The appetite of corporate America for better productivity hit Wednesday in Omaha, when Union Pacific a member of the Fortune 500, announced it would be cutting 750 jobs, of which most are at its Omaha headquarters.
The second biggest U.S. freight railroad announced that the cuts would include 500 in administrative and management and approximately 250 hourly workers. The job cuts will take place by the middle of September to lower costs at Union Pacific, which is in the middle of an efficiency drive.
Union Pacific is echoing other large American, blue chip companies, which, despite strong profitability, made the determination that more can be accomplished with less.
Over the past few months, Nike the sports apparel maker, General Motors the carmaker, and Kraft Heinz a food maker announced job cuts of a significant nature. None of them are in any danger of losing any money.
As for Union Pacific, which posted net income during the first half of 2017 of more than $2.2 billion, or up 14% from the same period one year ago, it was due to not a sufficient amount of people leaving voluntarily according to CEO Lance Fritz.
For some time, Union Pacific has leveraged attrition of employees and technology to lower administrative and general costs, said Fritz. However, he added attrition by itself will not maintain the pace with the need and the ability to lower costs.
The cuts will represent approximately 8% of the salaried employees at the company and lower costs annually of $110 million.
The plan being put into effect has a cost of $90 million, including severance pay as well as pension benefits plus other expenses of $15 million.
Union Pacific’s cuts were approved by Wall Street as shares of the railroad increased 1% on Wednesday to end the day at $106 per share.
Shares of Union Pacific have increased over the last year by 15%, outpacing gains across the broader market.
Part of the appeal of the railroad’s decision to investors is the efficiency moves made by the company.
The railroad, which trails just BNSF Railway a rival in the freight train industry located out west in size amongst the seven large railroads that are cargo-carrying, has been the proponent for linking more cars together into trains that are much longer.
Those types of maneuvers lower manpower requirements and costs.
Executives at Union Pacific have explained over the past few years about the company goal to lower its operating ratio which is how much of one dollar of revenue is spent on expenses.