Freight and Passenger Rail: Present and Future Roles, Performance, Benefits and Needs
Oral Testimony of Jim Young, Chairman, CEO and President – Union Pacific Corporation
Before the U.S. House of Representatives, Committee on Transportation and Infrastructure
Chairwoman Brown, Ranking Member Shuster, and Members of the Subcommittee, my name is Jim Young, and I am Chairman, CEO, and President of Union Pacific Corporation. I appreciate the opportunity to testify today and I want to commend this committee for holding this hearing.
Benefits of Freight Rail
The United States freight rail system is the envy of the world. It is efficient and cost effective – one train hauls as much as 300 trucks at about half the cost. It is vital to our economy – over 40% of our Nation’s freight moves by train on a private system that costs the taxpayers virtually nothing. It is friendly to the environment – trains emit about a third of the emissions, per ton, of a truck. In fact, if your family vehicle was as fuel – efficient as a train, you would get about 400 miles to the gallon! In short, freight rail is a vital resource for our economy that stands ready to accelerate the economic recovery that our entire country is hoping for.
Recession
Like many companies, Union Pacific is facing extraordinary economic challenges.
As our company started the fourth quarter of 2008, what had been a gradual decline in loadings became a sharp drop-off that surprised – even astounded – us all. In virtually every segment of our business, from automobiles to frozen chickens to X-boxes, our customers curtailed their shipping as credit evaporated, and consumer spending took the holiday season off.
Today, approximately one month into the New Year, we are still searching for a firm base from which we can start to recover.
Waiting To Be Called
 Waiting to be called back to service: 1,200 locomotives, 48,000 rail cars, 3,150 employees |
At today’s business levels, Union Pacific has in storage 1200 locomotives – at $2 million a piece – and over 48,000 rail cars. Even more discouraging is that over 3100 of our employees are furloughed across our company. About half of these employees are covered by a new program that allows them to work eight days a month and maintain their full healthcare coverage. Our hope is that this program will mitigate the pain, and mean that they will be ready to return to full-time work when the economy rebounds, or as other employees retire. We have essentially stopped hiring until the furloughed workers can return to work and the economy begins to recover.
We are taking prudent steps to protect the financial integrity of our company while being certain that we retain a “fast-recovery” capability. For example, we have frozen the salaries of our executives, canceled meetings, curtailed travel and sought the help of all of our 47,000 employees in identifying and implementing ways to cut spending.
Financial Returns Drive Investment
 Includes cash capital, non-cash capital and lease financings |
We need to preserve our investment in safety and the maintenance of our railroad. That alone is well over $2 billion per year. We also should continue to invest in selective growth opportunities that will make our service even more valuable to our customers.
Financial returns drive growth investment. We are only able to make infrastructure investments for growth if our investors – pension funds, mutual funds, ordinary investors – have some confidence that we will earn a satisfactory return on their investments. If the economy doesn’t begin to rebound, or we are somehow prevented from earning enough to pay for growth, they will take their money elsewhere and we will have to reduce our investment in new capacity.
Infrastructure Investment
But there is much more to be done. Even with our record capital spending, our industry is only investing at about half the level DOT studies say is needed to meet the demands on freight rail in the future.
Clearly our Nation is facing a monumental challenge. Railroads, particularly freight railroads, can be an integral part of meeting this challenge. We have three suggestions for your consideration.
Accelerating Investment
First, government must nurture policies that enhance the ability of the freight railroads to attract private investment and remain competitive. The less we utilize privately funded rail in this country, the more the taxpayer must pay to subsidize other modes of transportation.
Second, Congress should enact an investment tax credit for new rail construction. We have endorsed a proposal that has been introduced in this Congress that would provide for a 25% investment tax credit for new rail construction. This credit will allow us to accelerate our investments in rail – investments that are critical if we are going to meet the future, projected demands for rail transportation.
Third, Congress should enact and fund programs that allow states to partner with freight railroads to move forward with projects that benefit both the freight railroad and the public. The best example of this type of project is the CREATE project in Chicago. This $1.5 billion project will improve the fluidity of the freight railroads, enhance passenger rail in the City, and reduce congestion on the highways. The freight railroads are willing to put up money consistent with the benefits we would receive while the local, state, and federal governments put up the resources commensurate with the public benefits.
Strong Rail
These are but three ideas for how our freight rail system can do even more to strengthen our economy. We stand ready to work with you to make them a reality.
Thank you.