(The following story by John D. Boyd appeared on the Journal of Commerce website on June 9, 2009.)
WASHINGTON, D.C. — As Union Pacific Railroad feels out today’s freight market and plans for when it might pull out of its downturn, Chairman, President and CEO James R. Young is cautious.
“I hope this is the bottom,” he told Journal of Commerce. However, “I don’t expect much of an upturn.”
Some economists speculate the economy could start to edge higher in the next few months; Young more vaguely projects a rebound “maybe toward the end of this year.”
Even next year will probably be weak, Young said. “I think the recovery in 2010 is going to be slow.”
That leaves UP with a careful balancing act of determining how much it can cut costs while maintaining strong service levels, both now and whenever traffic returns.
And Young expects it to return, even if slowly, aided by an eventual recovery in imports from Asia. He does not share the view some have expressed that this recession may permanently change the amount of goods supplied from China and other major foreign producing nations.
Some say that helps explain the sharp plunge this year in international intermodal traffic, while domestic box moves have held up much better.
“I’m not certain we’re seeing wholesale change yet,” in goods for the U.S. market sourced from overseas, Young said in a recent interview outside the North American Rail Shippers Association meeting. “I think it’s premature to say these are permanent changes.”
UP has the largest payroll among U.S. freight railroads and has already furloughed about 5,000 train crew workers in this recession, but the company is determined to avoid being understaffed when some aspects of business returns. “I’ve got the largest manifest (mixed freight) business in the railroad industry. It’s labor intensive,” Young said.
It has also filled about 1,400 miles of track around the country with more than 70,000 stored railcars and thousands of idled locomotives, equipment that was blocking 85 UP sidings by Memorial Day as it waited for demand to perk up.
But given the widespread slack in this year’s freight market, Young said filling those sidings was not causing operating problems. With less volume, he said UP’s system train velocity has improved, and other service measures are also at high levels.
In the late 1990s UP suffered massive congestion and service breakdowns after it absorbed the Southern Pacific network. Many customers also grew bitter earlier this decade over service problems and congestion when rail business – intermodal especially — suddenly surged after a recession and initially slow rebound.
Through May 30, UP’s bulk carload shipments this year were 20.6 percent below 2008, while intermodal hauls are down 21.5 percent. Given the freight market, Young said, “we could substantially reduce train starts even more, but it would have a very significant impact on service, and we’re not going back there.”
Although UP sees some types of business starting to firm, Young was not ready to say UP’s job cuts had ended, depending on how traffic goes from here. But, he said, “we all know the consequences of not being prepared when it comes back.”
So the company had kept a segment of its furloughed train crews on enough monthly work hours to retain health benefits, hoping they will be able to quickly return to work when the workload recovers.