Pacer Strikes New UP Deal

Pacer International, seeking to settle a contracting issue central to the company's intermodal business, announced Tuesday it reached a multi-year agreement with Union Pacific Railroad for new rates and conditions for the movement of domestic 48- and 53-foot containers on the UP network.

The new pact covering domestic "big box" freight will supersede the rates, terms and conditions of Pacer's existing contract with UP that was scheduled to expire on Oct. 11, 2011.

At the same time, the rates and terms of Pacer's existing contract with UP for North American freight — seen by many industry observers as a key strength for Pacer in the intermodal market — will remain in effect until Oct. 11, 2011. UP will continue to offer Pacer an exclusive position on the UP network for its third-party international products, although the rates and terms of the contract will change after October 2011.

Pacer's contract with UP to carry intermodal containers is one of the longest-operating arrangements in the North American rail network.

Pacer's announcement came with its release of third quarter financial results that showed the company's net profit declined to $600,000 compared to $20.8 million in the third quarter of 2008.

The lucrative contract with UP for international intermodal freight that dates back to the early 1990s is believed to give Pacer a 20 percent-plus discount compared to overall intermodal market rates in the industry, according to transportation analyst Ed Wolfe. Pacer officials will not comment on the terms of the contract.

Maintaining a close working relationship with UP assures Pacer a strong position in U.S. intermodal operations.

"This is a significant positive development for Pacer and our customers," said Michael E. Uremovich, Pacer's chairman and CEO. "The direct beneficiaries of the arrangements are companies seeking door-to-door intermodal services who demand a higher degree of service delivery integration and greater efficiency."

As part of the agreement, UP will pay Pacer $30 million to resolve issues relating to equipment, lost business and changes in rates. Pacer will use the $30 million to reduce outstanding debt under its revolving credit facility, Uremovich said.

Also, the agreement will provide a more efficient equipment model through a fleet-sharing arrangement.

Although Pacer's revenue for the third quarter fell nearly 25 percent compared to the third quarter of 2008, to $418.7 million, the company did show a slight profit. "We are very pleased with our progress and return to profitability in the third quarter given that the transportation markets and overall economic conditions remained extremely challenging," said Brian C. Kane, chief financial officer.

—By Bill Mongelluzzo