Posts Tagged ‘UP CEO Lance Fritz’

Consumer Spending a Key to Freight Rebound

May 28, 2020

One railroad CEO believes that consumer behavior will determine how much railroad traffic rebounds from the economic downturn triggered in part by the COVID-19 pandemic.

Union Pacific CEO Lance Fritz said Wednesday during a webinar that was part of the Bernstein 36th Annual Strategic Decisions Conference that rail traffic depend on global trade, North American industrial production and consumer spending.

Of the three he said consumer spending is the most difficult to predict.

Some consumers can’t wait to get out and start spending money again but others don’t feel it is safe to go out to shop, dine at restaurants, or take in a show.

“I think consumers are all over in between those two goalposts,” Fritz said of the can’t wait to spend versus don’t want to go out yet extremes.

He said said consumer spending can be encouraged to get up off the floor if local governments and business can persuade those who’d rather not get out that it is safe to do so.

Fritz said UP traffic this month has stabilized its free fall to around 23 percent below where it was at this time last year.

That just about matches the company’s prediction of a second-quarter decline of 25 percent.

UP has managed to claw back traffic from highways, but Fritz said it doesn’t show up yet because of volume losses due to the economic downturn.

Rail Executives See Silver Lining in Pandemic

April 24, 2020

Two top railroad executives this week saw a possible silver lining in the COVID-19 pandemic that could benefit supply chains and railroads.

Yet that benefit may not be what it might seem, some railroad industry observers say.

CSX CEO Jim Foote said during his company’s quarterly investor call the pandemic could lead more manufacturers away from China in order to reduce their dependence on a single country.

Although some of those manufacturing operations might land in the United States, they also could shift to other low-cost countries such as Mexico.

“I think that there will be more manufacturing that takes place in this country and any kind of business activity like that, it’s good for the railroad,” Foote said.

Echoing that thought was Union Pacific CEO Lance Fritz, although he said it was too soon to see the extent of that movement.

“For sure there are going to be some opportunities to grow out of this crisis,” Fritz said. “One is, we do hear our customers talk about evaluating their supply chains with an eye towards reliability being valued a little bit higher.”

Some industry observers believe that another consequence of the pandemic could be an increase in e-commerce, which could provide a boost to railroad intermodal volumes.

Even before the pandemic, consumers were increasingly buying goods online.

That trend could accelerate even as social distancing orders are eased or eliminated because consumers will have grown more accustomed to shopping online.

Foote said that will benefit railroads by providing an opportunity to move larger quantities of inventory via intermodal networks.

Industry observers interviewed by Trains magazine this week cautioned that these changes are expected to roll out slowly because they involve structural changes.

“The more immediate volume opportunity would come from additional merchandise traffic they are able to attract by keeping velocity high as trucking capacity tightens up over the course of 2021,” said Todd Tranausky, a rail and intermodal analyst with FTR Transportation.

Intermodal analyst Larry Gross expects companies to in time relocate more manufacturing within or near the United States after seeing how much they suffered from their heavy reliance on Chinese manufacturing facilities.

Gross said this could result in a slowing of international intermodal growth and a shifting of traffic from West Coast to East Coast ports.

However, containers unloaded at East Coast ports are more likely to move by truck than rail.

If more manufacturing is located within the United States, that could also result in more goods moved by truck rather than rail.

Gross said that is because there will be more widely dispersed distribution centers situated closer to consumers.

“The bottom line is that amalgamating volumes into megatrains will become more difficult,” Gross said.

If railroads are to capture a share of this traffic, Gross said they will need to change their thinking about the intermodal business.

He said a focus on running the simplest network of the largest trains possible is not going to work well after the pandemic has ended.

UP CEO Sees Coal Traffic Bottoming Out

February 28, 2020

The decline of coal traffic may have bottomed out for now one railroad CEO believes.

Speaking to the Barclays Industrial Select Conference, Union Pacific head Lance Fritz said only the most efficient power plants that use coal are still in operation.

Natural gas has eclipsed coal as the fuel of choice at many power plants due to its low cost.

Fritz said there are few coal-fired power plants left and those form a baseline of coal loadings.

He doesn’t believe the haulage of coal by railroads will rebound from the extended slump it has been in and which has affected the financial positions of such other Class 1 railroads as Norfolk Southern and CSX.

At UP, coal traffic is down 30 percent thus far in 2020. It declined by 16 percent in 2019.

Much of the coal hauled by UP originates in the Powder River Basin of Wyoming.

Also working to depress the use of coal are increased use of wind and solar energy.

The U.S. Energy Information Administration projects that another wave of closings of coal-fired plants will occur over the next five years.

The agency said that natural gas prices last year were their lowest in the previous three years.

Fritz noted that the loss of coal traffic underlies UP’s stagnant traffic volume over the past 15 years.

“That’s a big, big deal,” Fritz said of the decline of coal traffic. “That in and of itself is tens of thousands of carloads a week.”

Last week UP hauled 15,294 carloads of coal whereas in the same week of 2011 it handled 43,007.

UP’s approach to coal traffic, though, stands in marked contrast to that of western rival BNSF which has been able to retain some of its coal business by cutting rates in an effort to discourage coal-fired plants from switching to natural gas.

For its part, UP has engaged in what it described as “judicious pricing” of its traffic to earn an acceptable return.

Powder River Basin coal traffic peaked in 2008. Since then BNSF coal volume from that region has fallen 24 percent while UP’s volume has plummeted by 59 percent.

BNSF’s coal volume is down 6 percent this year and fell 6 percent last year.

Information the carriers reported to the U.S. Surface Transportation Board indicate that last week BNSF dispatched 35 coal trains from the Powder River Basin while UP had 12.

More Rail Cars Being Stored, Fewer Being Built

January 16, 2020

More rail cars are being stored and fewer of them are being built.

Although that is partly the result of a move by Class 1 railroads toward the precision scheduled railroading operating model, lower traffic volumes are also playing a role.

About 408,000 rail freight cars are being stored in North America and railroad officials say a 5.1 percent decline in traffic in 2019 is one factor behind that.

Speaking to a Midwest shippers conference this week in suburban Chicago, Greenbrier Companies President and CEO Lorrie Tekorius said the outlook for new rail car construction in 2020 and beyond is down from earlier projections.

Carbuilders now are expected to produce around 38,200 units in 2020 and 35,825 units in 2021.

That compared with 50,803 units built in 2018 and 82,296 units built in 2015.

Most of the loss comes from cars being built to haul coal and intermodal as well as diminished boxcar production.

Tekorius said that as the average speed of trains increases so does the need for rail cars.

She said a 1 mile per hour change in overall velocity can affect 50,000 rail cars as fewer or more are needed to meet demands.

Last year rail velocity increased by 3.7 mph compared with 2018.

Tekorius said that some cars are being pulled from storage that are used to move crude oil, ethanol and propane, which is a sign of possible change in those markets.

Union Pacific President and CEO Lance Fritz spoke at the conference about diminished rail traffic, saying UP now sees about 6.8 freight cars per carload generated, which is a historic low.

He said PSR has brought a fundamental shift in rail car needs.

“For us, it’s probably going to be (around) forever,” he said, adding that intermodal cars could be driven lower because of how they are used.

“We’re all going to be storing cars,” Fritz said. “I’m storing UP cars now that we’re going to need a lot more business to bring out again and run.”

CP’s Harrison Highest Paid Class 1 CEO in 2015

May 7, 2016

He may have lost out on becoming the CEO of Norfolk Southern, but E. Hunter Harrison has 15 million reasons to be happy with being the head of Canadian Pacific.

Trains magazine reported that Harrison is the highest paid CEO among North American Class I railroads.

In 2015, he took home $15.4 million in compensation (C$19.9 million). That was well above the $10 million made by Union Pacific CEO Lance Fritz.

E. Hunter Harrison

E. Hunter Harrison

Other CEO pay last year included: Michael Ward, CSX, $9.2 million; James Squires, NS, $7.9 million; David Starling, Kansas City Southern, $7.9 million; and Claude Mongeau, Canadian National, $7.7 million.

BNSF is a part of privately-owned Berkshire Hathaway and executive compensation figures are not publically available.

Not everyone at CP believes Harrison should be so well compensated. At last month’s CP annual meeting, stockholders rejected by 50.1 to 49.9 percent CP’s executive compensation package.

In response, the CP board of directors said it would take the non-binding resolution into account when setting the pay for executives this year.

However, Harrison and the CP board won re-election to their posts, receiving 96.6 percent of the votes cast.

In 2015, Harrison was paid a base salary of $2,803,522, stock awards of $4,749,089, options awards of $5,163,279, non-equity incentive plan compensation of $6,002,537, and other compensation of $1,184,026. All figures are in Canadian dollars.

Trains reported that Harrison’s base salary is high because he had to forfeit $1.5 million in annual CN pension payments in order to take the job at CP. Harrison was the CEO of CN before joining CP in June 2012.

In a proxy filing, CP asserted that by subtracting the pension makeup payments, Harrison’s base salary is $700,000, which the Calgary-based company said is “significantly below his prior salary at CN, industry norms, and CEO salaries in CP’s comparator group.”

The proxy filing justified Harrison’s pay package by saying that under his leadership CP has transformed from the industry’s worst financial performer to among its best.

“Although Mr. Harrison’s total compensation is much higher than his peers, the return to shareholders during his tenure is equally impressive,” CP said, adding that during Harrison’s tenure as CEO that CP added $14.2 billion in total additional shareholder value.

Fritz, who became CEO of UP in February 2015, earned a salary of $966,000, a bonus of $2 million, stock awards of $3,600,488, option awards of $2,400,008, change in pension value and deferred compensation earnings of $980,911, and other compensation of $139,220.

Ward of CSX had a base salary of $1.2 million, stock awards of $7,064,833, non-equity incentive plan compensation of $864,000, and other compensation of $80,728.

Squires took over as NS CEO on June 1, 2015, and was paid a base salary of $837,500, stock awards of $1,625,268, option awards of $4,375,050, a change in pension value and deferred compensation earnings of $1,036,596, and other compensation of $115,151.

Starling at KCS pulled down a base salary of $900,000, a bonus of $326,669, stock awards of $5,529,963, option awards of $551,195, non-equity incentive plan compensation of $468,000, and other compensation of $124,683.

CN’s Mongeau received a base salary of $1,075,000, an incentive bonus of $1,290,000, performance share units of $3,256,065, and stock options worth $2,144,000.