OMAHA, Neb. – Union Pacific will write off half the value of the aborted hump yard it was building in Hearne, Texas, the company said in a regulatory filing on Friday morning.
UP in April 2019 stopped construction of the $550 million Brazos Yard, which the railroad had described as the largest single capital investment in its history. UP will take a fourth quarter non-cash impairment charge of $278 million related to the Brazos Yard project.
“The company has made the strategic decision that investments made to date will be used for freight car block swapping activities, rather than proceeding with additional investments required to complete the freight car classification yard,” UP wrote in its filing. “While the company’s long-term growth outlook in the Southern region of its network remains unchanged, the implementation of Unified Plan 2020 has created capacity at existing facilities to effectively handle that growth.”
Under UP’s Unified Plan 2020 – Omaha’s version of Precision Scheduled Railroading – the railroad has reduced the number of times cars are switched en route, which has freed up yard capacity.
“We’ve fundamentally redesigned the network,” CEO Lance Fritz said last month. “We’ve taken a lot of touches out of our network. There’s about one-third fewer train starts for the same type of volume. There’s about one quarter to one third fewer touches of a car for the same volume of manifest business.”
UP also is expanding Englewood Yard in Houston, where on Dec. 29 crews installed a new master retarder as part of a broader plan to boost the hump’s processing capacity. The yard, which currently classifies about 2,700 cars per day, aims to handle 3,000, UP says.
Merchandise traffic is growing on the Gulf Coast, thanks in part to rising petrochemical and plastics production fueled by low-cost natural gas. Cross-border traffic with Mexico also is growing.
Before adopting PSR, UP said it would need Brazos Yard to help handle growth in the Lone Star state. The yard’s strategic location at the junction of seven main lines makes it an efficient place for trains to swap blocks bound for different destinations across the UP system.
UP’s regulatory filing also announced preliminary fourth-quarter financial results, including a 4.8% decline in operating income compared to a year ago. The railroad’s operating ratio was 61%, or 55.6% when adjusting for the impact of the Brazos impairment charge.
The 55.6% figure is a 4.1-point improvement from the fourth quarter of 2019.
Video: A Bird’s Eye View of the Brazos Yard Construction Site
