Union Pacific 2010 Annual Report Download - page 30

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Operating Expenses
Millions 2010 2009 2008
% Change
2010 v 2009
% Change
2009 v 2008
Compensation and benefits $ 4,314 $ 4,063 $ 4,457 6% (9)%
Fuel 2,486 1,763 3,983 41 (56)
Purchased services and materials 1,836 1,644 1,928 12 (15)
Depreciation 1,487 1,427 1,366 4 4
Equipment and other rents 1,142 1,180 1,326 (3) (11)
Other 719 687 840 5 (18)
Total $ 11,984 $ 10,764 $ 13,900 11% (23)%
Operating expenses increased $1.2 billion in 2010
versus 2009. Our fuel price per gallon increased
31% during the year, accounting for $566 million
of the increase. Wage and benefit inflation,
depreciation, volume-related costs, and property
taxes also contributed to higher expenses during
2010 compared to 2009. Cost savings from
productivity improvements and better resource
utilization partially offset these increases.
Operating expenses decreased $3.1 billion in
2009 versus 2008. Our fuel price per gallon
declined 44% during 2009, 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 2009. Conversely, wage and benefit inflation partially offset these
reductions.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and
welfare costs, pension costs, other postretirement benefits, and incentive costs. General wage and
benefit inflation increased costs by approximately $190 million in 2010 compared to 2009. Volume-
related expenses and higher equity and incentive compensation also drove costs up during the year.
Workforce levels declined 1% in 2010 compared to 2009 as network efficiencies and ongoing productivity
initiatives enabled us to effectively handle the 13% increase in volume levels with fewer employees.
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.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Higher diesel fuel prices, which averaged $2.29 per gallon (including taxes and transportation
costs) in 2010 compared to $1.75 per gallon in 2009, increased expenses by $566 million. Volume, as
measured by gross ton-miles, increased 10% in 2010 versus 2009, driving fuel expense up by $166
million. Conversely, the use of newer, more fuel efficient locomotives, our fuel conservation programs
and efficient network operations drove a 3% improvement in our fuel consumption rate in 2010, resulting
in $40 million of cost savings versus 2009 at the 2009 average fuel price.
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 in 2009. Volume, as
measured by gross ton-miles, decreased 17% in 2009, 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 at the 2008 average fuel price. The consumption rate savings versus 2008 using the lower 2009 fuel
price was $68 million. 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
2010 Operating Expenses