Jim Vena’s opening remarks Wednesday at the J.P. Morgan 2024 Industrials Conference could easily be seen as a rebuttal to one man: Amit Bose, the chairman of the Federal Railroad Administration.
Bose wrote a letter to the Union Pacific (NYSE: UNP) CEO Feb. 29, responding to reports of extensive furloughs at the Class 1 railroad that serves the Western half of the U.S. “The [FRA] has previously communicated our concerns to UP regarding the potential risks of reducing staffing levels in critical departments such as mechanical operations,” Bose wrote. “Despite FRA’s warnings and recommendations, and at a time when Class I freights should be prioritizing ways to improve a decade-long record of stagnant safety performance, it is disappointing to see that UP is actively disregarding the federal government’s concerns.”
Vena shot back a day later, saying Bose’s letter made an “inaccurate correlation between natural workforce fluctuations and safety.” “Your letter … combines different types of workers and paints an incorrect and incomplete picture of the natural role workforce fluctuations play in operating a railroad year-round,” Vena wrote.
Given that the back-and-forth took place less than three weeks ago, it wasn’t hard to hear in Vena’s presentation a public response to Bose’s safety concerns without mentioning Bose by name.
The opening slide Vena showed at the J.P. Morgan conference cited statistics about UP’s recent safety record: no work-related deaths in 2023, a 15% year-over-year reduction in serious injuries, a 28% drop in derailments in the past 10 years and a 26% improvement in derailments since precision railroading — the efficiency-driven management system that has been blamed by critics for a variety of railroad ills — was implemented in 2019.
“Union Pacific as well as the entire industry has made significant progress over the years,” Vena told conference attendees. The railroad ended 2023 “with good momentum,” he said, citing last year’s zero deaths.
“But we understand we still have work to do, especially to reach our goal of industry leadership,” Vena added.
He cited an initiative at UP to identify the primary causes of injuries, saying the company had found six key “choices that individuals make each day” that cause an outsize percentage of injuries. He did not name the six but said they are called “Go Home Safe” choices within the railroad, “and we rolled out new policies and training to all employees to prevent these potentially life-threatening behaviors.”
“The key message is that the right priority has been placed on the safety of our network,” Vena said.
Bose’s criticism was not the first directed at Vena by a federal official. In November, at the RailTrends conference in New York, Surface Transportation Board Chairman Martin Oberman also criticized Vena by alleging he was favoring shareholder returns over safety.
Observers of the rail system in the U.S. recently have been noting improvements in service and incremental gains in market share after years of standing still and hearing endless criticism of performance.
Vena said in response to questions from Brian Ossenbeck, a senior analyst at J.P. Morgan and the investment bank’s lead transportation analyst, that internal performance metrics at Union Pacific had largely ignored customer satisfaction. The previous metric measured “success against our trip plan that we had built,” Vena said during his roughly half-hour presentation.
Measuring customer satisfaction
“The standard was driven by what we needed to do,” he said, but it could never get to 100% satisfaction because “it wasn’t reflective of what the customer wanted.” It also could easily be manipulated, he said, noting that the number of hours needed to get a train out of the yard and on to the Union Pacific system could just be extended in the plan, making compliance easier.
The old system has been replaced by the Service Performance Index (SPI). In a letter to customers last month, Kenny Rocker, the company’s executive vice president for marketing and sales, spelled out the measurements built into SPI.
For manifest and intermodal service, Rocker said the comparison will be between the service a customer is receiving now and “the best monthly network performance over the last three years.”
For a unit train hauling one type of good or a lineup of an identical type of cars, the measurement will be on a monthly basis to determine how well those trains are “achieving their demand and cycle times on a monthly basis.”
“What SPI is, it measured what we’ve sold our customers,” Vena said at the conference. The measurement is at a “high level,” he said, and it ultimately is “a consolidation of everything, but in fact we have specific measures and specific [key performance indicators.]”
Vena did not specifically address the furloughs that Bose referred to in his letter. But he did talk about the company’s current workforce, as did CFO Jennifer Hamann, who also addressed the conference.
Union Pacific is in the midst of implementing the terms of the landmark agreement it made with its engineers last year, which provided for a schedule of 11 days on call and four days off.
Hamann said as the implementation proceeds, “right now you’re seeing us carry a few extra employees.” Along with healthy volumes on the railroad, “we want to maintain a buffer,” she said. “We want to be ready to serve our customers and provide them the service they need, and we’ve got to have a little bit of slack in the system to deal with that.”
Capacity can be added
Vena said that slack extends to locomotives. About 500 Union Pacific locomotives are “ready to go” if there were demand for more service, while access to an additional 1,000 would take “a little bit of work” to secure. “We have as many units parked that some of the other smaller Class 1s have operating,” Vena said. “We don’t have an asset problem. Our infrastructure is in place to be able to move and increase business if we have to.”
While an uptick in service might require some investment in capital, “overall the railroad was built to handle more traffic than we have today,” Vena said.
Recent performance numbers do speak to a railroad serving more customers. The company’s fourth-quarter earnings release reported that quarterly volume was up 3.5% from the fourth quarter of 2022, and the operating ratio improved to 60.9% from 61%.
For the full year, OR improved to 60.1% from 62.3% for all of 2022. Volume was up anywhere from 3% to 4% for the full year, depending on product category.
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