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Lingering network congestion problems and rising fuel costs took a large bite out of Union Pacific Corp.'s third-quarter income despite record operating revenue of $3.1 billion. Today, the company reported quarterly income from continuing operations and operating income of $202 million and $418 million, respectively, compared with $300 million and $592 million in third-quarter 2003.

UP's quarterly operating expenses rose 8 percent to $1.1 billion and operating ratio worsened 6.4 points to 86.4 compared with third-quarter 2003. The Class I paid an average quarterly fuel price of $1.25 per gallon compared with $0.90 last year. And, although the railroad increased train speed 0.5 mph in the third quarter compared with the second quarter, velocity dropped 1.1 mph compared with third-quarter 2003.

"One fact that stood out clearly this quarter is that Union Pacific, and the entire rail industry, is experiencing unprecedented levels of demand," said UP Chairman and Chief Executive Officer Dick Davidson in a prepared statement. "Unfortunately, operational challenges associated with these record volumes and our resource shortages are preventing us from making the most of this increasing demand."

During the year's first nine months, UP increased operating revenue 5 percent to $9 billion compared with similar 2003 data. Commodity revenue rose 5 percent to $8.6 billion, revenue carloads increased 3 percent to 7 million and average revenue per car rose 2 percent to $1,221.

However, UP's nine-month operating income fell 29 percent to $1.1 billion, net income dropped 49 percent to $525 million, operating expenses rose 12 percent to $7.9 billion and operating ratio worsened 5.9 points to 87.9 compared with last year.

"We are focused on making improvements and we continue to believe the resource plans that we are implementing will make a difference," said Davidson. "As fluidity to the network is restored, our follow-on challenge will be to improve efficiency and profitability while providing quality service to our customers."