Whatever happened to UP?

Posted by Fred Frailey
on Sunday, October 20, 2019

UP trains per dayUnion Pacific is a profoundly different railroad on many parts of its far-flung system than it was just two decades ago. To show you what I mean, let's look at the numbers--the numbers of trains it operates, to be specific. What you'll see is that the part of Union Pacific that is linked loosely to Texas is doing fine. These would include the three spokes of the LA-El Paso Sunset Route that divide in West Texas and the former Cotton Belt and Missouri Pacific corridors coming from Chicago and places east to Texarkana. Nineteen trains a day visit the Mexican border at Eagle Pass (on average, seven of them BNSF trains on trackage rights), versus six in 1998 and seven in 2004. Houston is in a sort of permanent state of meltdown, due to the volume of business UP puts through there. That is actually good news.

Now let's look at the rest of the railroad. Start in Chicago and follow the Overland Route to Sacramento. The former Chicago & North Western sees 17 fewer trains a day than it did 15 years ago. The 100 miles of triple track east of North Platte, Neb, carries SIXTY fewer than in 2004. That is an astounding number, and you can't pin it all on the devastating loss of Powder River Basin coal. Frequencies across the middle core of the Overland Route (Rawlins to Granger, Wyo.) are off by one third. Not shown in the table is Granger-Pocatello on the line to Portland, where the daily count fell from 24 to 17 trains the past 15 years. The combined train count west of Ogden-Salt Lake City is off by a third, too, and the former Western Pacific is now visited by a mere five trains a day. 

You can blame coal for what happened to the former Denver & Rio Grande Western between Denver and Salt Lake City and the Kansas Pacific corridor between Denver and Topeka, Kan. A single train a day (coal) on the KP! What keeps Salina, Kan., to Denver in the UP fold is beyond my understanding. West of Denver, as best I can tell, a mere two coal mines remain in business. Take away the California Zephyr and a daily pair of BNSF trackage-rights trains and you have just three UP trains going through Moffat Tunnel. I'm told that UP won't sell or abandon part or all of the Moffat because it would then have to move the BNSF trains to its Overland Route across Wyoming. But so what? There's plenty of unused capacity. 

So that is our quick, train-centric tour of Union Pacific. It's telling us several things. First, the company would be in a world of trouble were it not for the energy economy of the Gulf Coast. The collapse of PRB and Colorado coal (from 52 trains a day to 28 on the PRB side) contributed to falling train counts on the eastern half of the railroad, as did longer trains brought about by UP's adoption of Precision Scheduled Railroading principles.

But what shocks me is that Union Pacific appears to have done little (or nothing) to fill the capacity void left by coal and longer trains. Let me give you an example: I define merchandise traffic as everything but intermodal, grain. and coal business. From 2000 through 2018, UP's merchandise traffic (measured in cars handled) rose a bit less than 3 percent. Put that up against competitor BNSF (up 35%, and subject to the same competitive pressures), Canadian National (up 50%) and Canadian Pacific (up 40%). UP has company in the basement, by the way. CSX merchandise business dropped 24% from 2000 through 2018, and that of Norfolk Southern 5%. And I think the reason for the business losses by UP, CSX and NS is that they are all married to achieving ultra-low operating ratios, which is the percentage of operating revenues consumed by operating expenses. They choose to do this by gutting the payroll (possibly including marketing departments) and raising rates to the point that customers desert them.

In the case of Union Pacific, what it is left with is this enormous overcapacity, including an entire transcontinental route (Topeka to Denver to Salt Lake City to Sacramento. all of it under one or another form of Centralized Traffic Control) that is essentially not being used at all! The efficiencies that arise when you use assets fully are not being realized. This fact has been hidden by the raising of rates, but you can't do this forever. I'm not smart enough to divine where all this is going to lead Union Pacific (and CSX and Norfolk Southern, for that matter). But a little voice is telling me that a path like the one UP is following does not end up at a desirable destination.--Fred W. Frailey

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