(Dow Jones Newswire circulated the following story by Bob Tita on February 12, 2009.)
CHICAGO — Union Pacific Corp.’s (UNP) finance chief said the company will likely raise its shipping rates 5% to 6% this year over 2008 even as the railroad adjusts to reduced freight volume. Lower costs for fuel and increasing competition for available freight loads will hold down rate increases in 2009, said Rob Knight, chief financial officer for the Omaha, Neb.-based railroad.
Knight said trucking companies have stepped up pricing pressure in the intermodal business as companies lower their rates just to keep truck fleets in action during the economic downturn.
He said Union Pacific is committed to maintaining returns on shipping work and has looked to lower overhead costs in response to falling shipping volumes.
“In intermodal, there’s clearly going to be pressure,” Knight said Thursday at a BB&T Transportation Services Conference in Florida. “We’re standing tall in making sure we get the returns on our business.”
The railroad’s overall shipping volume is down 19% from a year ago.
Union Pacific is able to handle about 200,000 carloads of freight a week, but is currently seeing 150,000 carloads a week, down from about 30,000 carloads at the start of the fourth quarter of 2008.
In response, the railroad has idled 400 locomotives and furloughed about 3,000 employees. The railroad also has announced it will reduce capital spending in 2009 to $2.8 billion from 3.1 billion in 2008.
But Knight added that Union Pacific doesn’t intend to permanently downsize the railroad’s capacity and expects to call employees back to work once demand improves.
“We are continuing to keep our network in place,” he said. “We haven’t cut it with the expectations of volumes going south.”
Knight predicted the auto-related shipping volumes will gradually increase as auto makers restart idle assembly plants in the coming weeks. Union Pacific’s auto shipping volume since the start of the year has fallen 55% from the same period a year ago.
Knight said money and tax incentives in the federal economic stimulus bill also could generate increased shipments of housing and construction materials.