View 2008 Fact Book - Union Pacific

Mexicofor all commodities are expected to decline, especially those tiedto the auto industry. The slowdown in automotive productionis likely to have a negative impact on the chemical business,specifi cally plastics and similar products. Increased Mexicanconsumption of domestic crops and a lower count of animals onfeed should reduce agriculture exports to Mexico. Additionally,housing market conditions signifi cantly affect volumes of clay,sands, tile and other construction materials to and from Mexico.However, UP could experience some positive volume offset inconstruction materials later in 2009 due to demand resulting fromstimulus-funded infrastructure projects in the U.S. and Mexico.While existing economic conditions call for a conservative 2009outlook, UP remains optimistic about the longer term. Currentstrategies focus on new business development and core priceimprovement. These strategies, in conjunction with maintainingan effi cient and fl uid network, support an expectation of retainingcurrent business and potentially generating growth. Foreigninvestment in Mexico is forecast to continue throughout 2009and the current outlook suggests that markets such as the“maquiladora” industry, renewable energy, steel and coal shouldtrend upwards.Concern about the Mexican political climate is due primarily tothe government’s escalated efforts against drug-related crimes.Bernardo Ayala,VP Mexico MarketsHow has your team adjusted to the current economicsituation?Several aspects of UP’s unique franchise should help UP weather thecurrent economic situation. Among them are a strong and experiencedsales force strategically based in different areas of Mexico and theU.S., a fluid and efficient network and service-oriented processes thatdeliver high customer satisfaction levels. With these key elements inplace, the Company can successfully take on the current challenges,retain its existing customer base and continue growing the business.What is the biggest opportunity in your business group overthe next 2 to 3 years?Mexico is still a strong target for Foreign Direct Investment. Existingindustries are expanding capacity and building new facilities. Inaddition, the Mexican railroads continue to upgrade and add capacityto the current infrastructure to improve rail traffic handling. Therefore,as markets develop, UP can leverage its value proposition and serviceoffering to capture new business.However, rail operations across the border remain fl uid. It appearsthat the Mexican government will continue waging a strongcampaign against drugs. The U.S. government supports theseefforts, as demonstrated through plans such as the “MeridaInitiative”, which seeks to reduce growing drug traffi cking and othercriminal activities on the two countries’ mutual border.Percent of Carloads at Border CrossingsCalexico (2%)Nogales (12%) El Paso (7%)Eagle Pass (21%)Laredo (54%)Brownsville (4%)FXEFXE Trackage on KCSMKCSMKCSM Trackage on FXEFSRRCoahuila DurangoChiapas MayabShort Lines29