Union Pacific 2011 Annual Report Download - page 30

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Operating Expenses
Millions 2011 2010 2009
% Change
2011 v 2010
% Change
2010 v 2009
Compensation and benefits $ 4,681 $ 4,314 $ 4,063 9% 6%
Fuel 3,581 2,486 1,763 44 41
Purchased services and materials 2,005 1,836 1,644 9 12
Depreciation 1,617 1,487 1,427 9 4
Equipment and other rents 1,167 1,142 1,180 2 (3)
Other 782 719 687 9 5
Total $ 13,833 $ 11,984 $ 10,764 15% 11%
Operating expenses increased $1.8 billion in 2011
versus 2010. Our fuel price per gallon rose 36%
during 2011, accounting for $922 million of the
increase. Wage and benefit inflation, volume-
related costs, depreciation, and property taxes also
contributed to higher expenses. Expenses
increased $20 million for costs related to the
flooding in the Midwest and $18 million due to the
impact of severe heat and drought in the South,
primarily Texas. Cost savings from productivity
improvements and better resource utilization
partially offset these increases. A $45 million one-
time payment relating to a transaction with CSX
Intermodal, Inc (CSXI) increased operating
expenses during the first quarter of 2010, which
favorably affects the comparison of operating expenses in 2011 to those in 2010.
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.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and
welfare costs, pension costs, other postretirement benefits, and incentive costs. A combination of general
wage and benefit inflation, volume-related expenses, higher training costs associated with new hires,
additional crew costs due to speed restrictions caused by the Midwest flooding and heat and drought in
the South, and higher pension expense drove the increase during 2011 compared to 2010.
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.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Higher locomotive diesel fuel prices, which averaged $3.12 (including taxes and
transportation costs) in 2011, compared to $2.29 per gallon in 2010, increased expenses by $922 million.
In addition, higher gasoline prices for highway and non-highway vehicles also increased year-over-year.
Volume, as measured by gross ton-miles, increased 5% in 2011 versus 2010, driving expense up by
$122 million.
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.
2011 Operating Expenses