Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

That is the 5 for 5 time I've not hit the unmute button. Sorry about that. But let's go ahead and get started with the next presentation. So this morning, I'm really excited to have Union Pacific with us. So joining today is Jennifer Hamann, the CFO. We also have Brad Stock, the AVP of Investor Relations with us. So for those of you who may not know me, I'm Tyler Brown. I'm the senior analyst here at Ray J. So I've been covering the transports and as well as the environmental services sector. So I have quite a bit on my plate. So Jennifer, this is a generalist conference. That's kind of our ethos, that's what we've been focused on over the years. I think a lot of people do know Union Pacific and a little bit about who you are. But I was hoping that we could maybe get a few comments upfront. Just again, just a little bit about UP, the franchise, maybe where you sit strategically and maybe the strategy longer term. We do have about 40 minutes for some Q&A, maybe on the back end or depending on how long we go up here in the front. And then if anybody has any questions, you can submit them directly to me via e-mail or I think you can use the Q&A function through Zoom. So with that, Jennifer, I will turn it over to you, and then we'll kick off some fireside chatting.

Okay. Well, thank you, Tyler, and good morning to all of you virtually. Before we start, I do want to call attention to our updated Pitchbook, which can be found on our investor website next to this webcast event link as my opening comments will reference the material found in that slide deck. Additionally, I would like to remind everyone that I will be making some forward-looking statements and that these statements are subject to risks and uncertainties and so please refer to the UP website and SEC filings for additional information about our risk factors. Understanding that many investors watching today may not be as familiar with UP, I thought I'd start with a quick overview of our company. The Investors page on the UP website is a fantastic resource for information on our company. There, you can find our latest sustainability report, recent investor presentations and historical fact books. If you look at Page 7 of the pitchbook that's available there, you can see the reach of our rail franchise really is the strength of our company, and we believe it sets us apart from our peers. And with the implementation of Unified Plan, our version of Precision Scheduled Railroading, which we kicked off in the fall of 2018, we believe we're positioning ourselves to better leverage that franchise strength. Our diverse network of 32,000 route miles covers 23 states in the Western U.S. and provides access to a wide variety of markets, supporting a balanced mix of 3 strong business groups and over 10,000 customers. From strategically located manifest terminals to an extensive system of automotive distribution centers and intermodal terminals as well as the unparalleled access and port coverage along both the West and Gulf Coast, we are positioned to compete in the markets that are available to us, not only today but also in the future. Additionally, we have the industry's best access to Mexico with border crossings at all 6 major gateways, the only railroad that can claim that. And our cross-border trade with Mexico continues to be a long-term growth opportunity for UP. And even though we have a 26% ownership in the FXE, one of the Mexican railroads, when you look at our business coming into and out of Mexico, it's actually fairly evenly split between the 2 Mexican rails. The strength of that franchise and the resiliency of our new operating model were demonstrated, we believe, by our strong 2020 performance amidst the impact of the pandemic. In full year 2020, our volume and revenue declines of 7% and 10%, respectively, were mitigated by $780 million of productivity and solid core pricing to produce an all-time record adjusted operating ratio of 58.5%, while our adjusted operating income declined only 5% during the year to $8.1 billion, and our comparable cash conversion rate improved to 101%. So very strong results despite tremendous adversity. Turning to 2021. I think I should provide a little commentary on the extreme winter weather that impacted a significant portion of our network. We had heavy snow in the PNW, snow and arctic temperatures across the Midwest and then snow and ice across Texas, Arkansas and Louisiana that had a significant effect, not only on our operations, but that of our customers. The most significant impact to our network was the challenges that those storms created in the South, where icy roads, lost power and water issues made operations difficult. Navigating crews to trains, finding lodging for the crews that had electricity and water and then generating power for our facilities all added complexities. I'm pleased to say, though, that as we sit here today, the network has largely recovered. And overall, we're in pretty good shape. If you look at our system metrics, which tend to be a bit of a lagging indicator, as of yesterday, our weekly average freight car velocity had increased back over 200 miles per day, and our 7-day carloadings for the past week rebounded to over 150,000 as well. Ultimately, these weather situations, like all weather events are transitory for us. Our operational performance through PSR demonstrated itself again in how quickly we recovered to the weather. And to us, it represents another example of success that only deepens our conviction in PSR as the right operating model for Union Pacific. As you might expect with these events, we have incurred a few additional expenses primarily related to crews and crew support and also some increased car hire as the network slowed down a bit. And you've seen this impact in our volumes in the weekly numbers. At this point, we believe most of that volume is deferred, but as March plays out, we'll get a better sense of that. One thing we're watching is how quickly some of our customers in the Gulf Coast region are able to restart production. We've got about 30 days left in the quarter. And right now, our first quarter volumes are down 5% overall. So we are removing our previous first quarter guidance of low single-digit volume growth. We're going to take that off the table today. Setting aside the weather impacts, our premium business has shown growth in intermodal due to e-commerce and restocking, and we anticipate the typical March volume drop associated with the Lunar New Year to be more muted than it has been in prior years. However, within our premium line, automotive is still down as we continue to see the impact of the semiconductor chip shortage. At this point, our expectation is that auto production will be recovered through the course of 2021, but that's something else that we're watching closely. Strength in export grain continues to drive the recovery we've seen in our bulk business, offsetting continued declines in coal. And even prior to the storm impact, our industrial volumes were continuing to improve sequentially but still down on a year-over-year basis. Strength in forest products driven by a strong housing market and growth in industrial chemicals and plastics, driven by our strong plastic franchise, were being more than offset by the continued challenges in the energy markets if you think about crude by rail and frac sand. So while we're pulling back that first quarter volume guidance, a few cold weeks doesn't dictate the outcome of the full year. So we are maintaining our full year guidance. We still expect full year volume growth of 4% to 6%, and with that outlook includes the impact of the ongoing coal and energy market headwinds. Productivity, we expect to be roughly $500 million in 2021, and our long-standing pricing guidance is unchanged. We expect total dollars generated from our pricing actions to exceed rail inflation costs. And with those assumptions for volume, price and productivity, we expect to be in the range of 150 to 200 basis points of operating ratio improvement in 2021. Longer term, our view for capital is that our capital expenditures will be less than 15% of revenue. We're talking a dividend payout ratio of 40% to 45% and ultimately reaching a 55% operating ratio. Finally, we did announce last week that we're planning an upcoming virtual Investor Day on May 4. So please look for details on that coming in the future. So with that, Tyler, open it up to your questions and those from your audience.

Yes, great. Yes, looking forward to the Analyst Day coming up. But let's talk a little bit about -- it sounds -- and I think the message here is that there's obviously some transitory issues with the weather and such. It sounds like maybe it's going to affect Q1. But generally speaking, you're expecting some of that volume to get repicked back up. But the real message here is that while it may be a Q1 impact, it seems like the full year is still intact.

Yes, Tyler. I mean, it's a couple of weeks that certainly created some operating challenges for us. And you see that. I mean there's a lot of public disclosure about our company and the rail industry in general. On a weekly basis, you get a view to what our carloadings are. You see our operating metrics. And so clearly, in the last couple of weeks, you have seen the impact in those numbers. But I think you're seeing it bounce back. We're definitely seeing it here, feel very good about the trajectory of the recovery and look forward to making up that lost ground. But with some customers still out around the Gulf Coast region, it just feels like the volumes are probably going to end up being a little softer in the first quarter than we would have otherwise thought.

Right, rightfully so. So -- and I want to -- we're obviously going to try to get into PSR and that journey. But I am curious. So when we think about PSR and really the -- bringing nimbleness to the network, so to speak, does it -- do you feel like it really helped you manage through situations like, say, Arctic blast like this or maybe a hurricane often to the future? Do you feel like that PSR muscle is really kind of important in these recovery efforts?

I absolutely do, Tyler. When we first started implementing PSR, we got challenged right out of the gate with the flooding that we experienced in March of 2019, where our east-west main line was severed for, I think, 10 or 11 days. And I remember very vividly being in a conference room with the operating team, whole senior management talking about what's the recovery trajectory look like and how are we going to climb out of this. And we were talking about it in terms of a months-long recovery. And we very quickly said, no, that's not acceptable. How is PSR going to let us do this differently? We talked about some different operational moves that we could make with PSR. And in fact, we recovered in weeks. And that was one of -- what I would call one of the very first proof statements we had with PSR, and it was critical to not just helping our customers see that we were different, but also helping our employees see and help with that cultural adoption because PSR is a mindset and very much is involved in changing the mindset within the company. And since then -- you referenced hurricanes. We had, what, 3 hurricanes, I think, around the Gulf Coast last year in 2020. Now this frigid weather in the North and the colder-than-normal conditions in the South. But when you come into a situation like that from a position of strength when you're operating well, it makes it that much easier, obviously, to come out. And when you have assets that are stored that you can deploy for a short period of time to kind of kick-start the way things are moving, that makes it much easier for you to rebound. And we just think about the network a little bit differently in terms of how we prioritize the traffic, how we try to make sure that the manifest terminals stay very fluid. That's really the lifeblood for us as those manifest terminals go, so goes a lot of our other network operations. So I think PSR has very much demonstrated the resiliency of Union Pacific.

Yes. Without a doubt. And maybe if we can just, again, kind of step back into 2020. I mean you're severely impacted. I mean the entire economy was severely impacted, I mean, entire sections of the industrial economy simply went to sleep. So I am -- but by the time we got to Q4, you were kind of effectively back to, call it, pre-COVID type levels. Would you -- is that kind of a general -- pretty close?

Yes. I mean if you're talking about operating metrics, absolutely, and probably even better than we were running pre-COVID to a certain extent. But yes, running very fluidly in the fourth quarter. And started out the first quarter very fluidly until we got a few bumps in the road with the weather, but that's pretty quickly going to be in the rearview mirror for us.

Right. So -- and the volumes snapped back pretty quickly there in the back half of 2020. And again, I'm kind of curious, were you surprised with how quickly traffic did come back post-COVID -- or not post-COVID, but I guess, in the back half of 2020. Yes, yes, not quite there yet. And then could you talk about maybe...

Unfortunately.

Yes, unfortunately. Just some of the horsepower and some of the labor challenges when you just have these wildly swinging volumes?

Yes. Sure. So if you go back to March of 2020, that's when we started to see volumes really start to drop off, towards that back part of March. And then, of course, in April, that's when it felt like the world locked down. That's when the auto manufacturers had shut their plants, a lot of other manufacturing had closed down, and things just kind of came to a standstill. In the second quarter, our volumes dropped 20% year-over-year. As we look back historically, it's one of the fastest drop-offs in volumes we had ever seen. And so we played a lot of catch-up in the second quarter in terms of parking locomotives, parking freight cars. Unfortunately, we had to furlough a fair amount of our workforce because we just didn't have work for them. And then to your point, as the economy opened back up again, if you move then to the third quarter, sequentially, I think our volumes increased 18%. And so those kind of wild swings are not something that a rail network, in general, reacts well to. And things were a little choppy in the third quarter, as you might recall, particularly from an intermodal standpoint. And that's why I think our customers were surprised, too, quite frankly, in terms of how fast the demand came at them and how much that e-commerce, that parcel business really jumped as everybody started shopping from home. The consumer shifted their patterns. No, they weren't going to the local Target store, but they were going to Amazon. They were going to Target online or whatever the case may be, and it was all coming to their home doorsteps. So we had to react pretty quickly to that. And I think, kind of to your point, then in the fourth quarter, once you get through kind of some of that choppiness and just getting assets repositioned, we did have to call crews back, which was a good thing. But that -- there's a time delay in that. Once we call a crew member to come back, they have 30 days to come back on property. And so there's just some timing differentials. But in the fourth quarter then, we operated very, very well. And I think that demonstrates, again, kind of the resiliency. And we had the locomotives that we could park. And the nice thing is as the volumes came back, we didn't match it with the resources on a one-for-one basis. So we were able to leverage the fact that, hey, we're operating better. We're using a much stronger service product. We've improved our locomotive productivity. We've been continuing to during that whole time of the pandemic shutdown, working on our siding extensions. And so when we came back, we were building longer trains. And so that meant we could be more productive with that locomotive power and the train and engine base.

Right. And I think it just really comes back and I just -- to hammer home this point, I mean, this is kind of one of the big benefits of PSR. We're going to talk a little bit more about those benefits, but it's that -- it seems like it's the resiliency of the network. That's a big product, if you will, of PSR. So maybe -- again, maybe we can talk about that PSR journey. So again, this is a generalist conference. And not everybody may know even what PSR may mean. So can you just talk about, at a very high level, what is PSR exactly? How is -- you talk about a mindset change, maybe an operating model change. So can you just talk about the philosophy change over the last couple of years operationally from UP of maybe a few years ago versus UP today?

Sure. I mean I can talk about that probably for hours, Tyler. So I'm going to have to keep myself confined here. But it is very much a mindset change. So PSR stands for Precision Scheduled Railroading. What we sometimes call it here internally is pretty simple railroading. It's really getting down to the basics, and it's really about moving the assets, sweating assets and getting the most good from those assets. And when you think about the assets that we have and how we track that in the past, we used to very much have a mentality about train velocity and making sure the trains we're getting over the road in an efficient manner and really focusing on train velocity. When we moved to PSR, one of the first things we started looking at was freight car velocity. That was a metric we just didn't track in the past. But when you think about it in it's most basic element, a customer really doesn't care nor do we get charged to car hire based on how the train moves. It's really about how that freight car moves. How quickly does that freight car move from origin to destination. And so when you start looking at it from that basis, it really does change your thought process. And so where in the past, we were very reluctant to do what we call a work event where we would stop a train, either via terminal or via siding to pick up cars or set out cars, we're now much more open to do that. We want to make sure we do it in a very efficient manner. But in doing that, we can advance the cars more quickly. And that's where you've seen metrics like terminal dwell time come down considerably. We used to think that if our terminal dwell time on average was somewhere between 30 and 24 hours, that was kind of normal. That was okay. No, we want to keep those cars moving through the terminal. And that's helping us. It helps you. You need less cars to generate the same amount of carloads. That's a benefit for us, but it's also a huge benefit for our customers because if you look at our lines at any given point in time, call it, 60% of those cars are either owned or leased by our customers, not by us. So to the extent we can turn those assets, that's real savings for them. And then you look about the service reliability, how our service reliability has improved over that time frame as we have been -- again, as we move the cars more quickly across the network, that's enabling us to get those to our customers on time more readily. You've seen our manifest in automotive, those metrics, that's improved consistently in, call it, that mid-70s kind of range, which we think is a good spot for that part of our business to be. And you've seen us move our intermodal product up into the 80s. And in fact, in the month of January, I think we posted a 90. So it shows that the network is capable of, and it shows what we can do, and that's really translating itself not only into the productivity and into cost savings, but into the ability to go out and win business. And the other thing that has helped facilitate this is data and power. And so we have made changes to our transportation management. We've decentralized a lot of that. We've pushed the decision-making down, and we've given those frontline managers the tools that they need to be able to not only see what's coming at them, but then plan their day, plan how they can most efficiently move cars through the terminal. And they are all very focused on moving the cars.

Right. So a lot of -- we always get here a lot of focus on margin, cost, productivity, et cetera. And don't get me wrong, that's obviously a big part of it. But the message seems to be about car level service integrity. That's really at the heart of what you're trying to do, is put together a more reliable and a better service product, which is not something that the railroads have always been, let's just call it, known for. So...

No, unfortunately not.

Exactly. So what I am curious about is what is the feedback that you've been getting from the customers? Are they saying, "Hey, guys, this is a better product. We're seeing it in our cycle times. We're seeing it in our span of deliveries." Just a little bit about maybe what the customers are saying back to you.

Yes. So I would say it's all of those things, Tyler. PSR, unfortunately, kind of came with a little bit of a bad rap from a customer standpoint. And so when we first announced that we were going down this journey, there was a lot of consternation amongst our customer base. And so one of the things that we were very deliberate about, continue to be very deliberate about is communicating with our customers about what changes they can expect, what we think the outcome of those changes are going to be and then talking to them about how we can go through that implementation process and helping them understand the tended outcome is very important. And it's not just about I'm trying to save money here or there. Yes, those changes are driving margin improvement, as you mentioned, but also they're meant to drive a better service product. And they are seeing that. I mean they -- that's one of the things where our commercial team is talking to our customers very regularly. Going through those service reviews is a very standard part of how those meetings start. And the good news about that is, is they're able to go through that part of the meeting much quicker and turn the dialogue to how can we grow with you, how can we do more business with you. If you're not spending all your time in those conversations just trying to solve service problems, that gives you a lot more room and a lot more opportunity to talk about the future and to talk about growth.

Yes, exactly. Okay. Great. And then -- so you had Jim Vena come in who was called an understudy of Hunter Harrison at the Canadian railroads. He came in a couple of years ago. He was really a primary architect, if you will, of the change. So it sounds like he's moved into more of an advisory role here into mid-2021 and then maybe kind of moving on from then. So how -- can you help kind of investors understand how strong is this philosophical change within UP? Is the muscle memory there at this point? So the -- and call it -- after Jim kind of fully kind of moves on, if there will be any real, let's just call it, creep back to the old ways or the old operating model?

Yes, Tyler, that's a great question. So just a couple of things there. I mean we did actually decide to go on this PSR journey back in the fall of 2018. I think we announced it in the September-October time frame, and then brought Jim on in January. So we had decided, as an organization, this is the direction that was important for us to go. This is -- it's what we need to do. We certainly brought Jim in and his wealth of knowledge, which has been a fantastic addition for us because he helped us really cut to the chase on some things. He helped us -- just a new set of eyes, regardless of whose eyes those are and his were obviously very skilled eyes, coming in and looking at something that we've looked at ourselves a number of times. That fresh perspective was certainly one huge benefit he brought as well as he knew the success that PSR could bring, and he took more of a risk mindset than what we historically, I would say, have had because he saw what those risks could do in terms of paying off and in terms of what the long-term outcome could be. And so he brought with that his knowledge, and he spent the majority and is still spending his time, as you mentioned, he still is working as a senior adviser for us through the end of June. He spends his time working with the team, talking to the team. He didn't ever want to call them Vena camps, but I know you've heard of the famed [ Condor camps. ] I mean he very much had sessions with all layers of operating management, talking to them about the principles of PSR, talking to them about why different decisions are important, how to look at things critically and really how to manage the data. That was one of the first things Jim changed when he came, was the access to data and how we looked at the data on a daily basis to really fundamentally drive and understand how the network was running. And so those were some changes that were, like I said, early on. And it is deep within the culture now. I mean the conversations have changed dramatically. We understand that this is something that is critical to us to be able to continue to get peaked and to win going forward. And we've seen the success. And I think that's an important part of it. We're a very competitive bunch. We want to win, we want to be on top, and we have seen what PSR has enabled us to do. And I firmly believe that success breeds success, and as we've seen that in the organization and as the folks on the ground have seen how much better their terminals can run, how much better their customer service can be and how much more profitable the company can be overall as they operate with these principles, there's no desire to turn back at all.

Okay. Yes. Great to hear. So where would you, though, if we were to use the baseball analogy, like how -- what inning are we in from a PSR perspective? It feels to us, as an outsider, at least to me, that a lot of the heavy lifting has been done. We've seen trains lengthen out. We've seen train weights go up. We've seen velocity improve. You've made really hard decisions like the Brazos closure, et cetera, et cetera, or the change in operation there. So are we kind of -- are we -- from an operational implementation perspective, are we pretty much there at this point? Or do we still have some things that we need to do to get there?

Yes. I think if our operating team were here, they would say you're never really there. There's always opportunities to continue to drive for improvement. Yes, we've made some substantial changes. I mean there is no disputing that. We've closed a number of terminals. We've got the siding projects underway. Over the last 2 years, we've generated nearly $1.5 billion in productivity. So we have done a lot, and the team has really knocked it out of the part from that standpoint. But they still see more opportunities ahead. We're building more sidings, extensions and putting new sidings in here in 2021. We think that's going to facilitate further train length growth. We know there's more to do on a fuel consumption standpoint. We're installing energy management systems, leveraging that PTC platform that helps us be more fuel-efficient. We're continuing to modernize our locomotives. There's not only a reliability and a greater attractive effort benefit from that, but also a little bit better fuel delivery system that can help on an economy standpoint as well. So -- and just continuing to look at how do we run the network as traffic flows change. It's not static. Every day isn't the same on the rail network. Every season isn't the same. And so our network planning team is continually looking at what are the traffic flows today. What are we projecting them to be over the coming weeks? And how can we change things? How can we tweak things? How can we reduce those car touches, go by more terminals, further increase that freight car velocity? So that is all -- across any productivity measure we have across all of our cost categories, we still think that there's opportunities to improve.

Okay, great. And then so we've talked a little bit, just kind of to wrap up kind of the PSR. I mean we've talked about how PSR improves car level, service integrity. It improves -- it obviously drives productivity, helps margins, et cetera. But doesn't it also -- I think if a railroad as a big conveyor belt, you're kind of just constantly running the trains around and around and around. And doesn't a faster, more efficient network kind of create latent capacity in the network? So you talked a little bit about the CapEx profile, and maybe you can talk a little bit more about that. But it feels like you've got maybe more latent capacity today than you did a few years ago. It feels like maybe there's an opportunity to kind of lean into some of those capital investments and some of that additional capacity without having to bring on a lot of extra CapEx.

I agree with you 100%, Tyler. I mean we definitely see our growth profile going forward as being less capital-intensive than it was in the past. When you think about the yard assets that we've idled, when you think about the siding extensions that we've added, while today, those siding extensions are helping us from a productivity standpoint, long term, that's capacity for us to grow into. The same with the idled terminal assets, those are assets that if we need to, the business volumes come back, we can deploy those again with very little capital intensity to refurbish the yard. Our locomotives are another great example of that. We still have a significant part of our locomotive fleet that's parked today. As the business volumes grow, our plan is to use that existing fleet, pull it out of storage and put it into service. So I absolutely believe that the future for us can be less capital-intensive. And I think it's also important to note that even within the capital spend that we have for this year, what we spent last year, it's not like that is what I would call bare-bones capital. There is money in there that we are devoting to growth and to productivity. Again, the siding extensions, some of the work that we've done around our intermodal terminals in Chicago, some of the work in Houston, those are all things that help from a productivity standpoint, but also are adding capacity to our network. So we are investing for growth today even within the current capital spend.

Great. So this leads me to another one of my big -- this is -- it's got to be music to your ears as a CFO. And I want to talk about EBITDA. I call it EBITDA quality. And if I look at you guys, and the way that I define EBITDA quality is basically, what percent of your EBITDA turns into free cash flow. And it's interesting. If you go back in history and you run that calculation over time, there's been a dramatic improvement. And this isn't just the UP story, it's actually a story really across the broad rails. But for you guys specifically, I want to say it was maybe even less than 20% back in '06 and '07. And today, you're converting more than 50% of EBITDA into free cash. So there's a few things that could be impacting. We did have tax reform. Obviously, lower coupons have probably helped. But if you kind of try to put that off to the side, it feels like a lot of it has come from some of the CapEx savings. And I guess my question is, as you look at it, I think you kind of talked about it a little bit in the preamble, but people love the idea of durability. I mean how durable do you think it is that you can kind of keep this free cash flow conversion, what -- however you look at it, percentage of net income, EBITDA, however you look at it. But just -- can you talk about that durability? Because I think it's a big story at the railroad. You're producing, frankly, more cash flow than you ever have on a $1 of revenue or $1 of EBITDA.

Yes. No, and I do think that, that's a great new story for us. Last year, we were over 100%. We've said we -- and that's -- our method of looking at it, a little different than yours, but you're all kind of getting that the same thing, is net income converted into free cash afterwards the capital expenditure. So there's 2 ways to do that, really, it's reduce the CapEx or grow the net income. And the good news is what we've got going right now with our franchises, we're very much maintaining that CapEx, and it has come down over the last several years. Part of that is PTC going away. Part of that is just as we have generated the latent capacity that you're talking about through PSR. And unfortunately, as carloadings have also decreased, that means we have to spend less for that revenue growth. And as we have become more -- improving our margins and continuing to have solid pricing, that's bumping up that net income number. So that's a long-term trend that we expect to continue.

Excellent. Excellent. Okay. We've got a few more minutes, and I want to talk about ESG. I've kind of talked about this with a lot of companies just because it's a very topical thing. So first off, you actually mentioned, I think, in maybe the first sentence of your opening remarks about your sustainability report. So correct me if I'm wrong, but I think you've been putting out a sustainability report for, call it, more than a decade. Is that -- that's -- I think that's right.

I think that's fair. Yes. No, I think that's fair. It's been a long time. We call it our Building America Report. But in its essence, it is a sustainability report, yes.

Okay. So right, so you have a lot of metrics. This is not something that's brand new, let's just say, generally speaking. But I am curious, do you feel that you maybe tell your ESG story well? Or do you feel like it resonates with investments? Because -- and maybe just follow me for a second, but there's a kind of a story of handprints and footprints. And what I mean by that is your footprint is what's in that report. It's -- look at our emissions. We've gone from, call it, I guess, you'd call it Tier 0 to Tier 4 locomotives and all of the savings in that. Our fuel efficiency data has gotten a lot better. You guys published more data about safety than probably any other industry out there consistently. So you had talked a lot about your footprint, but there's this whole story about handprints. How do you help shippers achieve their goals? And what I'm curious about is how do you, as an industry or as UP, maybe kind of get your hands around that? And two, do you think that, that is driving a narrative around how shippers choose their modal choice between truck and rail? So there's a lot there, but that's -- that's kind of my big question about ESG.

Yes. I mean I think you're right in that we have not done as good a job as we probably could have in the past of really connecting those dots and really telling that story. Unfortunately, I've been with UP a long time, so I can go back to when I was in the IR role before Brad 10 years ago or so. And we were completing -- we were responding to the Carbon Disclosure Project. We were putting out the Building America Report. We were talking about that you can move 1 ton of freight 450 miles on a rail versus you need 3x that from a truck standpoint. But those were messages that at the time, while important and just kind of foundational to us, really didn't resonate beyond that. And now you fast forward to today and within the last, call it, 12 to 15 months, that narrative has really ratcheted up, and we're hearing it much more from our investor base. And what I would say the good news is, and the thing that's changing and it's going to change the waterfront going forward is not only are we hearing it, but we know our customers are hearing on it. And I don't think it's made it to the traffic manager level yet in terms of is that person who's making those decisions in terms of how they're going to ship the freight, are they being graded on just price? Are they being graded on maybe price and reliability? Or are they being graded on price, reliability and carbon footprint? And to the extent we can get that third piece tied in there, we know we can make an automatic improvement to our customers' ESG story. And so that's very much the dialogue that we're trying to spur with our customers today. Again, kind of going back to if we're not in there just talking about service, we can start talking about some of these other things, how we can improve their ESG profile. And we're starting to see some small wins, which is encouraging. And a few weeks ago, we saw for the first time in one of the big packages that we were responding to, the fact that we actually were going to get, again, extra points because it was a railroad competing for that piece of business versus a truck. So that's the kind of dynamic...

Interesting.

That I think is -- again, on the forefront, and it's a company that's kind of in the recycling business. So they're maybe going to have that as a little bit higher profile today. But I absolutely see that ability to extend across the whole panoply of customers and look forward to that opportunity because kind of going back to the earlier part of the discussion, we have the capacity, we have the resources to move that freight, and we have the service product to fulfill it as well.

Exactly. That brings me to my kind of final question. There's latent capacity in the network. There's this great story about improving service. Maybe there's an ESG angle, I'm not sure. But there's chronic tightness in the truck market. It just feels like it's going to be an every few year type of situation. UP, frankly, volume has not been a great story over the past 10, 15 years. So it -- does it feel like the story -- and maybe this is something at the Analyst Day you'll talk about, I'm not sure. But does it feel like the story could tack a little bit more into a volume story at least over the next few years without maybe getting into too much, which you may talk about in May?

I'm not going to give too much away, clearly, but you're right. You've followed us, you know we talk about the 3 legs to the stool, volume, price and productivity. We've made tremendous gains and driven tremendous benefit to our shareholders through the price and productivity. We have not been full on that volume lever, and that's absolutely our opportunity going forward, is to continue on the first 2, but start adding in that third one. And you saw that in our fourth quarter results. We grew our volumes in the fourth quarter 3%, and you saw tremendous leverage, you saw tremendous results. And that's what we think the future is all about.

Well, Jennifer, that is a perfect ending point. Right on time, I really appreciate you guys joining us this morning. This was really fantastic. So with that, I appreciate it so much, and we will talk soon.

All right. Thanks, Tyler. Very much appreciate it.

Thank you.