Coal and the Railroads: Partners in Growth Thank you Guy. I was extremely pleased when you invited me to talk here today about coal and railroads and their partnership in growth. Coal and its vast potential is a subject that has always fascinated me. As a young man growing up in Kentucky, I was well aware of the importance of coal to the people and to the economy of our eastern states. This awareness has continued to grow throughout my business life and particularly since I joined Union Pacific Corporation. At Union Pacific, coal is one of our most important business segments. Through our Rocky Mountain Energy subsidiary, we are coal miners, and we Own a great deal of coal. Coal is also one of the most important commodities that we haul on our railroad. And, through our land development company, Upland Industries, we also are participating with a West Coast port in planning for a major coal terminal. The coal industry has been on the threshhold of a very bright future for a number of years really since 1973 - when OPEC began raising the price of oil and gave us a competitive price advantage. Yet, we have not been able to cash in on this advantage because of a number of restraints placed on our customers and our industry. -2 One restraint has been the growing number of complex and burdensome regulations with which you are all so familiar. These have been the subject of an enormous amount of your Association's efforts, and I expect you share my view that your work in this area should begin to have a positive effect in the immediate future. But, for these efforts to have their most beneficial effect, we will have to overcome a second major restraint the failure to develop a sound national energy policy. During the past ten years, we have had a number of starts, stops and changes in direction. But a return to marketplace economics, a clearly stated Reagan Administration goal, will hopefully avoid in the '80s the mistakes and indecisions of the '70s. I like what I see of this Administration's programs. The Reagan Administration is determined to create an atmosphere in which business can function effectively and by so doing bring solutions to our long-term economic problems. And let there be no doubt about it. We do face some very serious economic problems. Throughout the 1970s, our country had the unenviable distinction of ranking last among the world's major industrial nations in terms of percentage of GNP reinvested in plant and equipment. While we invested a little more than 10 percent of GNP on plant and equipment, Japan was investing 17 percent and West Germany 12.6 percent. Is it any wonder that -3 those countries achieved a 5.2 percent annual increase in productivity, as we slogged along at a 2.3 percent pace? In a world that has grown increasingly interdependent, we clearly cannot afford to let our competitive advantage continue to erode. The Reagan program of reducing government spending, lowering taxes, keeping a tight rein on the money supply and lightening the burdens of regulation provides hope that we can extricate ourselves from our current economic plight. We, as businessmen, should continue to give this program our hearty endorsement. And our commitment must be in the form of both word and deeds. Business will probably never have a better opportunity to show what it can contribute to America's well-being. We must be willing to make major investments to modernize plant and equipment and to improve productivity. We must prove anew that we are the nation's primary source of jobs and prosperity. If we are too timid, we will not only miss significant opportunities. We will run the risk of souring a favorable political climate and once again strengthening the hand of those who feel, erroneously, that an active, assertive and intrusive government is the key to a successful economy. Coal, of course, will have an important role to play in a revitalized American economy. In the near term, coal's greatest opportunity is in overseas markets. A major build-up in coal exports is already under way, and, over the next two decades, we expect coal to become one of America's -4 most important export commodities. Domestic usage of coal should also increase rapidly during the mid-to-late 1980's. However, just how bright coal's future is going to be - is dependent, among other things, on our ability to clear three hurdles that block our path. First, the need to develop adequate coal export terminals on the East and West Coasts and the need for strong transportation systems to move coal from the mines. Second, the need for a clear national energy policy, including the need to reform unnecessary and costly government regulations. Finally, the need for policies that ensure a financially strong and growing domestic electric utility industry. Let's look at these three hurdles in detail. I believe, expect coal demand to grow rapidly in both Europe and the Far East particularly steam coal. Union Pacific's analysis projects that Europe's steam coal import needs will reach 125 million tons in 1985 and 200 million tons in 1990 - significantly up from 75 million tons imported in 1979. We expect the Pacific Rim countries, led by Japan and Taiwan, to import 50 million tons in 1985 and 100 million tons in 1990 compared with their 1979 imports of less than 20 million tons. The degree to which U.S. coal producers will be able to share in this buildup of European and Asian demand will depend, to a large extent, on the adequacy of our coal terminal port facilities. There is no question that the Federal government through the Corps of Engineers and permitting processes -5 has an important role in the development of ports to move coal to foreign utilities. However, we in the coal and railroad industries have strong common interests and equally important roles to play. More than two-thirds of all coal mined in the United States is carried by rail and the rail system must keep up with the expected growth in coal traffic. Coal is far and away the railroad indústry's largest commodity, accounting for approximately one-third of total tonnage and roughly one-sixth of total freight revenues. To accommodate growth in coal traffic, the rail industry has embarked on a major capital spending program. Over the last five years the industry has spent more than $2 billion to purchase open top hopper cars, which are primarily used to haul coal. And, to simplify handling, we have greatly increased the use of unit trains, which now haul 54 percent of all coal carried by American railroads. In the last five years, the railroad industry also has laid more than 3,000 miles of new, heavy duty rail, much of it designed to accommodate our growing coal traffic. And, at Union Pacific, this year we embarked on the largest track maintenance and improvement program in our history. This program is primarily aimed at strengthening our westbound lines so that they can accommodate growing shipments of coal to West Coast ports. We have also taken the initiative to improve our participation in coal movements out of the southern Powder River Basin. Last month we reached agreement with the |