Union Pacific: Quick Recovery Unlikely

NEW YORK -- Union Pacific Corp., the nation's largest railroad, on Wednesday said a second-half recovery in the U.S. economy was unlikely and it would face continued high fuel costs and declines in demand growth, according to a wire service.

"We're becoming less certain that we'll see a significant recovery in the second half," Chief Executive Richard Davidson said in a speech at the Merrill Lynch Global Transportation Leaders Conference here. "Fuel costs continue to be a challenge."

Davidson said Union Pacific's rail car volumes, which are currently flat year over year, are not expected to increase in the second half due to the slowing U.S. economy.

Union Pacific, which is the largest consumer of diesel fuel in the United States, paid 95 cents a gallon for fuel last week compared with 84 cents a gallon on average during the second quarter last year, he said..

To help control some of those fuel expenses, Omaha, Nebraska-based Union Pacific will buy 1,700 new rail cars, improving fuel efficiency by 10 percent to 15 percent, he said.

The company has about a 95 percent on-time performance rating for its express lane service, which runs from the West Coast to the East Coast. It plans to continue to work to improve service and expand into the mid-Atlantic region and Canada in an effort to push through a price increase of 1 to 2 percentage points on some lines later this year, Davidson said.

Davidson said the railroad wants to capture more business from the trucking industry, which presently does about $1 billion in service along the I-5 corridor running between the Pacific Northwest, southern California, southern Nevada and Arizona. Union Pacific has added two trains running along the I-5 corridor daily with an 85 percent reliability rating, Davidson said.

Union Pacific is working to increase its auto parts transportation business and has created an "auto parts transport service" to help its customers coordinate the complete movement of auto parts from Canada to Mexico. Presently, trucks handle about 75 percent of all auto parts transportation, he said.

Davidson said Union Pacific sees "tremendous opportunity" to grow in Mexico, where it currently has a 60 percent market share of the rail business. The company expects the Mexican economy to improve in the second half which will spur an increase in demand for transportation of grain into Mexico and beer coming from Mexico into the United States, he said.

Davidson said the long-term demand for coal, which has been "quite profitable" for Union Pacific, remains positive as more utilities turn to coal due to the high price of natural gas.

Shares of Union Pacific were up 25 cents to $57.95 during midday trading on the New York Stock Exchange, just off its 52-week high of $60.70.