Union Pacific Plans More Job Cuts as Demand Falls Off -- 4th Update

By Paul Ziobro 

CSX Corp. and Union Pacific Corp. are running faster railroads with longer trains and operating more efficiently. They have a bigger challenge ahead in winning over more shippers that remain skeptical after years of subpar service.

Both companies are at different stages of implementing a railroad operating philosophy known as precision scheduled railroading that focuses on keeping railcars moving and running trains on tighter schedules.

CSX Chief Executive Jim Foote said the Jacksonville, Fla.-based railroad, which began its transformation almost two years ago, is trying to persuade customers to shift more of their cargo shipments to rail from truck by showing that its shipping times have become more reliable.

"That's the sell but we have to undo decades of bad service and experience," Mr. Foote said in an interview Wednesday, speaking not just about CSX but about freight railroads overall.

The company has had some success persuading some shippers to make the shift, he said. Others are reluctant to switch to rail service, even though it costs about 15% less to do so.

Union Pacific started its changes last year after struggling to improve service. It has reduced dwell time at terminals and cars arrive on time more often. The changes haven't done enough to offset broader economic issues that have reduced shipping volume, including declines in coal shipments. The railroad is also contending with truck rates that have fallen dramatically because of too much capacity.

"Not only can you get a truck anytime you want it, but it's a very competitive price," Union Pacific CEO Lance Fritz said in an interview Thursday.

Union Pacific has rolled out new technology that gives shippers notifications when the railcars arrive. It has also introduced some new services where intermodal trains, which carry goods in containers from ports to trucks, are combined with other types of commodities.

"The wins that are occurring are being overwhelmed by macroeconomics," Mr. Fritz said.

Railroads could use additional volume, which is down 4.1% through mid-October from a year ago in the U.S., in part because of the softening economy and worries over international trade.

The cost cuts from the new operating procedures are helping sustain profits in the meantime. CSX on Wednesday said it cut expenses by 8% in the third quarter compared with last year, which offset a 5% drop in revenue. Railroad volume fell by roughly the same amount.

Overall earnings fell about 4%, but topped analysts' expectations. Shares in CSX rose 1.1% on Thursday.

Union Pacific posted a larger decline in revenue, which fell 7%, while operating expenses fell 10% in part because of a 13% reduction in workers from last year. The railroad said it planned to cut jobs further because of weak demand.

The company employed, on average, 36,659 employees as of the third quarter.

Overall profit fell 2% to $1.6 billion, short of Wall Street estimates. Still, Union Pacific shares rose slightly.

--Micah Maidenberg contributed to this article.

Write to Paul Ziobro at [e-mail]

(END) Dow Jones Newswires

October 17, 2019 17:28 ET (21:28 GMT)

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