story by Wesley Brown, courtesy of Talk Business & Politics
wesbrocomm@gmail.com
Union Pacific Corp. said Friday afternoon that it is furloughing employees across the nation, but did not have details on how many Arkansas workers may be affected as the railroad industry faces economic headwinds due to fewer carloads.
Union Pacific spokesman Jeffrey DeGraff told Talk Business & Politics that “customer demands have led to the need to ‘right-size’ our operations in order to stay in line with volumes and revenue.”
“This is an extremely difficult decision to make because of the impact it will have on all our employees. However, for our company’s long-term success we must take these painful actions to balance workforce levels with today’s business demands,” DeGraff said in a statement. “I do not have information specific to Arkansas to give you, but I can assure you that across our network Union Pacific employees, even during this challenging time, continue to deliver excellent customer service and operate a premier railroad in the safest and most efficient way possible.”
DeGraff added that Union Pacific Arkansas’ operations are a very important part of company’s nationwide rail network, which covers more than 32,000 miles of track.
“We operate on over 1,300 miles of track across the state, and North Little Rock is home to our largest and most modern locomotive repair shop, as well as the second-largest freight car classification yard,” the Union Pacific spokesman said. “Between 2010 and 2014, Union Pacific has invested over $663 million in Arkansas transportation infrastructure.”
In late March, the transportation giant with operating revenues of $24 billion in 2014 announced plans to invest $98 million in 2015 to improve the company’s Arkansas infrastructure. That investment included a range of initiatives, including $81 million to maintain railroad track, $8 million to enhance signal systems and $8 million to maintain or replace bridges in the state. Degraff did not address if those plans had changed.
UNION PACIFIC CFO SPEAKS
But earlier this week, Union Pacific CFO Rob Knight spoke at Cowen and Company Annual Global Transportation Conference in Boston where he gave a not-too-optimistic forecast to investors concerning the company’s ongoing operations.
During his presentation, Knight said he had begun to hire more workers and put more locomotives into operation in 2014 as the company’s overall volume rose nearly 7% due to increased loads from several major commodity groups, including coal, crude oil, grain and other industrial products.
“Throughout 2014, we worked hard to bring on locomotives, crews and capacity needed to improve fluidity and handle last year’s robust … volume increase,” Knight said. “By the end of the year, we were fully resourced to handle the strong demand levels we experienced at that time.”
However, Knight said freight volume began to “reverse trend” and significantly declined in early 2015, pushing the railroad giant’s carloads down 4%. “As a result, we have spent most of this year aligning with these (new) demand levels,” the Union Pacific chief financial officer said.
In response to those shifting business trends, Knight said Union Pacific has furloughed or put more than 2,000 employees in “alternate work status,” and also mothballed 900 locomotives. That number is a 67% jump from 1,200 furloughed workers and the same number of locomotives put in storage at the end of the second quarter, he said. Knight also said that the company recently announced a non-agreement workforce reduction pact with Union Pacific managers.
“(This) is aimed at aligning the management portion of our workforce with the lower volume levels,” said the top-level Union Pacific executive.
A SLOWDOWN IN CERTAIN SECTORS
The railroad giant’s downsizing measures follow a weekly report by the Association of American Railroads (AAR) on Wednesday showing that cumulative volume for U.S. railroads for the first 35 weeks of 2015 are down 4.1% compared to a year ago. Although rail traffic for most agriculture products, cars and intermodal units are experiencing year-over-year gains, shipments of coals, metals, nonmetallic minerals, crude oil and grain mill products are spiraling downward.
Over the past few months, as crude oil prices have declined to six-year lows, AAR’s weekly data report shows that rail shipments of petroleum products have fallen in tandem. According to the U.S. Energy Information Administration, the most recent data through May 2015 shows an average of 1.7 million barrels per day of crude oil were shipped out of the Midwest during the first five months of the year, of which 638,000 barrels per day were transported by rail.
Now, AAR’s weekly report shows that rail traffic for crude oil and other petroleum products fell 9.1% for the week ending Sept. 5, and have fallen an average of 13.9% each week over the last month. According to Union Pacific, the Omaha railroad giant moved 141,000 carloads of crude oil in 2014, or one percent of the company’s total volume.