Union Pacific 2001 Annual Report Download - page 46

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Chemicals – A 1% increase in carloads combined with a 2% increase in average revenue per car led to a 3% increase in
revenue. Revenue growth was driven primarily by an increase in average revenue per car for soda ash, fertilizer, and liquid
and dry commodities due to selected price increases. Year-over-year carload improvements came mainly in the first half
of the year, as a strong economy and customer plant expansions led to increased market demand for plastics, liquid and
dry chemicals and domestic soda ash. However, a softening economy late in the year resulted in a 2% decline in fourth-
quarter revenue compared to 1999, with weakness in most areas of the chemical market.
Energy – Energy revenue was down 1% compared to 1999, despite a 3% increase in carloads for the year. Average revenue
per car dropped 4% as a result of contract pricing provisions with certain major customers. In the first six months of
2000, carloads declined compared to 1999 due to lower coal demand at utilities resulting from high inventories caused
by mild winter weather and Year 2000 stockpiles. In the second half of 2000, carloads increased over 1999 levels due to
hot summer weather and the combination of cold winter weather late in the year and a significant increase in the price
of alternative fuels. Delays due to severe winter weather partially offset volume gains in the second half of the year.
Industrial Products – Revenue increased 5% on a 2% increase in carloads and a 2% increase in average revenue per car.
A strong economy in the first half of 2000 led to a general increase in demand for most business lines. The largest revenue
gains were in steel, lumber, cement and other building materials due to an expanding construction market, especially in
the south and southwest. New rail services and generally improved service performance also contributed to the increase
in carloads. Starting in the third quarter, a softening in the economy began to adversely affect business demand. Fourth-
quarter revenue and carloads decreased in nearly all business lines but especially minerals, steel and hazardous waste. The
increase in average revenue per car was due to gains in higher average revenue per car, steel and lumber carloads and
selected price increases during the year.
Intermodal – Revenue increased 11% due to a 7% increase in carloads and a 4% increase in average revenue per car.
Carload growth resulted from a strong U.S. economy in the first half of 2000 and increased demand for imports from
Asia. Improved service performance led to an increase in carloads and revenue for expedited premium service. New and
expanded rail service offerings also contributed to the gains. The increase in average revenue per car was primarily the
result of price increases and a longer average length of haul in some markets.
Operating Expenses – Operating expense increased $510 million (6%) to $8.8 billion in 2000. The higher expenses are
primarily the result of significantly higher fuel prices, inflation, volume costs associated with a 4% increase in carloads
and higher depreciation expense, partially offset by productivity gains and other cost control measures. Operating
expenses increased $395 million (5%) to $8.7 billion in 2000, excluding the $115 million pre-tax charge for the work force
reduction plan.
Salaries, Wages and Employee Benefits – Salaries, wages and employee benefits increased $19 million (1%) to $3.6 billion.
Costs decreased $96 million (3%), excluding the $115 million pre-tax work force reduction charge. The primary driver
was productivity improvements that resulted in lower train crew expenses despite a 4% increase in carload volume. In
addition, the average employee count decreased 4% from 1999 to 2000. Partially offsetting these gains were increased costs
due to greater rail volume and wage and employee benefit inflation.
Equipment and Other Rents – Expenses decreased $20 million (2%) compared to 1999. The improvement was attributable
to lower prices for equipment and improvements in car cycle times, partially offset by higher volume-related costs.
Depreciation – Depreciation expense increased $55 million (5%) over 1999, resulting from capital spending in recent
years. Capital spending totaled $1.7 billion in 2000 compared to $1.8 billion in 1999 and $2.0 billion in 1998.
Fuel and Utilities – Expenses increased $496 million (63%). The increase was driven by significantly higher fuel prices
(which added $444 million of additional costs) and higher volume. Fuel prices averaged 90 cents per gallon in 2000
compared to 56 cents per gallon in 1999, including taxes, transportation costs and regional pricing spreads of 13 cents
for each of the years. The Railroad hedged approximately 10% of its fuel consumption for the year, which decreased fuel
costs by $52 million. As of December 31, 2000, expected fuel consumption for 2001 was 8% hedged at 68 cents per gallon