OMAHA, Nebraska — Union Pacific CEO Jim Vena says the railroad has made strides in safety, service and operations since he took office a year ago, but he adds there is still plenty of room for improvement.
The scorecard for Vena’s first year as CEO, which began on August 14, 2023, is as follows:
- Safety: In the first six months of 2024, the number of work-related accidents among employees fell by 20%, while the number of railway derailments fell by 15%.
- Service: On-time performance improved, with the Manifest Service Performance Index increasing 7.2 points (to 84%) and the Intermodal Index increasing 11.4 points (to 93%) in the 12 months to June 30.
- Operations: Cars are moving 6% faster, as measured by car miles per day, as average train speed has increased 9% and terminal dwell time has decreased 4%. Locomotive productivity has increased 9% as average train size has increased 2% over the same period.
“There are so many good things,” says Vena. “But the journey has only just begun and we need to continue it in the coming years.”
Vena’s multi-year strategy is to deliver volume growth by focusing on safety, service and operational excellence at a railroad whose growth has lagged behind the rest of the industry over the past decade.
The safety figures are encouraging, says Vena, but building a new safety culture takes time. “We have seen improvements, but we are still a long way from our goal,” Vena said in an interview. “So there is still a lot of work to be done. And that is a bit complicated because it is about people’s culture.”
After widespread operational problems related to staff shortages in 2022, UP’s customers have noticed the railroad’s service improvements, Vena says. “But they won’t trust it if there isn’t some consistency and a quick recovery,” he says.
The railroad’s operations proved resilient last year in the face of flooding in Southern California, the Midwest and Texas, which Vena attributes to having extra train crews and locomotives on standby.
“You always have to have a buffer and always be aware of your ability to recover because you’re going to be affected by something that’s outside of your control,” says Vena. “Who would have thought we’d have a hurricane in July?”
“The availability of critical resources has improved under Mr. Vena,” says Rick Paterson, a railroad analyst at Loop Capital Markets who closely tracks railroad performance metrics. The average number of trains waiting for personnel and power each day has dropped, he notes.
“Weather always plays a role. Union Pacific was hit hard by flooding in Houston the first week of May, which resulted in eight days of lane closures, but on July 9, Hurricane Beryl did very well in the same location,” Paterson says.
Despite service improvements, it was difficult to acquire new traffic last year due to overcapacity in truck traffic, a weakening economy and a sharp decline in coal traffic.
Overall, UP’s traffic is flat this year as 4% growth in intermodal and 1% in non-coal carloads offset the 22% decline in coal shipments. “That’s a pretty good result that shows we can grow our business despite the big headwinds we’re facing due to the decline in thermal coal,” Vena says.
But in the long term, the railway must win new customers by taking freight off the highway. “We need to expand our business with other products,” says Vena. “What happens with coal happens with coal. We can’t control that.”
Cheap natural gas and renewable energy are displacing coal as a source of electricity, while aging power plants are being shut down to meet stricter emissions regulations. Vena said it is unclear whether the decline in coal transportation in Uttar Pradesh will continue or slow down amid rising demand for electricity.
Vena says UP will increase intermodal volume on key routes — like Los Angeles to Chicago, LA to Dallas and Houston, and Chicago to Mexico — by offering faster, more consistent services that can compete with overland trucking. “That’s how we win,” he says.
Last year, UP cut transit times by two days for its premium Z-class trains connecting Southern California to Chicago. It also cut its Eagle and Falcon premium service, which connects Mexico to Chicago and, via Canadian National, to Detroit and other Canadian destinations, by a full day. “Now we’re talking about trucking competitiveness,” Vena says. “People need the speed.”
Intermodal growth will also be possible through interline partnerships with CSX and Norfolk Southern, as well as putting more and bigger dots on the map, according to Vena. UP has opened an international intermodal terminal in Phoenix, expanded service from the Port of Houston, and is currently planning expansions at its Lance M. Fritz Inland Empire Intermodal Terminal in Fontana, California, and in Kansas City.
“It’s pretty difficult to switch to rail right now with the current prices for trucking,” Vena says. In the long term, however, the intermodal business will come to UP, in part to take advantage of the lower greenhouse gas emissions of intermodal transport, Vena says.
The CEO also sees growth potential in petrochemical traffic on the Gulf Coast, in cross-border traffic to Mexico and in cooperation with the other Class I systems. All Class I CEOs are focused on growth, says Vena. “We all want to grow faster than the industrial economy allows us,” he says.
And that’s important when 40% of UP’s traffic is swapped with another Class I or branch line, Vena says. All CEOs have the same mindset about running efficient railroads that aim to maintain a buffer of capacity rather than chasing every last dollar in cost savings, he adds.
“I love the railroad company’s mindset. We all do,” says Vena.
UP’s operational and productivity improvements have led to stronger profit growth for the railroad. In the second quarter, operating profit rose 9%, although revenue grew only 1%. UP’s operating ratio – which Vena says is not a target but the result of all a railroad’s activities – improved 3 points to 60%.
Vena, who as chief operating officer in 2019 and 2020 accelerated UP’s transition to a precision-scheduled operating model, faced criticism from regulators in his first months at the railroad.
In September, Amit Bose, head of the Federal Railroad Administration, questioned the inspection methods and staffing levels of UP’s workshops. In November, then-Chairman of the Surface Transportation Board Martin J. Oberman expressed concern about layoffs in UP headquarters management and forced furloughs in the mechanics’ department.
Vena said UP shares regulators’ goals of providing safe and reliable service, which will lead to an increase in volume. And he says management has improved communication with unionized employees and continues to work with the Brotherhood of Locomotive Engineers and Trainmen to implement more predictable work schedules for train drivers, including set days off.
Vena says the layoffs at headquarters were necessary to cut red tape, speed up decision-making and give more decision-making power to officials on the ground, not in Omaha.
“We continue to make sure that bureaucracy does not limit your ability to make the right decisions. That is crucial,” explains Vena. “Secondly… when you have too many people and too many levels, the information and communication does not always flow properly to all levels in the company.”
“And the last thing is that we want to move decision-making to the top level of management,” says Vena. “There’s a reason for that, and it’s really very important and a cultural shift.”
Vena says that local operations managers in Eagle Pass, Texas, for example, are in a far better position to understand the migrant situation, its impact on operations and customer expectations than someone sitting behind a desk at headquarters or the Harriman Dispatch Center.
Vena says UP will continue to refine its management structure, but no further layoffs will be necessary.
Independent analyst Anthony B. Hatch says Vena has brought about change at UP. “He has restored positive momentum and has truly become the public face of the company,” Hatch says of the charismatic CEO.
Paterson says UP’s operational improvements are paltry when compared over the past three months to the same period a year ago, when Lance Fritz was CEO and UP had largely overcome its staffing shortages. Average daily car miles, for example, are up 1%.
“The improvements are a little disappointing, but the other part that’s harder to understand is what kind of cultural changes are happening behind the scenes,” Paterson says. “If they achieve their goal of flattening the structure and improving decision-making, they’ll be set up for more material successes in the future.”
