“While early, I am pleased with the initial results as we’ve seen improvements in several key performance indicators on our network,” CEO Lance Fritz told analysts and investors on the railroad’s earnings call on Thursday.
UP dismissed skepticism from some industry insiders and Wall Street analysts that the railroad was adopting a watered-down version of the operating philosophy developed by the late E. Hunter Harrison.
“There has been some speculation of what we are doing is a light version of PSR or that UP is not fully committed to making the changes necessary to achieve PSR benefits. I can assure you that is not the case,” says Tom Lischer, executive vice president of operations.
Harrison rapidly made sweeping operational changes at Canadian National, Canadian Pacific, and CSX Transportation that led to months of service problems, shipper complaints, and increased regulatory scrutiny.
UP is changing its operating plan gradually and in regional phases to minimize the potential for disruption.
“While our approach may be different, the fundamental PSR operating principles are the same,” Lischer says.
“We are building a new culture here at Union Pacific that will enable successful implementation of the Unified Plan 2020,” Lischer says. “We are off to a great start.”
Cars are moving faster, the number of cars online is dropping, and locomotive productivity is increasing — albeit slowly. But trip-plan compliance fell by a percentage point this month.
Since Oct. 1, UP has phased in about 125 of 150 planned changes to the transportation plan on the Mid-America Corridor linking the Midwest and U.S. Gulf Coast. Combined, these routes carry about half of UP’s volume.
Changes include shifting the focus from moving trains to moving cars, minimizing terminal dwell and car handling, blending unit-train traffic into the merchandise network, and balancing train movements by direction and day of week to improve utilization of locomotives and train crews.
This week, UP began running longer intermodal trains on the Mid-America Corridor.
Last week the railroad began taking frac sand loads out of unit trains and handling sand hoppers in merchandise trains. Previously, sand producers would take up to five days to load a unit train. Now UP makes daily pickups of smaller batches of sand hoppers, puts them into merchandise trains, and sends them on their way.
“What that does is it saves days on car trips,” Fritz says. This reduces transit time, dwell, and the number of cars needed to move the same tonnage.
UP made dozens of changes to its first- and last-mile service for merchandise customers, as well.
On the Little Rock Service Unit, for example, UP shaved three days of transit time for one customer’s shipments by making blocking changes that reduce dwell. Another customer on the North Platte Service Unit now pre-blocks cars for UP, allowing the cars to bypass the local switching yard and saving 24 to 36 hours of dwell in the process and providing faster service overall.
“In all of these cases, we work closely with the customers to end up with a win-win solution,” Lischer says. “We are able to improve operational efficiency for Union Pacific and service reliability for the customer.”
UP announced several goals that call for 10-percent improvements by the end of 2019 to key operating metrics, including freight car velocity, the number of cars online, locomotive and workforce productivity. The railroad aims to boost car-trip plan compliance to 75 percent, up from the current 60-percent level.
Next up, and earlier than anticipated: Operational changes on the former Southern Pacific Sunset Route linking California and Texas.
UP also made several moves to streamline the company.
It went from three operating regions to two by eliminating the Western Region. It collapsed the operating department structure by reducing the number of service units to 12, from 17.
UP will close its locomotive shop at South Morrill, Neb., in January. Terminal rationalization is under review as significant shifts are under way in how cars move across the network and where they are switched.
The railroad is restructuring its engineering department and moving customer service from the marketing department to the operating department.
UP also will cut 475 management jobs and 200 consultant positions by the end of the year.
To encourage customers to load and unload cars more quickly, UP will be raising demurrage charges.
The railroad also is further evaluating every carload to make sure that traffic fits the new operating plan and existing profit margin targets, says Kenny Rocker, executive vice president for marketing and sales.
UP is prepared to walk away from business that doesn’t fit the network, he says, but aims to boost volume by educating customers about the new operating plan.
