Union Pacific CEO: Train Braking Technology Is Clogging the Railway
January 25 2018 - 5:21PM
Dow Jones News
By Paul Ziobro
Union Pacific Corp. says new technology meant to prevent train
accidents is causing congestion on the railway.
The largest U.S. railroad based on revenue is in the midst of
implementing positive train control, or PTC, technology, which is
designed to automatically stop a train to prevent collisions or
derailments. But activating the system in certain areas is causing
problems as the railway works out kinks in how it operates.
"As we turn on more of our footprint, that requires us to debug
and learn the system," CEO Lance Fritz said in an interview
Thursday, adding that sometimes the new technology "makes a train
stop where it's not supposed to stop."
Mr. Fritz said the problems have contributed to a slowdown in
the network recently, including trains running 5% slower and
spending 12% more time in terminals during the fourth quarter.
Problem spots are in Chicago, Kansas City and Houston.
Certain areas also have seen a buildup in inventory and the
railroad is unable to keep up, he said. "We're not executing our
game plan like we have historically."
U.S. railroads have spent most of the past decade implementing
PTC, which the industry estimates will cost around $10 billion to
install and another $500 million to maintain annually. Congress has
pushed the deadline to complete installation to the end of
2018.
Union Pacific has installed the technology across 60% of its
network where required. It plans to spend another $160 million this
year on the project.
Through Oct. 31, Union Pacific had installed the technology on
nearly 2,000 out of 5,600 locomotive where it was required,
according to the railroad's latest report to the Federal Railroad
Administration.
The service problems caused a rise in Union Pacific's operating
ratio to 62.6% from 62% a year earlier. Railroads aim to reduce the
metric, which is a reflection of profitability.
Union Pacific shares fell 5.5% in recent trading to $133.43.
They are still up 20% over the past year.
The railroad expects the problems to clear over time. For 2018,
the company expects the operating ratio to drop. It also expects
more volume to move through its network, higher prices and
significant cost cuts.
In its fourth quarter, the company logged a 5% increases in
revenue, helped by higher volume, fuel surcharges and prices. Net
income rose sharply to $7.3 billion, helped primarily by the recent
corporate-tax cut. Excluding that, net income rose about 5% to $1.2
billion.
Union Pacific hasn't changed its capital-spending outlook as a
result of the new tax law, which benefits it and other railroads
due to the lower tax rate. It still plans to spend about 15% of
revenue on capital expenditures.
The railroad did announce plans to build a new $550 million
railroad facility called a hump yard in Texas that will sort long
trains. The Brazos yard is being built in anticipation of more
business moving through the region. "We see that our existing
infrastructure is going to be overwhelmed at some point in the
future," Mr. Fritz said on the earnings call.
(END) Dow Jones Newswires
January 25, 2018 17:06 ET (22:06 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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