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Union Pacific sets all-time quarterly record for operating ratio

Lower fuel prices drove Union Pacific’s operating ratio lower

Union Pacific reported a record operating ratio for the third quarter. (Photo: Jim Allen/FreightWaves)

Union Pacific (NYSE: UNP) eked out an all-time quarterly record operating ratio (OR) in the third quarter despite a 11% drop in operating revenue.

Union Pacific’s (UP) OR was 58.7% for the quarter, compared with 59.5% in the third quarter of 2019, amid lower fuel prices. 

Investors sometimes use OR, which is operating expenses as a percentage of revenue, to gauge the financial health of a company. A lower OR implies improved financial health.

Meanwhile, net income was $1.4 billion, or $2.01 per diluted share, in the third quarter of 2020 compared with $1.6 billion, or $2.22 per diluted share, in the third quarter of 2019.


(Union Pacific)

“Our third-quarter results represent another step in our company’s transformation. We demonstrated our ability to efficiently adjust to a sharp rebound in volume, which increased 19% from the second quarter, while operating expenses, excluding fuel price changes, increased only 11% sequentially,” said Lance Fritz, Union Pacific chairman, president and chief executive officer. 

Operating revenue fell 11% year-over-year to $4.9 billion amid a 4% decrease in revenue carloads. Although volumes from UP’s premium segment, which includes intermodal, rose 1% year-over-year, industrial volumes slipped 18% and bulk volumes fell 12%.

Freight revenue in the third quarter also fell 11% “as core pricing gains were more than offset by lower volumes, a less favorable business mix and decreased fuel surcharge revenue,” UP said.

But operating expenses were lower in the third quarter year-over-year, falling 12% to $2.9 billion. Meanwhile, UP’s average quarterly diesel fuel price was 35% lower, at $1.36 per gallon. Indeed, UP’s fuel expenses fell 40% to $301 million year-over-year.


(Union Pacific)

Looking at UP’s service metrics, its average train speed was flat at 25.3 mph in the third quarter compared with 25.2 mph a year ago, while average terminal dwell fell 3% to 22.8 hours from 23.6 hours.

UP pointed out in its press release Thursday morning other service metrics that improved, including those for freight car velocity and train length. 

Freight car velocity rose 3% to 220 daily miles per car, while locomotive productivity was 138 gross ton-miles per horsepower day, which UP said was an all-time quarterly record and an 11% improvement compared with the third quarter of  2019. 

Average train length increased 13% to 8,984 feet. 

(Union Pacific)

Looking ahead, Fritz said, “An improved customer experience, coupled with a lower cost structure, is opening up new markets and opportunities to grow our business as we win with customers and convert more freight to rail.”

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.