Union Pacific (NYSE: UNP) expects to make more changes in 2020 with how the company organizes its rail network, executives with the western U.S. railroad said during the company’s third-quarter earnings call Oct. 17.
“All we’re trying to do is move cars as fast as possible and remove the touch points,” said UP Chief Executive Officer Lance Fritz when asked whether the company is considering rationalizing more assets, including terminals and rail yards. “What I see out there is that we just started. … We have a lot to do productivity wise.”
The company recently closed its Neff hump yard in Kansas City, Missouri, and plans to use flat switching for the remaining traffic there, according to its third-quarter earnings presentation. Union Pacific also shifted classification work and reduced hump yard operations in Roseville, California, and in Livonia, Louisiana. These efforts have helped to increase railcar velocity for associated manifest business, according to Chief Operating Officer Jim Vena.
Union Pacific has also increased train lengths by 15% since January to around 1,050 feet, which has resulted in running fewer trains, Vena said. Train lengths have grown by 18% since January in UP’s Sunset corridor, where the company installed siding extensions to accommodate longer trains. Train lengths also grew 21% in the company’s north-south corridor.
Whether the U.S. industrial economy thrives or dives in 2020 is still unclear, but company executives expressed confidence that they can win more customers from the competitive truck market through improved service products and as the truck market firms up and truck rates inch higher.
Union Pacific’s terminal rationalizations are part of the company’s wider efforts to deploy Unified Plan 2020, its version of precision scheduled railroading (PSR). The company credits Unified Plan 2020 for helping it achieve a quarterly record for its operating ratio (OR) even though third-quarter profit was flat compared to the same period in 2018.
UNP’s third-quarter OR was 59.5%, which is an “all-time best” quarterly operating ratio for the company and lower than the 61.7% in the third quarter of 2018. Operating ratios can be a measure of a company’s profitability, with a lower percentage implying higher profitability.
Third-quarter net profit was $1.6 billion, or $2.22/diluted share, compared with $1.6 billion, or $2.15/diluted share, in the same period in 2018.
Operating revenues fell 7% to $5.5 billion in the third quarter amid an 8% decrease in revenue carloads. Although industrial volumes were higher, declines in agricultural products, premium and energy volumes muted overall carload growth.
Meanwhile, expenses fell 10% to $3.3 billion, compared with nearly $3.7 billion in the third quarter of 2018.
Performance metrics were mixed in the third quarter. While freight car velocity rose 10% to 213 daily miles per car, average train speed fell 1% to 23.7 miles per hour. But average terminal dwell time, which is the amount of time a train spends at a terminal, fell 20% to 23.4 hours.
