Dive Brief:
- Union Pacific Railroad executives expect volumes to drop 25% year over year (YoY) in the second quarter, according to a Thursday earnings call. Volumes in the first quarter, ending March 31, were down 7% compared to the same period last year, due mostly to declines in bulk freight along with the automotive and intermodal segments.
- CEO Lance Fritz said he expects the economic impact of the coronavirus to be "sharp and deep," without a steep recovery. "I don't think we know enough yet to know what's left to deteriorate in the demand economy versus how that's going to be offset by recovery. There's just a lot of moving parts," said Fritz.
- Total workforce was down 15% YoY in the first quarter — train and engine employees were down 19%. Railroad executives said the company has furloughed further employees on unpaid leave in, but did not say how many. "However, we are increasing our auxiliary work and training status force to be prepared should volumes come back quickly or in the event of an outbreak within a group of the employees," COO Jim Vena said.
Dive Insight:
Union Pacific's efficiency markers improved in the first quarter, compared to the same quarter last year, which bolstered the railroad's results despite the early impacts of the coronavirus. Trip plan compliance for intermodal cars was up 19%, car velocity was up 8% and dwell time was down 11%.
"We have made great progress at this point; however we will continue to transform our operations in order to further improve safety, asset utilization and network efficiency," said Vena. But precision-scheduled railroading (PSR) can only insulate the railroad's margins through so much loss of business.
Automotive volumes fell early, sending railroads an early sign of the volume erosion on the way. But the worst is yet to come. "Nothing would please me more than to be wrong about this 25%-ish, and see some time in the second quarter that we're starting to see demand firm and our supply chains reflected. But there's a lot that needs to happen between here and there," Fritz said.
In the meantime, EVP of Marketing and Sales Kenny Rocker said the railroad will focus on what it can control — and operationally that means removing capacity from the railroad. Union Pacific began putting more locomotives into storage in the second half of March, though this equipment remains in "at-the-ready status" so that it can quickly return to service. CSX reported storing 400 locomotives so far in April on Wednesday.
Hard figures on capacity reduction were scarce on Union Pacific's call. In addition to declining to quantify the workforce reduction, executives didn't say how many locomotives have recently left service. Vena did say, however: "We've got lots of locomotives. I don't even want to talk about how many we've got parked right now, it's so many."
