Union Pacific 2009 Annual Report Download - page 32

32
Operating expenses decreased $3.1
billion in 2009 versus 2008. Our fuel
price per gallon declined 44% during the
year, decreasing operating expenses by
$1.3 billion compared to 2008. Cost
savings from lower volume,
productivity improvements, and better
resource utilization also decreased
operating expenses in 2009. In addition,
lower casualty expense resulting
primarily from improving trends in
safety performance decreased operating
expenses in the year. Conversely, wage
and benefit inflation partially offset
these reductions.
Operating expenses increased $987 million in 2008. Our fuel price per gallon rose 39% during the year,
increasing operating expenses by $1.1 billion compared to 2007. Wage, benefit, and materials inflation,
higher depreciation, and costs associated with the January Cascade mudslide and Hurricanes Gustav and
Ike also increased expenses during the year. Cost savings from productivity improvements, better
resource utilization, and lower volume helped offset these increases.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare
costs, pension costs, other postretirement benefits, and incentive costs. Lower volume and productivity
initiatives led to a 10% decline in our workforce in 2009 compared to 2008, saving $516 million during
the year. Conversely, general wage and benefit inflation increased expenses, partially offsetting these
savings.
Productivity initiatives in all areas, combined with lower volume, led to a 4% decline in our workforce for
2008, saving $227 million compared to 2007. Conversely, general wage and benefit inflation and higher
pension and postretirement benefits increased expenses in 2008, partially offsetting these reductions.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Lower diesel fuel prices, which averaged $1.75 per gallon (including taxes and transportation
costs) in 2009 compared to $3.15 per gallon in 2008, reduced expenses by $1.3 billion. Volume, as
measured by gross ton-miles, decreased 17% in the year, lowering expenses by $664 million compared to
2008. Our fuel consumption rate improved 4% in 2009, resulting in $147 million of cost savings versus
2008. Newer, more fuel efficient locomotives reflecting locomotive acquisitions in recent years and the
impact of a smaller fleet due to storage of some of our older locomotives; increased use of distributed
locomotive power; our fuel conservation programs; and improved network operations all drove this
improvement. Distributed locomotive power is the practice of distributing locomotives throughout a train
rather than positioning all of them in the lead resulting in safer and more efficient train operations.
Diesel fuel prices, which averaged $3.15 per gallon (including taxes and transportation costs) in 2008
compared to $2.27 per gallon in 2007, increased expenses by $1.1 billion. A 4% improvement in our fuel
consumption rate resulted in $136 million of cost savings due to the use of newer, more fuel efficient
locomotives; our fuel conservation programs; improved network operations; and a shift in commodity
mix, primarily due to growth in bulk shipments. Volume, as measured by gross ton-miles, decreased 3%
in the year, lowering expenses by $101 million compared to 2007.
Purchased Services and Materials – Purchased services and materials expense includes the costs of
services purchased from outside contractors; materials used to maintain the Railroad’s lines, structures,
and equipment; costs of operating facilities jointly used by UPRR and other railroads; transportation and
2009 Operating Expenses
Depreciation
14%
Purchased Services
& Materials
15%
Other
6%
Fuel
16%
Equipment &
Other Rents
11%
Compensation
& Benefits
38%