Dive Brief:
- Union Pacific plans to reduce its general and administrative support structure 30% by 2020 as it transitions to precision scheduled railroading (PSR), The Wall Street Journal reported.
- The job cuts will begin this year, according to a memo seen by the Journal. Union Pacific will cut 200 contract positions and lay off 500 employees by the end of the year.
- The railroad also said it would consolidate operating regions from three to two, centralize its engineering organization and sell a corporate retreat site near St. Louis as it seeks to improve its operating margins.
Dive Insight:
Union Pacific will have to tread a fine line with its job cuts and structural shifts as it transitions to PSR.
The railroad had 42,000 employees as of 2017, 85% of whom are unionized. In sum, the railroad's workers consist of an annual payroll of $4.1 billion. In that same year, Union Pacific recorded an operating revenue of $21.2 billion.
Change is not easy for workers, and it can be tougher when workforce reduction plans are on the table. CSX, the only other U.S. railroad to implement precision scheduled railroading, saw morale drop notably during its own transition. In its first year of transition, CSX cut 3,700 jobs.
Many of the job cuts at CSX came from "consolidations," where the railroad decided to close down facilities to boost network efficiency. Union Pacific appears to be going down a similar path.
In consolidating its operating regions from three to two, Union Pacific may also look to close facilities. The PSR model advocates for fewer terminals and origin-to-destination pairs, as that requires trains make fewer stops and therefore decrease overall network dwell time. In 2017, the railroad suffered from a 5% decrease in train speed and 8% increase in terminal dwell time, compared to the previous year.
The railroad said earlier this year it would phase in its transition to PSR, starting with its North-South network running from Wisconsin to Texas. Roughly half of its major rail facilities are somewhere along this route, according to its 2017 Annual Report.
Union Pacific will likely provide further details on its third-quarter earnings call, scheduled to take place this Thursday, Oct. 25.
