Union Pacific 2002 Annual Report Download - page 69

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(OTC) and Motor Cargo Industries, Inc. (Motor Cargo) as of November 30, 2001, both operating as separate and distinct
subsidiaries of Overnite Corporation (Overnite), an indirect wholly owned subsidiary of UPC. The Corporation’s other
product lines are comprised of the corporate holding company (which largely supports the Railroad), self-insurance activities,
technology companies, and all appropriate consolidating entries.
Rail Segment
Operations – The Railroad is a Class I railroad that operates in the United States. As of October 1, 1996, the Railroad
included Southern Pacific Rail Corporation (Southern Pacific or SP). In addition, during 1997, the Railroad and a
consortium of partners were granted a 50-year concession to operate the Pacific-North and Chihuahua Pacific lines in
Mexico. The Railroad made an additional investment in the consortium in 1999. During 2001, UPC completed its
integration of Southern Pacific’s rail operations.
The Railroad has over 33,000 route miles linking Pacific Coast and Gulf Coast ports to the Midwest and eastern United
States gateways and providing several north/south corridors to key Mexican gateways. The Railroad serves the western two-
thirds of the country and maintains coordinated schedules with other carriers for the handling of freight to and from the
Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada and Mexico. Export and import traffic is moved
through Gulf Coast and Pacific Coast ports and across the Mexican and Canadian borders. Railroad freight is comprised of
six commodity lines: agricultural, automotive, chemicals, energy, industrial products and intermodal. The Railroad
continues to focus on utilization of its capital asset base to meet current operating needs and to introduce innovative rail
services across every commodity line.
The Railroad is subject to price and service competition from other railroads, motor carriers and barge operators. The
Railroad’s main competitor is Burlington Northern Santa Fe Corporation. Its rail subsidiary, The Burlington Northern and
Santa Fe Railway Company, operates parallel routes in many of the Railroad’s main traffic corridors. In addition, the
Railroad’s operations are conducted in corridors served by other competing railroads and by motor carriers. Motor carrier
competition is particularly strong for intermodal traffic. Because of the proximity of the Railroad’s routes to major inland
and Gulf Coast waterways, barge competition can be particularly pronounced, especially for grain and bulk commodities.
The Railroad is dependent on two key suppliers of locomotives. Due to the capital intensive nature and sophistication of
this equipment, there are strong barriers of entry to new suppliers. Therefore, if one of these suppliers would no longer
produce locomotives, the Railroad could realize a significant increase in the cost and the potential for reduced availability of
the locomotives that are necessary to its operations.
Employees – Approximately 87% of the Railroad’s nearly 47,000 employees are represented by 14 major rail unions. National
negotiations under the Railway Labor Act to revise the national labor agreements for all crafts began in late 1999. In May
2001, the Brotherhood of Maintenance of Way Employees (BMWE) ratified a five-year agreement, which included
provisions for an annual wage increase (based on the consumer price index) and progressive health and welfare cost sharing.
In August 2002, the carriers reached a five year agreement with the United Transportation Union (UTU) for annual wage
increases as follows: 4.0% July 2002, 2.5% July 2003, and 3.0% July 2004. The agreement also established a process for
resolving the health and welfare cost sharing issue through arbitration and also provided for the operation of remote control
locomotives by trainmen. The Brotherhood of Locomotive Engineers (BLE) challenged the remote control feature of the
UTU Agreement and a recent arbitration decision held that operation of remote control by UTU members in terminals does
not violate the BLE agreement. In November 2002, the International Brotherhood of Boilermakers and Blacksmiths (IBB)
reached a five year agreement following the UTU wage pattern. In January 2003, an arbitration award was rendered
establishing wage increases and health and welfare employee cost sharing for the Transportation Communications
International Union (TCU). Contract discussions with the remaining unions are either in negotiation or mediation. Also
during 2002, the National Mediation Board ruled against the UTU on its petition for a single operating craft on the Kansas
City Southern Railroad. The BLE is now working on a possible merger with the International Brotherhood of Teamsters
(Teamsters).
Trucking Segment
Operations – The trucking segment includes the operations of OTC and Motor Cargo. OTC is a major interstate trucking
company specializing in less-than-truckload (LTL) shipments. OTC serves all 50 states and portions of Canada and Mexico
through 170 service centers located throughout the United States providing regional, inter-regional and long haul service.