(The Associated Press circulated the following story by Joe Ruff on January 28.)
OMAHA, Neb. — Struggling for more than a year to catch up to a surging economy, Union Pacific Railroad plans to charge more for its services and turn other business away.
“It’s essential that we make operational improvements and run a quality railroad,” Union Pacific chairman and chief executive Dick Davidson said this week.
While freight railroads like Norfolk Southern Corp. and BNSF Railways Co. reported strong fourth-quarter earnings, Union Pacific Corp. saw its profits drop 86 percent, because of increased operating costs, high fuel prices and a charge for asbestos claims.
Revenue at Union Pacific rose to a record $12.2 billion from $11.5 billion in 2003, but earnings fell to $604 million, or $2.30 a share, from $1.6 billion, or $6.04 a share, a year ago.
Business began booming in fall 2003, but Omaha-based Union Pacific was caught by surprise. It hired more train crews and added more locomotives, but service remained slow through 2004 and some customers turned to other carriers.
With the U.S. economy and foreign trade expected to remain strong, Union Pacific said it will increase prices and award fewer long-term, large-scale contracts in favor of contracts with flexible pricing, fuel surcharge terms and the ability to push away business if it exceeds set volumes.
“In some ways, we are where we always wanted to be, with demand for our services outstripping the supply,” said Jack Koraleski, executive vice president in marketing and sales.
Analyst Jason Seidl with Avondale Partners said Union Pacific probably won’t target specific industries as it more strictly regulates what products get on its rails. Traffic decisions more likely will be made along bottlenecked corridors, he said.
“If they have capacity they’re going to haul the freight,” Seidl said Thursday.
Coal contracts that once ran 20 years are being reduced in the rail industry, however, Seidl said. And more aggressive pricing is being seen for hazardous materials that pose liability risk if there is a rail accident, he said.
Freight prices, meanwhile, are going up because of high demand, Seidl said.
“I think the pricing environment for the railroad is probably the best it’s been in decades,” he said.
Union Pacific’s “Unified Plan” includes increasing efficiency in train loadings and running trains with fewer stops or nonstop to their destinations, Union Pacific officials said.
“In some cases there will be business we won’t move on the railroad, depending on what it does to velocity,” said Jim Young, president of the railroad.
The plan will be implemented in the first half of this year and results should begin to show in the second half, Union Pacific officials said.