UNION PACIFIC

JOHN RICHARD L. BONILLA

BSP F-1
UNION PACIFIC
 Founded in 1826, Union Pacific Railroad Company (UP) provides rail transportation
services throughout the Southern and Western US, as well as Mexico ad Western
Canada.
 It has over 30,000 route miles linking ports on the Pacific and Gulf Coast to cities
throughout the Midwest and Western US. UNP also own gateways in Chicago,
Alberta, and northern Mexico, allowing for the dispersion of goods outside its
geographic footprint. The company transports everything from agricultural products to
automobiles to chemicals as well as to petroleum and other energy commodities.
 Bulk commodities are the “Golden Goose” of the railroad industry because the must
be shipped I massive quantities, are prohibitively heavy and provide a repetitive
stream of business. For the reason, railroad companies are extremely active in areas of
highly concentrated agricultural and coal mines.
UNION PACIFIC
 Though the rail shipping has many players, four companies dominate the competitive
landscape Union Pacific (UNP), Burlington Northern Santa Fe (BNSF), Norfolk
Southern (NS), and CSX collectively they provide the greatest share of rail transport
in the US.
 UNP links 23 states in the western two-thirds of the US. It has the largest track
network in the industry and serves many of the fastest growing cities in the US.
Served as the most essential building block in the early expansion of this nation.
 To regain its stronghold UNP must continue to develop and implement operating
efficiencies to improve productivity and expedite delivery. It must also focus on
adding new track, building new routes, and employing increasingly more efficient
locomotive to better leverage it fuel efficiency advantage over trucking.
UNP’S LEADERS
 James Young – UNP’s CEO worked in a variety of
management position within UNP since 1978, has
deep industry and company insight. He is also the
chairman of the board of the directors.
 Together with UNP’s Executive VPs Lance Fritz,
John Koraleski, and Robert Knight collectively they
bring a heathy mix of finance, safety, operations,
marketing, labor relations, energy, and automotive
experience to the table.
UNP’S ENVIRONMENT
ANALYSIS
A. GENERAL ENVIRONMENT
I. OPPORTUNITIES
a. SOCIO-CULTURAL-DEMOGRAPHIC FORCE
 Population in the US increase 9.7 percent between 2000 and 2010
 The twenty-three states where UNP operates saw average population increase of 11.9
percent from 2000 to 2010 outpacing overall US growth by 2.2 percent.
 Geographically UNP serves two-thirds of US; however this only includes 48.6 percent
of the population
 On average, US boast 87.4 people per square mile while UNP state averages 72.2
people per square mile
UNP’S ENVIRONMENT
ANALYSIS
b. Technological Forces
 Railroad companies are investing in more fuel-efficient locomotives
 High Speed rail may also greatly affect the freight industry with improved rail
infrastructure, upgraded locomotives, ad increased capacity for railroad
c. Economic
 Rail industry in the US experiencing rebirth primarily due to rising fuel prices
 Fuel efficiency shipping by rail compared to other transportation modes
 Fuel Surcharge
 Attractive Shipping price compared to other shipping modes
UNP’S ENVIRONMENT
ANALYSIS
d. Environmental
 The increased social awareness of the damage carbon emission wreak on the
environment provides a powerful marketing tool for the rail road industry.
d. Political-Legal
 The North American Free Trade Agreement (NAFTA) greatly increase
surfaced transportation between Mexico, Canada, and US
 Rail Operators in Western US benefit significantly from Chinese and other
Asian imports shipments brought to port on the Pacific Coast and shipped
overland to East Coast.
UNP’S ENVIRONMENT
ANALYSIS
II. THREATS
a. Economic
 Fuel prices declined, railroads we’re hit with a 22.3 percent decrease in revenues
b. Environment
 The US Environmental Protection Agency (USEPA) focuses on reducing the amount of
pollution emitted from among other things, locomotives
c. Political-Legal
 The railroad industry is heavily regulated both locally and federally
 Factors outside the US-including the economic environments of Mexico, Canada, and China
specifically
 Additional foreign trade through Western US ports.
UNP’S ENVIRONMENT
ANALYSIS
B. OPERATING ENVIRONMENT
i. OPPORTUNITIES
a. Industry Growth
 Benefited significantly on China and other Asian imports brought to port of the
Pacific Coast
 Enjoy 38 percent reduction in transport time compared to shipping through
Panama Canal
 Increasing demand for long haul and intermodal shipping
 Interline Settlement System (ISS) and Rate EDI Network (REN) industry wide
standards of computerized date management that administer revenue sharing
among railroads.
UNP’S ENVIRONMENT
ANALYSIS
a. Industry Growth
 When goods are shipped on more than one line, as is often the case, as well as rapid billing
and dispute resolution within the industry
 In addition a system called Railinc that expedites service and tracking between carriers is
widely used
 Much of the fuel cost is passed to the consumers through surcharge
 Rail Safety and Improvement Act (RSIA) mandated widespread installation of Positive Train
Control (PTC)
 PTC prevents train to train collisions and other types of accidents
 Annual revenues of Class I railroad groups is $346.8 million dollars
 Can transport hazardous materials
UNP’S ENVIRONMENT
ANALYSIS
b. Threat of New Entrants
 The railroad industry not an attractive industry for new entrants.
 Considerable capital is required to develop the necessary system infrastructure
of rail networks, cars, locomotive, and new technology
c. Rivalry Among Firms
 Rail Stagers Act of 1980 – reforms with in the Stagers Act include greater
flexibility in pricing without close regulatory restraint, increase independence
from collective rate making procedures inn rail pricing and services offered,
permission to negotiate contract rates, and easier entry into and exit from rail
markets
 Class I railroad group spend $460 billion on infrastructure, equipment, and
upgrades
UNP’S ENVIRONMENT
ANALYSIS
c. Threat of Substitute Products
 UNP and CSX entered into a strategic alliance in 2003 to provide 63 hour
coast to coast freight transport effectively removing a historical advantage of
the trucking industry
d. Community Perceptions
 Shipping Customers will pay more for convenience and environmental
benefits
UNP’S ENVIRONMENT
ANALYSIS
i. THREATS
a. Industry Growth
 Existing industry competitor sign lengthy service contracts with their customers to discourage
changing carriers
 Switching cost may increase further with the growing trend of carriers to provide integrated
logistics services
 Growing trend of door to door delivery
 “common carrier obligation” to not only transport hazardous materials but bear financial
liabilities of doing so as well
 Rail carriers are required to conduct an analysis prior to transporting of hazardous materials to
establish and appropriate route that enhances the safety and security of those living in are
where the materials may travel
 In 2011 it is estimated that 22.6 percent of industry revenue will be spent on fuel
UNP’S ENVIRONMENT
ANALYSIS
b. Rivalry among firms
 Line expansion must be connected with hubs and spokes of existing systems and to do so
requires the cooperation of competitors
 UNP significant competitors are not all railroads. It’s a part of a larger land freight
transportation strategic group that include pipeline, trucking, and class I railroads
 BNSF largely due to similar geographic territory each covers, NSF ad UNP are major
competitors. Vast majority of their business happening west of Mississippi River BNSF
account for 24.5 percent of class I railroad revenues
 CSX is the largest railroad operating east of the Mississippi River, little geographic
overlap it has with UNP mostly occurring around Chicago and New Orleans. CSX
accounted for 15.4 percent of market share among class I railroad
 Norfolk Southern the fourth largest player in a stacked out industry. A diversified
company with subsidiary I natural resources, land development, and telecommunications.
UNP’S ENVIRONMENT
ANALYSIS
c. Threat of Substitute Products
 Unregulated door to door shipping
 Manufacturer at home and abroad want to deal with integrated companies that
can pick up goods at a factory anywhere in the world and carry them all the
way to their final destination
 Trucking accounts for more than 85 percent of freight shipments
 Trucking holds several competitive advantage over rail,
 Trucking is faster
 Trucks are not limited by rails and can go anywhere
 Can go door to door
 Trucking doesn’t need to maintain roads, UNP needs to maintain rails.
UNP’S ENVIRONMENT
ANALYSIS
i. Strengths
a. Operations
 Long hauls, large amount of cargo and reduced interchanges of traffic
 Double stack railcar allow railroads to carry double freight per car length allowing for more
profitable hauls
 Distributed Powertrain Operations (DPS) allow railroads to increase the number of railcars per
shipment, thus consuming less fuel per car while simultaneously reducing the cycle times per
shipment
 Largest railroad operation in North America
 UNP rail network includes 31,953 route miles,
 it owns 26,083 miles
 6,596 miles of other main lines
 3,118 miles of passing lines and turnouts
 9,006 miles of switching and classification yard lines
 In total 50,673 miles of tracks in the US
UNP’S ENVIRONMENT
ANALYSIS
i. Strengths
 UNP has extensive rail equipment’s include locomotive railcars, heavy maintenance
equipment, as well as machinery and vehicles for maintenance, transportation crews
 UNP links 23 states two-thirds of US
 UNP connects with Canada Rail System and is the only railroad serving sex major gateways to
Mexico making it North America’s premiere rail franchise
 UNP empowered regional division this structure helped the firm improved customer
satisfaction, operational excellence, responsiveness, accountability, and flexibility
 UNP has success successful strategic alliances in the past
UNP’S ENVIRONMENT
ANALYSIS
Finance
b.
 Revenue of $15.5 billion in 2006 a number 44 times greater than the smallest class I
railroad
 UNP reported $16.9 billion in 2010 up 20 percent from 2009
 $1.4 billion was recorded in free cash flow
 Invested $1.7 billion in new tracks
 Currently in the midst of $2.6 billion dollar infrastructure upgrade
 $500 million intermodal facility in New Mexico
 UNP wants to spend $250 million on PTC
c. Human Resource
 Highly trained professional workforce
 43,000 employees
 UNP’S ENVIRONMENT
c.
ANALYSIS
Human Resource
 Educational Assistance Program to encourage full time employees to enroll on job or
career related course, to increase their value within the company
 Programs to improve workforce including Management Developmental Program,
Leadership Developmental Program, Field Management Training Program, and
Operation Management Program
d. Information System
 Operates multiple dispatching centers that coordinates locomotive movement, manage
traffic and crews, and coordinate interchanges with other railroads.
 The Harriman Dispatching Center in Omaha, is UNP primary dispatching facility with
900 employees
 CAD III (Computer Aided Dispatching) system provides managers with real time
information regarding train and locomotive location and status and assist them in making
decisions to improve both utilization and on time performance.
UNP’S ENVIRONMENT
ANALYSIS
Weakness
ii.
a. Operations
 Lacks intermodal capacity in key area like Texas, California, and Illinois.
 Requires more double track in Southern California where 26 percent of its
shipments originate
 Highly dependent on the volatility of fuel prices to maintain competitive
advantage
 Types of competition deregulated motor carriers and other railroad; as well as
river barges, ships and pipelines
 Rising demand for coal I developing countries couple with the drop in demand
for coal within the US could increasingly drive the major revenue source to
seaports
UNP’S ENVIRONMENT
ANALYSIS
ii. Weakness
a. Operations
 Manufacturer at home and abroad wants a one stop shop where it can pick up
goods anywhere and deliver it to its final destination
 UNP needs to access all modes of shipping (barge, rail, air, and truck)
b. Information System
 UNP started as a highly centralized; however as it grew, difficulties with
scheduling ad route planning emerged.
EXTERNAL FACTOR EVALUATION
MATRIX
Weighted
Key External Factors Weight Rating
Scores
OPPORTUNITIES
1. Fuel Efficient and Low Emissions 0.10 3 .30
2. Attractive Pricing and Fuel Surcharge 0.05 3 .15
3. Versatile (can carry large amount & various 0.20 4 .80
cargo) “Golden Goose”
4. Wide Network 0.15 3 .45
THREATS
1. Volatility of Fuel Prices 0.15 2 .30
2. Highly Competitive Market 0.20 3 .60
3. Alterative Shipping Methods 0.10 3 .30
4. Highly Regulated and High Operating Cost 0.05 1 .05

TOTAL 1.0   2.95

INTERNAL FACTOR EVALUATION
MATRIX Weighted
Key External Factors Weight Rating
Scores
STRENGTHS
1. Economies of Scale 0.15 3 0.45
2. Established Operations 0.20 4 0.80
3. History of Successful Strategic Alliance 0.15 4 0.60
4. Skilled Workforce and Reliable Information 0.05 3 0.15
System
WEAKNESSES
1. Lacks sufficient intermodal capacity in key 0.10 2 .20
locations
2. Requires more lines of double track 0.10 1 .10
3. Requires capital outlay beyond infrastructure 0.05 1 .05
maintenance
4. Integrated Shipping Services 0.20 3 .60
TOTAL 1.0   2.95
COMPETITIVE PROFILE MATRIX
UNP BNSF CSX NS

Critical Success Weighted Weighted Weighted Weighted

Weight Rating Rating Rating Rating
Factors Score Score Score Score

1. Global
0.20 3 0.60 2 0.40 2 0.40 2 0.40
Expansion

2. Market Share 0.30 4 1.20 4 1.20 3 0.90 2 0.60

3. Financial
0.20 4 0.80 4 0.80 3 0.60 3 0.60
Position

4. High
Utilization of 0.30 4 0120 4 1.20 3 0.90 2 0.60
Fixed Assets

Overall Score 1.00 3.80 3.60 2.80   2.20

ASSUMPTIONS
1. General Environment Stability
 The socio-cultural-demographic and economic environment is stable because UNP
has a wide network, it’s versatile, fuel efficient and low emissions, and attractive
pricing and fuel surcharge.
2. Industry Growth Prospects
 The market presents a promising opportunity since UNP can utilize economies of
scale, has established operations, successful strategic alliance, and skilled workforce
and reliable information system.
3.  Company competitive Position
 The company’s competitive strength is evidenced by its vast rail network with a total
of 50,673 miles of track in the US. It also connects to Canada Rail System and serving
six major gateways to Mexico making it North America’s premiere rail franchise.
PROBLEM STATEMENT
 Problem/Issues:
The main problem for UNP is how it would maintain its stronghold and to
better leverage its advantages over alterative shipping modes

Volatility Fuel Prices

Highly competitive market
Rising trend of Integrated shipping & door to door delivery
Lacks sufficient intermodal facility
Require more lines of double track
Requires capital outlay beyond infrastructure maintenance
 TOWS MATRIX
 
 
OPPORTUNITIES
1. Fuel Efficient and Low Emissions
2. Attractive Pricing and Fuel Surcharge
3. Versatile (can carry large amount &
various cargo) “Golden Goose”
4. Wide Network
THREATS
1. Volatility of Fuel Prices
2. Highly Competitive Market
3.Alterative Shipping Methods
4. Highly Regulated and High Operating
Cost
STRENGTHS
1. Economies of Scale
2. Established Operations
3. Successful Strategic Alliance
4. Skilled Workforce and Reliable
Information System
PRODUCT DEVELOPMENT (S2, S4, O3,
O4)
MARKET DEVELOPMENT (S1, S3, O1,
O2)
PRODUCT DEVELOPMENT (S2, S4, T1,
T3)
MARKET DEVELOPMENT (S1, S3, T2, T4)
WEAKNESSES
1. Lacks sufficient intermodal capacity in key
locations
2. Requires more lines of double track
3. Requires capital outlay beyond
infrastructure maintenance
4. Integrated Shipping Services
MARKET PENETRATION (W1, W2, O3,
O4)
MARKET DEVELOPMENT (W3, W4, O1,
O2)
PRODUCT DEVELOPMENT (W1, W2, W4,
T2,T3, T4)
 INTERNAL-EXTERNAL MATRIX
  INTERNAL EXTERNAL EVALUATION

STRONG AVERAGE WEAK

EXTERNAL HIGH I II III

FACTOR
EVALUATION MEDIUM IV V VI

LOW VII VIII IX

The IFE-EFE Matrix suggests two (2) strategies that UNP can consider
which are: 1) Product Development; and 2) Market Penetration.
2.95
SUMMARY OF STRATEGIES
TOWS IEM GSM TOTAL

I. INTEGRATION STRATEGIES
       

1. Backward Integration     1 1
2. Forward Integration     1 1
3. Horizontal Integration     1 1
II. INTENSIVE STRATEGIES        
1. Market Penetration 1 1 1 3
2. Market Development 1   1 2
3. Product Development 1 1 1 3
 Product Market
Market Penetration
Development Development
Weighted Weighted Weighted
Key Strategic Factors Weight Rating
Score
Rating
Score
Rating
Score
OPPORTUNITIES
1. Fuel Efficient and Low Emissions 0.15 4 0.60 4 0.60 4 0.60
1. Attractive Pricing and Fuel
0.05 4 0.20 4 0.20 3 0.15
Surcharge
1. Versatile (can carry large amount
0.10 4 0.40 4 0.40 3 0.30
& various cargo) “Golden Goose”
1. Wide Network 0.30 4 1.20 4 1.20 4 1.20
THREATS
1. Volatility of Fuel Prices 0.10 4 0.40 4 0.40 4 0.40
1. Highly Competitive Market 0.20 3 0.60 3 0.60 3 0.60
1. Alterative Shipping Methods 0.05 4 0.20 4 0.20 4 0.20
1. Highly Regulated and High
0.05 4 0.20 4 0.20 4 0.20
Operating Cost
SUB-TOTAL 1.00 3.80 3.80 3.65
STRENGTHS
1. Economies of Scale 0.20 3 0.60 3 0.60 3 0.60
2. Established Operations 0.20 4 0.80 3 0.60 3 0.60
3. Successful Strategic Alliance 0.05 4 0.20 4 0.20 4 0.20
4. Skilled Workforce and Reliable
0.15 4 0.60 3 0.45 3 0.45
Information System
WEAKNESSES
.05
1. Volatility of Fuel Prices 4 0.20 4 0.20 3 0.15
0.13
2. Highly Competitive Market 0.05 4 0.20 4 0.20 3 0.15
3. Alterative Shipping Methods 0.10 3 0.30 3 0.30 2 0.20
4. Highly Regulated and High
0.20 4 0.80 3 0.60 3 0.60
Operating Cost
SUB-TOTAL 1.00 3.70 3.15 2.95
OVERALL SCORE 7.5 6.95 6.60
 ACTION PLAN
Functional Areas Objectives Strategies Time Frame Budget
To increase sales and be
Advertising and
1. Marketing more aggressive in 3 years Operating Expense
Promotion
marketing
To source out funds for
To issue bonds or
domestic operation and 5 – 7 years
2. Finance acquire loans from Debt Financing
necessary system  
financial institutions
upgrades

To ensure preventive
maintenance on the
To bring quality and
tracks, train, and other Operating Expense and
3. Operation reliable service to its Regularly
physical facilities of Maintenance Expense
clients
UNP are done right and
on time

To seek out strategic Form strategic alliances

alliances to mitigate the to maximize resources
4. Organization 3 years No additional expense
risk of other shipping and have a bigger
modes market share
 
INCOME STATEMENT (in thousands)
         

Period Ending Dec 31, 2010 2011 2012 2013

Freight Reveneus 16,069.00 16,711.76 17,380.23 18,075
Other Revenue 896.00 931.84 969 1,007.88
Total operating revenue 16,965.00 17,643.60 18,349 19,083.32
Operating Expenses
Compensation and benefits 4,314.00 4,486.56 4,666 4,852.66
Fuel 2,486.00 2,585.44 2,688.86 2,796.41
Purchased services and materials 1,836.00 1,909.44 1,985.82 2,065.25
Depreciation 1,487.00 1,546.48 1,608 1,672.67
Equipment and other rents 1,142.00 1,187.68 1,235 1,284.59
Other 719.00 747.76 778 808.78
Total operating expenses 11,984.00 12,463.36 12,962 13,480.37
Operating Income 4,981.00 5,180.24 5,387.45 5,602.95
Other Income 54.00 56.16 58.41 60.74
Interest Expense (602.00) (626.08) (651.12) (677.17)
Income before income taxes 4,433.00 4,610.32 4,794.73 4,986.52
Income Tax (1,653.00) (1,719.12) (1,787.88) (1,859.40)
Net Income 2,780.00 2,891.20 3,006.85 3,127.12