Union Pacific Chief Expects Tepid Recovery

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.