Staying on Track
Union Pacific is using technology to strengthen customer service — and redefine the railroad of the 21st century.
The Harriman Dispatching Center, home to Union Pacific Corp.’s (NYSE: UNP) rail traffic control operations, is not a particularly high-tech-looking building from the outside. But inside the massive, windowless “bunker,” as some employees refer to it, nearly 150 dispatchers sit at NASA-like workstations eyeing both the multiple computer monitors before them and the enormous LCD screens suspended on the facing walls.
UP’S RECRUITING CHALLENGECalling for a few good engineers
UNION PACIFIC’S STORIED HISTORYAn interactive timeline
Chairman Jim Young describes those colorful horizontal lines that populate the screens as the operational heart and soul of America’s largest public railroad company by revenues. Every minute of every day, each traces the movement of the more than 800 UP trains barreling along the 32,000 miles of track the company owns in 23 states from Illinois to California. By following them, dispatchers know the precise location, speed, direction, operating condition and destination date of every UP train — and if an accident, breakdown or traffic jam has quite literally stopped a train in its tracks.
Although UP is celebrating its 150th anniversary this year, Union Pacific is not your (great) grandfather’s railroad. Young, who joined the company’s planning and analysis department in 1978 after graduating from the University of Nebraska at Omaha and was named CEO in 2005, says UP has invested heavily during the past decade in new locomotives, additional tracks, terminals, and track repair and replacement. It’s also poured billions into cutting-edge technologies and environmentally friendly trains, says Young, who temporarily relinquished the CEO title earlier this year when he took a medical leave of absence. “This company has $45 billion worth of assets, but what we sell is service,” says Young, 59, from his 19th-floor office that overlooks most of downtown Omaha and beyond. “Our engineers and mechanics know their job isn’t fixing or running a train. It’s helping this company get customers’ goods where they need to be on time and at a fair price every time.”
UP reported net income of $3.3 billion in 2011 on $19.6 billion in operating revenues by hauling automotive goods, chemicals, coal, construction materials and other industrial products for nearly 25,000 customers. That was up from profits of nearly $2.8 billion on $17 billion in 2010 revenues.
According to UP, its monthly customer satisfaction survey measures the railroad’s price competitiveness, the reliability of delivery dates and the consistency of its service. On a 100-point scale, Young reports, UP has scored in the high 80s or 90s since 2009, a far cry from the 50s and 60s it was getting six and seven years ago. Back then, says Young, “we hadn’t kept up with our capacity and track and equipment maintenance. We’d commit to delivery on a Monday and wouldn’t get the goods there until Wednesday. That kind of variability was costing customers money.”
And it was costing UP business. Though the freight railroad industry has consolidated since it was partially deregulated in 1980, competition remains fierce, says Edward Hamberger, president of the Association of American Railroads. Seven major players now account for about 94 percent of the industry’s revenue. Each competitor was ready and willing to take disgruntled customers away from UP, he says.
Young agrees. “If a competitor has a better service and price proposition, I can’t expect to get a company’s business,” he says plainly, admitting that UP lost occasional business in the past year when it refused to match rock-bottom prices. “Cutting prices to buy market share is a losing strategy,” he insists. “Our proposition to customers is speed, reliability and price.”