Like many other large industrial corporations, Union Pacific has announced that it will be reducing its workforce by approximately 700 employees, mostly at its Omaha, Nebraska headquarters. It is anticipated that the cuts will impact 500 management and administrative positions and about 250 hourly positions by mid-September (2017).
Union Pacific, a Fortune-500 company, and the nation’s second largest freight line is profitable but sees that cost-cutting improvements can be made. The key metric driving the cuts is the “operating ratio” which is a railroad’s proxy for profitability. The ratio consists of expressing operating expenses as a percentage of revenue. The company is prepared to spend approximately $90 million, including $15 million for severance pay plus pension benefits and other expenses, to reduce their operating ratio from last quarter’s 61.8 percent to a more desirable 55.5%. The company plans to offer early retirement and buyout plans for employees meeting certain criteria. This should ease the financial and emotional stress on some employees.
Union Pacific is looking at the benefits of running longer trains and more automated systems that replace personnel. One significant adverse impact on the industry came from former President Barack Obama’s climate initiatives and his attack on coal mining and coal-fired power generation plants. The last two years have been rough for the industry. Competitor, CSX announced that it had trimmed its workforce by approximately 2,300 hundred positions and 900 locomotives.
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