When Union Pacific executives said they would try to run a more efficient railroad, they weren’t kidding: Barreling down the track is a plan to improve the company’s operating performance.
As part of that plan, the company said Tuesday it would cut its workforce by about 250 people, according to a memo it sent to employees obtained by The World-Herald.
The company also said it had furloughed about 450 employees in the railroad’s mechanical department as more than 1,000 locomotives recently have been idled. When a worker is furloughed, it’s a kind of temporary layoff, under which he or she is put on “inactive” status.
The railroad said the cuts were necessary to improve “efficiency and productivity.”
“These initiatives also are allowing the company to better compete in our marketplace against other railroads and freight transportation modes,” U.P. said in the memo to employees. “While more organizational and operating changes are still to come, the improvements to date are significant.”
A spokeswoman said Union Pacific didn’t have any further comment than what was in the memo.
Among the 250 jobs to be cut, about 60 percent of those are in Omaha, according to the memo.
The cuts aren’t coming because the company is losing money: Union Pacific in January reported that it made $1.6 billion in the last quarter of 2018. Its net income of $2.12 per share beat the $2.06 that had been expected by Wall Street analysts, according to the estimates compiled by FactSet, a data provider.
But investors are expecting more, and the railroad says it can operate better — and for less. It is targeting a reduction in its “operating ratio,” or, put more simply, the share of every dollar the railroad takes in that it spends.
Right now, that is 61.6 percent, and the company wants to get that down to below 61 percent this year and below 60 by 2020 — a goal that Wall Street analysts at Credit Suisse said last month was conservative and doable.
It has been on a drive to improve its operating ratio for several years. Job cuts have been a part of that: Late last year, the company cut nearly 500 jobs and eliminated 200 contractor positions. In late 2017, it cut about 750 jobs, most at its Omaha headquarters. And in 2015, it cut “several hundred” management jobs.
In 2019, the railroad has said it would continue to wring costs out of its operations. Executives in January said U.P. would aim for $500 million in productivity gains. “Labor productivity” will be a part of that, executives said at the time.
The company’s chief operating officer, Jim Vena, came aboard in January with the task of bringing what’s called precision-scheduled railroading to U.P. At other railroads, the PSR playbook has driven down costs and increased profitability. Boiled down, PSR is essentially moving trains more efficiently around the network.
If you’re more efficient in how you service locomotives, for instance, Vena told investors and Wall Street analysts in January, “you need less of them. You need less people to service them.”
Vena came out of retirement to take command of operations at U.P. after 40 years at Canadian National, the railroad where in his most recent role he led a drive for efficiency using the playbook that U.P. now looks set to replicate.
To meet U.P.’s targets, Vena said in January that “there is nothing that’s not on the table.”
Daniel Sherman, a transportation industry analyst for St. Louis-based wealth adviser Edward Jones, said the railroad’s goal with PSR is “to have a rail network that works much more efficiently.” The goal isn’t cutting costs or people, he said.
Once Union Pacific implements precision-scheduled railroading across its network, it will start to run longer and heavier trains, Sherman said. “The goal is to keep the cars moving, sorting them as little as possible.”
Still, when railroads implement PSR, they can move the same amount of freight with fewer “assets,” like locomotives, and with fewer people, he said. “In the short term, that means fewer jobs.”
But in the longer term, the precision-scheduled railroading creates more capacity in the company’s rail network and results in better service for customers, he said. Eventually, that extra capacity will be sold to customers and more people could be added to handle the new business, he said.
So, in essence, some short-term pain for longer-term gains, at least in the view of Sherman and other analysts, if things go well. U.P. in the Tuesday memo said “more organizational and operating changes are still to come.”
Investors have greeted U.P.’s drive for efficiency positively. The company’s stock is up nearly 21 percent so far this year, compared with gains of around 9.5 percent for the broader stock market.
The company in recent years had around 42,000 workers, including about 8,000 in Nebraska. An updated headcount wasn’t immediately available.