Union Pacific 2009 Annual Report Download - page 27

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27
products shipments. Lower fuel surcharges due to lower fuel prices also reduced freight revenues in 2009
compared to 2008. ARC decreased 7% during the full year, driven by lower fuel cost recoveries, partially
offset by core pricing gains of approximately 5%. Fuel cost recoveries include fuel surcharge revenue
and the impact of resetting the base fuel price for certain traffic, which is described below in more detail.
Freight revenues from five of the six commodity groups increased during 2008, with particularly strong
growth from agricultural and energy shipments. While revenues generated from chemical and industrial
products shipments grew in 2008 compared to 2007, Hurricanes Gustav and Ike reduced shipments of
these commodities. Revenues generated from automotive shipments declined versus 2007. Greater fuel
cost recoveries and core pricing improvement combined to increase ARC during 2008. The severe
economic downturn during the fourth quarter compounded already declining volumes experienced during
the first nine months of 2008 due to ongoing weakness in certain market sectors. As a result, we moved
fewer intermodal, automotive, industrial products, and chemical shipments, which more than offset
volume growth from agricultural and energy shipments.
Our fuel surcharge programs (excluding index-based contract escalators that contain some provision for
fuel) generated freight revenues of $605 million, $2.3 billion, and $1.5 billion in 2009, 2008, and 2007,
respectively. Declines in both fuel prices and volume levels drove the lower fuel surcharge amounts in
2009. Fuel surcharge revenues are not comparable across years due to implementation of new mileage-
based fuel surcharge programs. As disclosed in our 2006 Annual Report on Form 10-K, the STB issued a
decision limiting the manner in which U.S. railroads can calculate fuel surcharges on traffic regulated by
the STB. In April 2007, we converted regulated traffic, which represents approximately 22% of our
current revenue base, to mileage-based fuel surcharge programs. In addition, we continue to convert
portions of our non-regulated traffic to mileage-based fuel surcharge programs. At the time of
introduction, we also reset the base fuel price at which the new mileage-based fuel surcharges take effect.
Resetting the fuel price at which the fuel surcharge begins, in conjunction with rebasing the affected
transportation rate to include a portion of what had been in the fuel surcharge, did not materially change
our freight revenue as higher base rates offset lower fuel surcharge revenue.
In 2009, other revenues decreased from 2008 due primarily to lower revenues at our subsidiary that
brokers intermodal and automotive services. Accessorial revenues also decreased in 2009 reflecting lower
volume levels during the year.
The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and
ARC by commodity type:
Freight Revenues % Change % Change
Millions of Dollars 2009 2008 2007 2009 v 2008 2008 v 2007
Agricultural $ 2,666 $ 3,174 $ 2,605 (16) % 22 %
Automotive 854 1,344 1,458 (36) (8)
Chemicals 2,102 2,494 2,287 (16) 9
Energy 3,118 3,810 3,134 (18) 22
Industrial Products 2,147 3,273 3,077 (34) 6
Intermodal 2,486 3,023 2,925 (18) 3
Total $ 13,373 $ 17,118 $ 15,486 (22) % 11 %