Ratings on Union Pacific Corp. reflect the favorable risk characteristics of the U.S. freight railroad industry, the company's strong competitive position within the industry, and its moderate financial policies. Offsetting these strengths, to some extent, are price competition from other railroads and trucking companies in selected commodities, the capital intensity of the industry, and subpar (albeit improving) operating performance. Union Pacific operates a large rail network, which covers 23 states across the western U.S. It has a well-diversified traffic base, consisting of energy (largely coal, 20% of revenues); industrial products (22%); intermodal (19%); chemicals (14%); agricultural products (15%); and automotive (10%). Union Pacific began experiencing network inefficiencies in late 2003, in large part due to stronger-than-expected demand and capacity constraints.
