Remarks to the Portland Rotary Club

Presentation by Bob Turner, Sr. Vice President, Corporate Relations
Jan. 13, 2009

Good afternoon everyone and thanks for inviting me to speak here today in Portland.

I know that railroading is an industry that generates a lot of passion. And while not everyone is a huge rail fan, it’s hard not to get excited by the sight of a big train moving through scenic places. That certainly applies to me.

Strength of a Unique Franchise

So to get all of you in the mood so to speak, I want to run a short video clip. I think you might recognize some of the scenery.

It’s doubtful we could have found a more scenic place to film.

My remarks today will focus on three things:

  • The economy – our view on where it is and the challenges ahead;
  • The environment – how will a renewed interest in the health of our planet, and its population, affect our nation; and
  • The infrastructure crisis – how are we going to make sure that the movement of goods and people takes place in a way that strengthens the economy while improving the environment.

Rail, in particular freight rail, has the potential to play a critical role in each of these. My hope is to make these connections for you, and if there’s time, take some questions.

Keeping an Economy Moving

So who is Union Pacific. To answer that question, I’d like to you to think about something for a minute. When you woke up this morning and turned on the lights, the electricity you used, probably came from coal that moved on one of our trains. Before you booted up your computer, it probably moved on one of our trains. The car you drove here today almost certainly rode on a Union Pacific train before you ever laid eyes on it. The food we’ll be having for lunch today probably spent time on a train.

In other words, freight trains—our freight trains—touch almost every phase of your lives.

We serve 23 states and 7,000 communities. We link every major West Coast and Gulf Coast port and provide service to the east through four major gateways in Chicago, St. Louis, Memphis and New Orleans.

 

We also operate key north/south corridors and are the only railroad to serve all six major gateways to Mexico. When you consider our future and our growth opportunities, we serve most of the fastest-growing population centers in the country.

Today, Union Pacific is a Fortune 200 company and a leader in the transportation industry. We break our business into six groups. Together, they brought in around $17 billion in revenue last year. These six groups provide a diversity that is a great asset to our company.

It allows us to capitalize on growing markets, and our diversity also protects us somewhat when certain industries struggle. Lumber’s a good example because of the housing market today.

 

Union Pacific in Oregon

So, a little about our presence in Oregon.

We have just over 1,600 employees in the state, or a little more than one person for every mile of track, with an annual payroll of about $104 million. 600 employees work out of Portland, and this city sees about 30-35 trains come through daily.

Last year we gave about $220,000 to communities throughout the state. That includes Union Pacific’s signature giving platform, the Principals Partnership, which supports 36 high schools in Oregon with 11 here in Portland. The partnership is based on the belief that by developing strong leaders, we can have a profound and positive impact on the high schools in our communities. Portland schools have been part of the Partnership for going on six years, and we’ve been very proud to work with them on this critical issue.

Finally, we spent about $50 million in 2008 on infrastructure in the state. This is especially important as I talk about how Union Pacific plans to keep up with customer growth, both here and across the country. I’ll talk about that a little later.

But first, since it’s on all of our minds right now, I’d like to spend a minute or two on the economy and what it looks like from our perspective.

The short version is that we have no idea what’s happening, which is an outlook shared by just about everyone, except the people who are covering these extraordinary events every day on TV – and never seem to lack firm opinions.

Right now everyone’s talking about the auto industry. From our perspective, the big issue is figuring out how many new cars Americans are going to buy in 2009. Early in 2008, it was thought that 17 million vehicles would be sold. By year’s end, it was somewhere closer to 11 million. It’s hard to see that improving very much in 2009.

  • International trade is supposed to be a strong engine for economic growth, but right now our own business in this area is off 12 percent.
  • Housing is in a tailspin depending on where you live.
  • Energy and agriculture are about the only things that have remained stable. Energy thanks to the growth of wind power among other things, pipe and drilling supplies, and ag is doing pretty well thanks to the demand for food and ethanol.

UP is a key player in all of these products and our plan is to watch our costs, maintain our surge and recovery capability for when the economy rebounds, and keep customer service at the record numbers we’re seeing right now.

There’s also a lot of talk about stimulus packages, and while we have no intention of asking for government money, if something does get approved that goes about improving infrastructure where we need it, it’s bound to help.

Frazier Mud Slide

Speaking of infrastructure ... January is apparently a tough month in the Pacific Northwest. Last January, Mother Nature wasn’t so kind to UP’s infrastructure in the Pacific Northwest. A mudslide near Frazier, Ore., took out about 3,000 feet of main line track south of Eugene.

It really is hard to imagine the monumental effort it took to clean this mess up. We had 175 employees working 12 hour shifts over a period of months.  

And here’s what they did. They removed 350,000 cubic yards of mud and rock. They brought in another 700,000 tons of rock just to restabilize the mountain. All just to get the line operational again. But we had to do it. It was crucial to our business and crucial to our customers’ business.

The financial impact, before any insurance, was about $43 million. This is a good example of why America needs a financially healthy freight rail system.

 

 

Ok, so you have that. Keeping with this infrastructure theme, I’d also like you to think about those trips you’ve taken north on I-5 to Vancouver. Congested right?

Unfortunately you’re not alone. Cities and states just like yours are facing the same problem. Our highways are clogged with trucks, and even if there was enough money to build a thousand new roads, where are we going to get the land?

On top of that, you have bridges wearing out because of the strain. And they’re expensive to repair. Very expensive. A new bridge over the Mississippi River cost nearly $1 billion.

So why do I bring all of this up? Well, you may not know it, but the railroad is the only privately funded infrastructure in the country. We maintain it. We fix it when it’s broke. And when mudslides happen like they did last year, we call in the cavalry and make sure it gets cleaned up.

We’re happy to do it. In fact, we prefer it that way. As long as we can stay fundamentally healthy, we’re prepared to continue to invest in new infrastructure. To illustrate the point, we spent $3.1 billion last year on infrastructure improvements.

U.S. Railroad Performance 1964-2006

I’m showing you this slide because thirty years ago, railroad infrastructure was in such bad shape that trains had to slow down or risk an accident. Track was torn up and the industry was shrinking.

So what changed things? It was called the Staggers Act of 1980. It created balanced regulation, and it allowed the railroads to become healthy again.

Armour Yellow Outside, Green Inside

Whether you believe that the environment has seen tremendous improvement over the last 30 years or you believe that we’re neck deep in an environmental crisis, there’s no doubt that improving it is on the national and international agenda.

Freight rail is the great solution.

  • One train takes at least 280 trucks off the road.
  • Railroads are three times more fuel efficient than trucks. Think of it this way. Union Pacific can move one ton more than 790 miles per gallon of fuel. To put that in perspective, it would be like an average two-ton car traveling nearly 400 miles on one gallon of gasoline. I know gas prices have gotten better, but I’m sure we’d all love to have that kind of mileage.
  • Our employees help this a lot too. We have our Fuel Masters program that has 6,800 participating locomotive engineers working together to improve fuel savings. In 2007, it helped save the railroad 21 million gallons, and much more in 2008. It’s a program that rewards engineers for conservation.
  • Our automatic Engine Stop-Start equipment eliminates unnecessary idling, which can save 15-24 gallons of fuel, per locomotive, per day. More than 40 percent of our fleet has this feature now.

  • Our new "Genset" yard locomotives are projected to use 37 percent less fuel compared to older switching locomotives, with the added benefit of reducing emissions by 80 percent. I’ve heard that there’s a lot of interest in getting a few Gensets up here in the Pacific Northwest and I know Brock Nelson, our public affairs guy here in Portland, is working on it.

All of these efforts helped Union Pacific reduce fuel consumption by 3 percent in the first six months of 2008 compared with 2007. For a railroad with 8,700 locomotives moving across 32,000 miles of track, 3 percent translates into huge savings in fuel and dollars.

Advocate for Clean Coal Technologies

With a national conversation taking place about the future of coal, and the fact that it’s an important part of our business, I thought I’d spend a moment on this.

Union Pacific is committed to reducing our carbon footprint wherever possible, which is why we’ve been such a strong advocate for environmentally-conscious energy development and clean coal technologies. This includes everything from gasification design, carbon capture, coal to liquids and coal to hydrogen.

It’s also important to remember that it’s possible to get the same carbon footprint from coal that we can from natural gas. It IS achievable and should be a goal since it won’t bankrupt our economy.

Needless to say, you can count on Union Pacific to continue to be involved in this conversation.

UP and the Port of Portland

Now a little about our relationship with the Port of Portland. Union Pacific and the port have had a fantastic partnership over the years, and I’d to spend a minute or two on what our outlook looks like.

We expect that exports will continue to grow at a faster rate than imports. Reasons include currency fluctuations, demand for food, changing diets and growing demand for U.S. raw materials.

Imports are declining because of the economic downturn. But even when the economy recovers, it’s clear a shift has taken place. This is impacting West Coast ports more than Gulf or East Coast ports. I think the big challenge is for West Coast ports to remain cost competitive.

Still, we’re optimistic about future growth once the economy recovers.

While I realize it’s broader than the Port of Portland, I will tell you that ConnectOregon is something we’re very happy to be a part of. It’s perhaps one of the best examples of a public/private partnership in the country. I think it’ll absolutely ensure Oregon’s transportation system will stay strong, diverse, and efficient.

I hope this gives you a sense for who we are, the challenges we face, and what we’re doing to keep our economy moving and our environment safe.

I’d like to conclude on a point that, from my perspective, is one of the most important I’ll make to you today. We know we have to earn the support of the towns and cities we operate in. It’s where we live, where our children go to school and where new employees are recruited. It’s important to our company that these communities thrive…and that’s really what Building America is all about.

That said, we will continue to be committed to Portland—as a hiring employer, a service provider to our local customers and an active member of the community.

Thanks again for the opportunity to speak here today.