Union Pacific to cut 250 employees, citing PSR

Dive Brief:

Union Pacific plans to cut 250 employees and has furloughed another 450, according to a memo the company sent to employees, obtained by the Omaha World-Herald.
About 60% of the 250 positions on the chopping block are in Omaha, Nebraska, the location of the railroad's headquarters. The furloughed employees were in the company's mechanical department, the paper reported.
The cuts are a result of the railroad running fewer trains as it implements precision scheduled railroading (PSR). It has removed about 1,500 locomotives from its fleet since August 2018, according to a company presentation from the Stifel 2019 Transportation & Logistics Conference.

Dive Insight:

One of the major components of implementing PSR is a push to reduce the operating ratio, or a company's operating expenses as a percentage of revenue. Union Pacific has said it wants an operating ratio below 61% by 2019 and below 60% by 2020. This means rail companies who choose to adopt the principles of PSR will look for every opportunity to cut their expenses; employee headcount is a common starting place.

CSX said in 2017 it planned to lay off more than 2,000 employees as part of its push toward PSR. Norfolk Southern recently laid out its plans for a PSR roll out and it includes cutting 500 people from the payroll in 2019 and 3,000 people by 2021. Union Pacific did not respond to a request for comment on the nature of these layoffs.

PSR means the railroads are trying to do more with less. They want to run fewer trains, but they want them to be longer and heavier. And the railroad previously forecasted job cuts as a result. In October, Union Pacific announced plans to cut 200 contract positions and 500 employees as part of its transition. Fewer trains mean fewer people, according to Union Pacific COO Jim Vena.

"You need less people to service them," Vena said on the company's most recent earnings call.

Union Pacific CEO Lance Fritz says these changes have already resulted in savings. But the resulting severance cost did result in an uptick in operating expenses for the company's fourth quarter, according to the company's CFO Robert Knight.