UNP’s precision scheduled model
Union Pacific (UNP), the US’s number one rail carrier, announced its Unified Plan 2020 on September 17. The company’s new operating plan follows the principles of precision scheduled railroading. With this announcement, UNP joins other class I railroad (XTN) peers such as Canadian Pacific Railway (CP) and CSX (CSX).
Famed railroader E. Hunter Harrison is credited with introducing the precision scheduled railroading technique to North American railroads. With this model, he transformed Canadian National Railway (CNI) into an industry leader with its lowest operating ratio. He applied these principles later at CP and at CSX. He passed away nine months after taking over as CEO of CSX.
UNP’s early indications
After coal volume shrinkage, major class I railroads made efforts to cope with reduced volumes. Union Pacific joined the fray and launched the “G55 + 0” operating plan in the fall of 2015. The “55” in the plan’s title refers to bringing down the operating ratio to 55% through more than 45 projects aimed at productivity improvement. The “0” refers to zero injuries. However, investors that kept a close watch on UNP’s operating ratio know that the company didn’t achieve its objective.
On the first-quarter earnings call, Union Pacific admitted its inability to meet the 2019 operating ratio target. The company explicitly mentioned that it was unlikely to realize its operating ratio targets by 2019 due to congestion in its network.
UNP’s Unified Plan 2020
Union Pacific intends to implement its Unified Plan 2020 on its Eastern North/South corridor. Given the railroad’s mammoth network, it plans to implement the new operating plan on a corridor by corridor basis. Major principles included in UNP’s Unified Plan 2020 include:
- shifting the operational focus from hauling trains to hauling cars
- reducing car dwell, car classification events, and locomotive power needs
- utilizing general-purpose trains by blending existing train services
- balancing train movement to increase crew and rail asset utilization
UNP’s 4% YoY (year-over-year) rail traffic volume growth is on par with the gains reported by US railroads in 2018. Now, the real question is whether UNP’s new operating plan could invite job cuts.