Union Pacific 2005 Annual Report Download - page 11

Chemicals – Transporting chemicals provided 14% of UPRR’s 2005 commodity revenue. The Railroad’s franchise
enables it to serve the chemical producing areas along the Gulf Coast, as well as the Rocky Mountain region. More
than two-thirds of the chemicals business consists of liquid and dry chemicals, plastics, and liquid petroleum
products. In addition to transporting plastics, customers also leverage UPRR’s industry-leading storage-in-transit
yards for intermediate storage of plastic resins. Soda ash shipments originate in southwestern Wyoming and
California and are consumed primarily in glass producing markets in the East, the West, and abroad. Fertilizer
movements originate primarily in the Gulf Coast region, as well as the West and Canada, bound for major
agricultural users in the Midwest and the western U.S.
Energy – Coal transportation accounted for 20% of UPRR’s 2005 commodity revenue. The Railroad’s geographic
network allows it to transport coal destined for utilities and industrial facilities in 27 states, as well as to the Gulf
and rail/barge/ship facilities on the Mississippi and Ohio Rivers and the Great Lakes. UPRR serves mines located
in the Southern Powder River Basin of Wyoming (SPRB), Colorado, Utah, southern Wyoming, and southern
Illinois. SPRB coal represents the largest growth segment of the market, as utilities continue to favor its lower cost
and low-sulfur content. The Railroad also carries high-BTU, low-sulfur coal from Colorado and Utah for export
to Mexico.
Industrial Products – The Railroad’s extensive network enables the industrial products group to move numerous
commodities between thousands of origin and destination points throughout North America. Lumber shipments
originate primarily in the PNW and Canada for destinations throughout the United States for new home
construction and repair and remodeling markets. Commercial and highway construction drive shipments of steel
and construction products, consisting of rock, cement, and roofing. Paper and consumer goods, including
furniture and appliances, are shipped to major metropolitan areas for consumers. Nonferrous metals and
industrial minerals are moved for industrial manufacturing. In addition, the Railroad provides efficient and safe
transportation for government entities and waste companies. In 2005, transporting industrial products provided
22% of the Railroad’s total commodity revenue.
Intermodal – UPRR’s intermodal business, which represents 19% of the Railroad’s 2005 commodity revenue,
comprises international, domestic, and premium shipments. International business consists of international
container traffic that arrives at West Coast ports via steamship for destinations throughout the United States.
Domestic business includes domestic container and trailer traffic for intermodal marketing companies (primarily
shipper agents and consolidators) and truckload carriers. Less-than-truckload and package carriers with time-
sensitive business requirements account for the majority of our premium service.
Working Capital – We currently have, and historically have had, a working capital deficit, which is common in
our industry and does not indicate a lack of liquidity or financial stability. We maintain adequate resources to
meet our daily cash requirements, and we have sufficient financial capacity to satisfy our current liabilities.
Competition – We are subject to competition from other railroads, motor carriers, and barge operators. Our
main rail competitor is Burlington Northern Santa Fe Corporation. Its rail subsidiary, BNSF Railway Company,
operates parallel routes in many of our main traffic corridors. In addition, we operate in corridors served by other
railroads and motor carriers. Motor carrier competition is particularly strong for five of our six commodity
groups. Because of the proximity of our routes to major inland and Gulf Coast waterways, barge competition can
be particularly effective, especially for grain and bulk commodities. In addition to price competition, we face
competition with respect to transit times and quality and reliability of service. While we must build or acquire and
maintain our rail system, trucks and barges are able to use public rights-of-way maintained by public entities. Any
future improvements or expenditures materially increasing the quality or reducing the costs of these alternative
modes of transportation, or legislation releasing motor carriers from their size or weight limitations, could have a
material adverse effect on our results of operations, financial condition, and liquidity.
Equipment Suppliers – We depend on two key domestic suppliers of locomotives. Due to the capital intensive
nature and sophistication of this equipment, high barriers to entry face potential new suppliers. Therefore, if one
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