BusinessWeek: January 11, 1993

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 Industry Outlook: Introduction

THIS TRAIN KEEPS A-ROLLIN'

Quick: At which U. S. railroad have 60% of the employees invested 401(k) plan money in the company's stock? Which carrier posted a $1.02 billion operating profit last year, and earned a 7.1% return on assets?

The answer is Union Pacific Railroad Co., whose estimated profits reached a record $665 million in 1992, on revenues of $4.9 billion. The credit for that goes partly to Michael H. Walsh, a former Cummins Engine Co. executive vice-president who was the railroad's chairman from 1986 to 1991. When Walsh asked employees how to improve the railroad, recalls Richard K. Davidson, his successor, they said, "the problem is you"--management bureaucracy. So, as the company slashed employment 32%, to 27,500, over the past seven years, it wiped out six management layers and 1,600 white-collar jobs. UP's pseudo-military culture was junked, and decision-making pushed down the ranks. Says Davidson: "As long as customers are satisfied and [UP managers] maintain safety standards and their budgets, they never hear from us." UP also has spent $3.8 billion since 1987 to refurbish itself, including $1 billion for new locomotives and $50 million for a new dispatching center.

Now, Davidson, who broke into rail-roading as a Missouri Pacific Railroad Co. brakeman in 1960, sees good growth in two areas: intermodal transport with trucking partners, and freight shipping to Mexico. In intermodal, he's shooting for $100 million in revenue by 1995, vs. $2.7 million last year. South of the border, he has teamed with government-owned railroad Ferrocarriles Nacionales de Mexico to streamline operations: Freight now moves from Chicago to Mexico City in four days. Davidson expects revenues from this business, now $300 million, to 2 grow 15% a year.

UP expects to earn $725 million in 1993 on revenues of $5.1 billion. Employees aren't just buying up stock out of loyalty: They see a railroad with a future.

Sandra D. Atchison
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