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Three years after melting down, Union Pacific is back. Welcome to the biggest, baddest railroad in the world.
MILE AFTER LONESOME MILE, as Union Pacific train SCBHO, an office-car special, trundles down the former Southern Pacific "Rabbit" line from Shreveport, La., to Houston one autumn morning, people aboard can't help but notice what isn't there: trains. Every siding is empty. It's as if a neutron bomb had left untouched the tracks, the lumber-mill villages, and the piney woods of East Texas, but taken away the traffic you'd expect to meet on a busy railroad artery.
The trains are there, all right-you just can't see them. Like the SCBHO, they're all headed south, as part of the most ambitious one-way migration U.S. railroading has yet witnessed. That you can't see this parade because you're part of it means the plan is working wonders.
The Rabbit,nicknamed for its undulating profile, is a metaphor for the Union Pacific. Expectations have remained low since UP bungled the integration of rival SP following the $4.1 billion purchase in 1996. Not much is happening, goes the prevailing wisdom. If that's your mindset, then be on notice: The eagle has landed. Union Pacific is once again acting every bit the biggest and most powerful railroad in North America, and therefore, the world.
In case you hadn't noticed:
*Finances. The railroads profits have climbed steadily from their nadir of $27 million in 1998, and were on track in 2000 to top $1 billion, handily surpassing the pre-crisis record set in 1996. This is in spite of the devastating impact of higher oil prices. UP burns 1.3 billion gallons of diesel fuel a year and stood to pay $450 million more in 2000 for it. In any event, internally generated cash once again finances UP's ambitious capital spending, which through thick and thin has remained at the $2 billion-a-- year level. In 1998, capital outlays to expand capacity were paid for primarily by taking on debt and issuing new securities-a state of affairs that couldn't have lasted long, and didn't.
*Physical plant. Union Pacific plus Southern Pacific equals a magnificent route structure, on paper. Now, after four years of capacity additions and infrastructure improvements, you can begin to see the difference.
The El...