Vena’s growth formula at Union Pacific: Great safety plus operations and service excellence

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LAGUNA BEACH, Calif. – New Union Pacific CEO Jim Vena says his strategy for the railroad is a simple one: Grow through great safety and excellence in operations and service.

Vena, in his first public remarks since becoming chief executive last month, told an investor conference today that UP wants to grow with its customers. “How do you get the growth? Great safety, operating excellence, and service,” he says.

“As a railroad, safety has got to be the foundation of everything we do. We want to be the best in the industry. We’re not there yet,” Vena says, noting that UP needs to take safety to a new level.

The Federal Railroad Administration last week questioned UP’s car and locomotive inspection and maintenance practices following focused inspections conducted in July and August. Vena assured the FRA this week that the railroad is committed to running a safe railroad.

Vena, 65, addressed why he wanted to return to UP after serving as its chief operating officer in 2019 and 2020. “You’d have to be a little bit on the crazy side to want to become the CEO of a company that did not have the opportunity and did not have the chance to win and did not have the basic network to be the best in the industry,” he says.

Vena said that when he was chief operating officer, he quickly made operational changes because there was a lot of low-hanging fruit to be picked, including closing hump yards. Don’t expect the same pace of change now, he says.

“But the opportunity is there. So I came back to work,” Vena says. “We’re going to be the best in service, operational excellence, and safety. And that’s the road we’re on.”

UP’s operations and service suffered in 2021 and 2022 amid widespread crew shortages that prompted shipper complaints, an emergency service order from the Surface Transportation Board, and two days of hearings last year about the unprecedented level of embargoes the railroad used to manage congestion.

Vena was asked what changed in the two years he was away from the railroad. “When you’re operating the railroad, you don’t make one big mistake normally and you cause yourself to impact the system and you slow down, and then you can’t provide the service,” he says. “What happens is you make a lot of small mistakes. And if you make small mistakes, they come back all of a sudden and add up and you wake up one day and you go, “Wow.’”

Vena expressed confidence in the UP operations team and the leadership of Eric Gehringer, executive vice president of operations.

“We’ll see an improvement in the service, an improvement in operational excellence, improvement in safety – and that’s the goal for the company,” Vena says.

Service, he says, should be defined by promises UP has made on a customer-by-customer basis rather than a systemwide trip-plan compliance metric. The best operational metric to watch, he says, is car-miles per day, a “no fluff” measure that begins when a customer releases a car. The metric should be over 200 miles per day.

“We’re going to grow and we’re going to grow by having great service. And customers have to trust us,” Vena says. “Well, that doesn’t turn around overnight. We need to show them that we can be resilient and if something happens we recover.”

An encouraging sign, he says, was the railroad’s quick rebound from flooding that damaged key routes in Southern California after being hit by tropical storm Hilary last month.

UP also needs to get closer to its customers, Vena says. He recalled visiting a big customer early in his career at Canadian National. The railway’s trip plan compliance for that customer was high, Vena says, so he thought he had a good story to tell when seeking a higher rate.

“He stopped me. And I can’t say exactly the sentence he said in public. But he basically told me, ‘WTF? What are you talking about? Your service to us is awful,’” Vena says. “So we need to develop the relationship to truly understand the business, and then we can grow. The business is out there.”

The railroad also needs to make decisions much faster, Vena says. A shipper pulled the new CEO aside at a recent customer forum and explained that his firm was hoping to build a new spur, but UP officials had told him it would take 18 months to reach a decision about serving it.

“It was somebody who wanted to bring a whole bunch more business onto our railroad,” Vena says. “I hate to tell you … three days later we had the answer: Build it and we’ll be there to serve it.”

UP is pushing decision-making down to the local level, where decisions can be made faster by people who are closer to and more familiar with local operations, Vena says.

UP has long had a 55% operating ratio goal – something Vena did not mention and which was absent from the railroad’s 68-slide presentation for the investor conference.

“If you concentrate on O.R. as the driving force of what you do and the decision making, then you’re making a mistake,” Vena says. “O.R. … is a result of what you do. It’s a result of having service, and having operational excellence, safety. But it’s also a result of making sure that you grow your business because there’s nothing better than growing the business.”

Vena did say, however, that UP should have industry leading profit margins.

It was not clear if UP still has a long-term 55% operating ratio goal. Asked if the 55% goal has been dropped, a spokeswoman replied that “our goal is to be industry leading in every metric, and, specifically, in safety, service, and operational excellence.”

Vena spoke at the Morgan Stanley 11th Annual Laguna Conference.