How effective were UNP's cost controls in 2023?

Union Pacific's (UNP) cost-control efforts in 2023 were somewhat effective in managing operating expenses, but they were also influenced by factors beyond direct control, such as fuel prices and volume declines. 1. **Impact on Operating Expenses**: UNP's operating expenses decreased by 4% year-over-year in the third quarter of 2023. This reduction was partly due to lower fuel costs, which dropped 18% year-over-year in the first nine months of 2023. The company's efforts to control costs, such as reducing fuel expenses and managing compensation and benefits, seem to have had a positive impact. 2. **Operating Ratio Improvement**: The operating ratio, which measures operating expenses as a percentage of revenues, deteriorated by 350 basis points year-over-year to 63.4% in 2023. However, the operating ratio improved by 170 basis points from the previous quarter, indicating a short-term positive trend. 3. **Challenges and Limitations**: Despite these improvements, UNP faced challenges such as inflationary pressures and a softening demand environment, which affected revenue and volume levels. These external factors can limit the effectiveness of cost-control measures. Additionally, the company's reliance on share buybacks for growth, as highlighted by Brandon Bell, raises questions about the long-term sustainability of its financial strategies. 4. **CEO Transition and Strategic Changes**: The appointment of Jim Vena as CEO, who has extensive operating experience, suggests a strategic shift towards enhancing efficiencies and services. This change could presage a more proactive approach to cost management and operational improvements in the future. In conclusion, while UNP's cost controls in 2023 showed some effectiveness in reducing operating expenses and improving the operating ratio, they operated within a complex environment of declining revenues, inflationary pressures, and strategic shifts. The company's future performance will likely depend on its ability to navigate these challenges and sustain cost-control efforts amid fluctuating market conditions.