February 1, 2008

Letter from Jack Koraleski

To our Customers:

I had hoped that my first customer letter of the New Year would be focused on the capacity and service improvements we implemented in 2007 and how they set the stage for even better things to come in 2008.  Unfortunately, I’ve been upstaged by the weather and given the magnitude of the problem, I wanted to share some information about what we’re doing to recover our Railroad in the Pacific Northwest.

Extensive snowfall and several freeze and thaw cycles this winter led to a massive mudslide on January 19 that took out two sections of Union Pacific’s main line track along the I-5 corridor.  The slide occurred between Klamath Falls and Eugene, OR, sweeping track, ties and ballast halfway down the mountain and burying over 3,000 feet of main line track in 20 feet of mud, snow and downed trees.  I’ve attached a photo and illustration showing how the slide severed our main line in two places.

 

Crews are working around the clock to clear the debris and restore the track, but the challenge is enormous.  Due to the remote location, a road had to be constructed to allow workers and equipment to reach the site.  Heavy snowfall has made work conditions more difficult as crews labor to remove an estimated 153,000 truckloads of debris – imagine a debris field equivalent in volume to the size of a football field and the height of the Sears Tower. In cooperation with the U.S. Forest Service, a logging operation is in place to remove the trees, which are hauled out by rail car. 

In an effort to minimize delays to traffic in this corridor, we are rerouting northbound and southbound trains operating between Roseville, CA and Portland, OR through Salt Lake City, UT.  Unfortunately, the heavy snowfall that is hampering clean-up operations is also impacting train operations between Pocatello, ID and Seattle, WA.  These conditions are affecting all eastbound and westbound traffic, as well as the traffic being rerouted through the area due to the mudslide.  Customers with shipments moving in this corridor should anticipate 24 to 72-hour delays.  We estimate that our restoration efforts in the Eugene area could take another 2-3 weeks, but progress will definitely be influenced by weather conditions. 

On a brighter note, the rest of the railroad is running well.  Our velocity improved to 22.3 miles per hour during the fourth quarter as we saw continued improvement in virtually every one of our service metrics. 

We were pleased that the gains we made in service throughout 2007 were recognized by our customers and we saw customer satisfaction, as measured by our monthly survey, reach its highest level since our merger with the Southern Pacific back in 1996.

Our Railroad is well-positioned for 2008.  We continue to improve the reliability and efficiency of our locomotive fleet.  We have created a "surge" fleet of 250 to 300  locomotives to not only position us for when the economy perks up, but also for volume swings such as we experience during  "peak season."

We have 750 employees furloughed today with the majority of them on a reduced work schedule which significantly increases the likelihood they'll return to work on the UP when volumes recover.  With well over 20,000 freight cars stored, we'll have resources available when the economy picks up.

So in 2008, we're good to go.  The extensive maintenance and added capacity from our record capital spending is increasing velocity, improving cycle times, and reducing derailments and similar failure costs.  Our Board has approved $3.1 billion for capital projects this year, including the acquisition of 175 high-horsepower locomotives and $840 million to increase network and terminal capacity.  We're resourced to grow and excited by the prospects.

We appreciate the confidence you've placed in Union Pacific and we're committed to not disappoint.  Thanks for your business and we'll continue to provide information on our web site as updates on the mudslide are available.