FD, so he was left with a great deal of room for creativity when it came to his financials!
And here's the story we all learned in elementary school – the great race to complete the Transcontinental Railroad.
I often wonder what it would have been like to lead this company back then and inspire employees to meet the tremendous challenges they were facing.
Think about it for a moment: These men were building a railroad across more than half the continent – by hand for the most part – without the benefit of machinery to ease the way. The route included some of the most difficult terrain on earth.
Much of this land was described at the time as "miles of sagebrush and a few military outposts." Or, to quote a U.S. Senator who put it another way, "land that no American citizen should be compelled to inhabit unless you are being punished for a crime."
Through brute strength and sheer determination, in six years they built the railroad that connected the continent. Today, we take it for granted that we are able to witness all-important events live via satellite broadcasts. But, believe it or not, the driving of the Golden Spike was the first event ever covered live from coast-to-coast – by telegraph, with just one word.
That word was, "DONE!" Whistles were blown in San Francisco, the Liberty Bell was rung in Philadelphia, and a ball was held in Washington, D.C., to celebrate this historic event.
In connecting the two railroads, we truly became the United States of America.
In today's context, the transcontinental railroad was as significant to our culture and economy then, as the development of the Internet has been today.
Over the next century, thousands of railroads were formed and rails connected almost every community in the country. The railroads started the transition in this country from a farm-based to an industrial-based economy.
Let's fast-forward now to the latter half of the 20th century. The federal government had built the interstate highway system providing wide-scale, subsidized competition to the railroads in the form of trucks. At this point, railroads were so heavily regulated that they were unable to compete and many were nearing, or were in, bankruptcy.
The single most important development in the law during that period occurred in 1980 when Congress passed the Staggers Act, which partially deregulated the railroad industry. At the time, I had only been with Union Pacific for a couple of years and the changes I was about to witness were significant.
Economically, this was huge for the country because Staggers opened the marketplace to competition. But it also led to mergers and acquisitions as the stronger railroads sought to expand service or gain better routes. It also encouraged the railroads to grow, eliminate duplicate structures and improve productivity.
After the Staggers Act, railroads could negotiate and market their services, based on price and service.
The objective for the industry at the time, became for the railroads to bring on volume to fill excess capacity. To do this, prices had to decline, but that resulted in increased productivity and volume.
Let me put this pricing story into perspective: Our prices are down, compared to 26 years ago.
In the end, Staggers allowed 42 weak railroads to become seven strong ones. And the name of the game was productivity improvement.
The number of employees dropped by about 65 percent and the number of Class 1 rail miles decreased by more than 40 percent, but we were able to haul almost twice the volume of freight!
In our case, mergers gave the Union Pacific access to St. Louis, New Orleans, Houston, Chicago and the Southern Powder River Basin coal mines in Wyoming. We expanded our routes in California and connected the Pacific Northwest to the Southwest for the first time.
We acquired the best route from the ports of Los Angeles and Long Beach to Texas and points East and we became the largest carrier serving the critical chemical industries of the Gulf Coast.
So this is where we are today – a company with over $14 billion in revenue, with nearly 52,000 employees supporting 25,000 customers across our 23 states. UP has the strongest rail franchise, serving many of the fastest growing areas in the country.
As you all know, we've struggled to put this railroad together after some complicated mergers. The challenge for me is to get the most out of this great franchise that we've created.
To help achieve this, we have a competitive advantage of a well-balanced business mix that exemplifies the many ways in which Union Pacific is Building America.
The strategic focus on our product diversity allows us to react to and prosper from market changes. For example, in our Agriculture group, we are experiencing huge growth in the ethanol market and are well-positioned to handle this promising fuel source.
Union Pacific is the nation's largest rail carrier for automobiles, and chemicals, which are necessary not only for manufacturing, but also to ensure a healthy lifestyle by using products such as chlorine, which is used to purify our drinking water.
With natural gas prices soaring, demand for low-sulfur coal from the Powder River Basin is at an all-time high and again, we are adding capacity to meet the nation's energy demands.
While Asia continues to drive imports to record levels, we are adding capacity along our Sunset Route – which is the best route from California to the Southeast.
Industrial products include lumber, steel, rock – the base of our nation's construction industry.
While the changes since Staggers have been significant, our industry is at yet another crossroads.
The primary driver of this change is significant growth in global production and consumption with a concurrent increase in transportation demand. This caused a shift from excess capacity to constrained capacity across all modes in the U.S. transportation industry.
Our leadership team has spent a great deal of time evaluating our situation and building an understanding of what is happening inside – and outside – of Union Pacific. We analyzed the impact on our business today, and what we think the future holds.
The bottom line is this is a different railroad going forward. What worked in the past won't work in today's business environment.
With supply constrained, there was a clear shift from a buyer's to a seller's market.
Taken together, these changes have moved us from a marketplace that has historically favored trucks, to one that increasingly recognizes the value of rail.
This demand has vaulted Union Pacific to the status of a growth company for the first time in decades. This is truly an exciting time for railroaders because we are participating in a new history for an industry that many believed was on the wane.
We are setting daily, weekly and monthly volume records. They are being broken again and again.
In mid-June, we hit our all-time high for seven-day carloadings – in excess of 201,000 cars per week. That was the first time we set such a record outside of our peak holiday shipping season, which begins in earnest in early September.
While we're setting volume records, the test we're facing now is to handle this volume efficiently and provide our customers with good service.
Transportation capacity, whether it be highways, rail or ports, is also a critical issue for our nation's entire transportation system.
This slide is a bit of an eye chart, so don’t bother trying to read the key.
Just look at the colors on this map, which indicate congestion on U.S. highways in the year 2000. Green is considered moderate congestion, increasing to yellow, orange and finally to red, which indicates heavy congestion. This was a snapshot from six years ago. You can see the red areas are centered mainly around large metropolitan areas.
Now, let's fast forward to just 14 years from now...
Our nation becomes far more congested. The yellow and red areas have grown significantly, with the most congested areas blending between the major metropolitan areas – for example, the line between Kansas City and St. Louis and the triangle between Houston, San Antonio and Dallas.
For the transportation industry, this means truckers are going to struggle to keep up with increased demand for shipping. Highway capacity will continue to be a major challenge.
And high fuel prices mean that rail is a more economical means of transportation.
That means more and more truck traffic will shift to rail, creating capacity issues that we'll need to address as we work to meet the nation's freight shipment needs.
When we talk about freight shifting from truck to rail, it's important to consider how the rail industry is working to protect the environment.
Trains are already three times more fuel-efficient than over-the-road trucks. As a matter of fact, a railroad can move one ton of freight 400 miles per gallon of fuel. If automobiles were that efficient, you could drive from Seattle to Miami and back on a single tank of gas.
While we are clearly the environmental leader in terms of long-haul freight carriers, at UP, we constantly strive to become "cleaner and greener."
Because the yard locomotives start and stop often, we've made a concerted effort to lower their emissions. We have tested two new environmentally friendly locomotives, one of which is a hybrid whose counterpart in the auto industry would be the Toyota Prius.
These new yard locomotives are estimated to reduce fuel consumption by 40 percent while reducing emissions up to 80 percent.
Currently, we have teams of these new locomotive hybrids, called Green Goats, working in Texas and California.
In addition, the 200 new high-horsepower road locomotives we are purchasing this year, will surpass the EPA's most stringent emission standards.
Here's another example of the new world we're in. We used to talk of downsizing and taking jobs out as productivity increased.
Now, however, in addition to our capacity and technology spending, we're investing in people.
For years, mergers had given us an experienced workforce with little need for hiring, but the world has changed. By the end of this year, we will have hired more than 20,000 employees since 2003. I don't see the pace of hiring falling off in the foreseeable future.
The real challenge is not only keeping up with our hiring needs, but also transferring our current employees' experience and knowledge to this new generation of railroaders.
And there is incredible opportunity for young people just joining Union Pacific. The upside career potential has never been better.
This new generation of railroaders will have their fair share of challenges to overcome, just like their forefathers – but that's part of the spirit of railroaders, rising to the challenge.
As you know, last year was a tough one in terms of what Mother Nature dished out. We endured the West Coast storm, which cut off all but one of our routes into, and out of, LA for several days.
But our employees worked day and night to get their railroad back in operation.
Later in the year, we were hit by blizzards in the mountains and Hurricanes Katrina and Rita. Even the plains were hit with such heavy rains that we had major washouts on our critical coal routes in Kansas.
Through all of these major events last year, I couldn't help but think of the men that built this great railroad in the first place and how difficult it must have been for them. After all, Mother Nature was no less intense in those days and they battled her not with mammoth snowplows and bulldozers, they battled her with their wit and their will.
That is what has made this company great for over 140 years. And with the talented and dedicated men and women who are joining the Union Pacific team today, that tradition will no doubt carry on for another 140 years...
Today's Union Pacific faces a whole new set of challenges – in addition to Mother Nature, of course.
First and foremost, safety is our top concern – both employee safety and community safety. 9-11 changed the world for all of us and security has never been more important in our industry.
Hiring will continue to be a challenge as the Baby Boomers retire and a new generation enters the workforce. We need to rethink not only how we hire, but how we manage young people who have different priorities in life then previous generations. Providing a more balanced work-life scenario becomes critical.
Providing high-levels of customer service is a major issue for us as we are operating at full capacity. This is a whole new world for us operationally, with less room for error as demand has filled our system.
As I mentioned before, it is critical for us to increase our capacity, by investing in the business that offers us the financial returns that justify this costly expansion. We are dedicated to Building America, by moving the goods that fuel our nation's economy, but our returns have to justify the investment in capacity.
Finally, and this is a topic I haven't mentioned yet, we face the threat of reregulation. This is fueled by customers who are dissatisfied with service in the face of price increases for the first time in years. And it is also fueled by customers who want to push more of their business on to our rails that we simply cannot accommodate currently.
And, as we've learned from our long history, regulation will strangle this industry and prevent us from growing in support of the American economy. To do that we must be allowed to compete in the marketplace. By working together with our customers to provide them with excellent service, and by continuing the major levels of investment in our infrastructure, our future is brighter than ever.
When I talk about excitement for the future of this company, I know I am preaching to the choir.
You understand Union Pacific's great heritage and the heritage we are creating now.
You understand the sacrifices the men and women of Union Pacific made to connect this country, to serve in the time of war and to support our Nation during times of tribulation from the 1909 San Francisco earthquake to the 2005 Hurricanes.
You keep our history alive and pass it down to the next generation to help them appreciate the great past and bright future of Union Pacific.
And whether you look back at the last 140 years or look forward to the next 140, one thing remains constant – it's the people who are dedicated to Union Pacific that will keep this company great.