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Union Pacific Corporation
1400 Douglas Street
Phone: (402) 544-5000p:402 544-5000 OMAHA, NE  68179  United States Ticker: UNPUNP


Cash burn Wildfires and 'violent' weather leave US railroad giant facing $100m bill


The financial impact of wildfires and heavy rains on the Union Pacific railway so far this year could top $100m, with intensifying effects of climate change having brought cascading disruptions to the company's 32,000- mile network.

"It's real money. It's a real impact," chief executive Lance Fritz told the Financial Times. "Weather is becoming more violent and we see that."

Union Pacific is North America's largest listed freight rail operator, serving cities as far east as Chicago and New Orleans and as far west as Seattle and Los Angeles. The group took $19.5bn in revenue last year.

Much of the US west has been in drought this summer, with bouts of roasting temperatures. California may experience what used to be oncein-a-decade wildfires almost every other year, scientists have said, because of more extreme heat and drier conditions.

The fires on the west coast forced Union Pacific to reroute trains through Salt Lake City, Utah, requiring labour, equipment and locomotives to be redeployed from elsewhere at a time of deep strain in global supply chains.

Wildfire risk also snarled railways in Canada in July, when the transport ministry halted service for two days in parts of British Columbia and cut speeds nationally when certain temperatures were reached. Local media reported fire damage to a Canadian National rail bridge in Lytton, BC.

North American railroads have always been vulnerable to severe weather including extreme cold, snowstorms and hurricanes. However, in some cases these are intensifying in power and precipitation.

Wildfires were "just an annoyance", said Rick Paterson, an analyst at Loop

Capital, "but in 2021, for the first time ever, because of climate change, they're now in the mix in terms of serious threats to operations", affecting every part of a rail operator's cost structure.

The effects of climate change on railways would be an afterthought to investors until there was a meaningful impact on companies' revenues and profits or typical seasonal weather risks were reshuffled, said Chris Wetherbee, an analyst at Citi.

Fritz said Union Pacific was taking protective measures such as raising tracks out of flood plains, installing bigger culverts to ease the flow of water and working to get better weather predictions. But there might be "a limit to how proactive [railways] can be in terms of climate resiliency", said Paterson. "They're always under pressure from Wall Street about spending too much money." See Lex


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Tuesday, October 26, 2021