CEO Lance Fritz says he is proud of Union Pacific progress on operating improvements

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Union Pacific
BOSTON – Union Pacific continues to improve its key performance metrics as it works to unclog its Southern Region, where carload traffic is at record levels, CEO Lance Fritz told an investor conference today.

“I’m very pleased to report that we’ve made great progress on our service product,” Fritz says.

During the past nine weeks, velocity is up 4 percent, terminal dwell is down 8 percent, and the number of freight cars online is down 3 percent.

“I anticipate we’re going to continue to make progress on these numbers,” Fritz says. “I’m very much looking forward to getting our service product back to where customers would like it, as are they.”

UP’s volume is up 4.5 percent for the quarter to-date, led by 7-percent growth in industrial shipments and 6 percent intermodal. The Southern Region, which includes Texas and Louisiana, continues to experience record manifest traffic volumes.

The rising volumes on the Gulf Coast are due in part to petrochemical traffic, including new shipments of plastics fueled by cheap natural gas feedstocks.

“We love that business,” Fritz says.

UP began to slow down in the second half of 2017 amid a glitchy rollout of positive train control, the impact of hurricanes, operational changes, and traffic growth that contributed to congestion on the U.S. Gulf Coast. In response, shippers put more freight cars on UP, which further gummed up the network.

To restore fluidity, UP has added locomotives and crews to the Southern Region. It also has rerouted traffic away from congested yards and terminals. While this may lengthen transit times, Fritz said it’s the right thing to do because it relieves congestion and improves reliability.

The new $550 million Brazos Yard under construction in Hearne, Texas, will be a key long-term solution to Gulf Coast congestion.

The hump yard will classify some of the traffic currently handled at four or five network yards, Fritz says, which will restore fluidity for traffic to and from the Gulf Coast and Mexico. It’s scheduled for completion in 2020.

Fritz reaffirmed UP’s commitment to its long-term operating ratio goal of 55 percent despite last month’s announcement that it would miss its target of an operating ratio of 60 percent or so by 2019.

“The reason why we remain confident that a 55 is achievable isn’t about cost cutting,” Fritz says. “It’s about, again, our ability to have an excellent service product that generates attractive price, the fact that our franchise exposes us to the opportunity to grow, and we do have lots of productivity improvement opportunities.”

Fritz dismissed as a “false narrative” that a freight railroad can only improve its operating ratio by sacrificing service, employees, or the communities that the railroad passes through.

Fritz spoke at the Bank of America Merrill Lynch 2018 Transportation Conference.
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