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Union Pacific Update from Eric Butler, Exec. Vice President Marketing & Sales

To Our Customers,

As we wrap up the first half of 2014, I want to update you about our performance and outlook for the remainder of the year.

Through June, our volume was up 7 percent over 2013. We saw gains in five of six business groups with particularly strong demand in Agricultural Products, Intermodal and Industrial Products. Last year’s grain harvest, combined with record ethanol production in the first half of 2014, drove growth in our Agricultural Products business. In Intermodal, demand for our domestic intermodal service was strong, and we saw international intermodal demand as shippers advanced freight ahead of the July expiration of the International Longshore and Warehouse Union agreement. Growth in our Industrial Products business was driven by frac sand used in shale exploration and by rock and cement shipments to support strengthening construction markets. Overall, demand was solid across our franchise for the first half of 2014.

From a service perspective, the unusually severe winter caused a rough start to the year. In response, we activated our surge resources and leveraged our franchise by using alternative gateways and terminal capacity. Since last fall, we have added more than 800 locomotives to our active fleet, and we have recalled about 800 people to our Train, Engine and Yard (TE&Y) workforce. We will add more resources in the second half of the year by doubling our TE&Y hiring plan and increasing capital expenditures by $150 million to a record $4.1 billion for 2014.

As a result of the resource additions, we saw a healthy rebound in service in April and May while handling increased volume. Unfortunately, June brought a series of events that disrupted our network; in fact, we had impactful disruptions on 28 out of 30 days in June. Most notable was the flooding that severed multiple key corridors in late June, including our East-West mainline, and impacted service into early July. These interruptions impeded our ability to generate the improvement we had anticipated. The good news is our velocity rebounded in the second half of July.

As we look forward to the remainder of 2014, we are hopeful that the economy will continue to strengthen, and we anticipate strong demand from many of our customers. We are working hard to restore the service you expect from us, and we expect to see steady improvement during the remainder of the year. We appreciate your patience while we have worked through the many service challenges this year.

Our focus will always be on providing value to our customers. We know our success comes from your success, and we want to continue to be a strong partner in helping you achieve your goals.


Eric Butler Executive Vice President - Marketing and Sales

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