Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

Good morning. Thank you for joining our discussion with Lance Fritz, the Chairman, President and CEO of Union Pacific. We also have Brad Stock, AVP of Investor Relations here. I'm Brian Ossenbeck. I cover transports and logistics for JPMorgan. We're very happy to have Lance here to continue our morning rail session. He's going to start off with a few slides, and then we'll go into Q&A. If you have questions, feel free to submit them through the conference website. I'll take a look at those as they come in and try to work them into the conversation as we go along. So Lance, good morning. Let me hand it over to you and get things rolling. Thanks again for joining us today.

Thank you, Brian, and it's a pleasure to be here with you this morning. I've got a few slides that accompany my prepared comments this morning. They're going to be shown on this video chat, but you can also see them on our Investor website next to the webcast for this event. Before we start, I want to remind you that I'll be making some forward-looking statements. These statements are subject to risks and uncertainties, so please refer to the UP website and our SEC filings for additional information about our risk factors. So let's begin on Slide 3. 2021 presents a fantastic opportunity for Union Pacific to leverage our service and efficiency improvements over the past 2 years and win in the marketplace. An improving economy only bolsters the opportunities that our best-in-industry franchise provides. While our business was impacted [ with cold ] weather events, that doesn't change our long-term optimism. Improving GDP and industrial production forecast as well as continued strength in consumer spending and housing starts builds confidence in a strengthening economy. The recent signing of the COVID relief package should further boost that recovery, and while rising fuel prices are impacting our expenses, there could ultimately be a positive trade-off when you consider truck competition. Turning to Slide 4. February was a challenging month for our network. Heavy snow in the Pacific Northwest, snow in Arctic temperatures across the Midwest and snow and ice across Texas, Arkansas and Louisiana had significant impact on our operations and that of our customers. The South, in particular, is not accustomed to the weather they face. This picture on Slide 4 that shows our Houston Englewood Yard covered in snow is still very difficult for us to fathom. But thankfully, our network has recovered quickly, and we're able to mitigate the impact to our service. As the chart on the slide demonstrates, our freight car velocity is rebounding, and we are currently running at somewhere around 217 daily miles per car. It's especially encouraging given how quickly we've also seen our volumes recover, with current 7-day carloadings running a bit over 155,000 7-day. Our entire operating department should be commended for the excellent work they've performed in navigating this situation. The operational transformation that we've achieved through precision scheduled railroading was demonstrated again in our network resiliency. Turning to Slide 5. With a couple of weeks left in the quarter, first quarter volumes are down 4% overall. We've made up some ground over the last couple of weeks, and the trajectory of our volumes is positive. Our premium business is up 3% in the quarter driven by continued strength in intermodal due to e-commerce and restocking, and the typical March volume drop from the Lunar New Year has been muted compared to prior years. Business wins in the area helped fuel the strength as well. However, within our premium line, automotive continues to be challenged by the impact of the semiconductor chip shortage. Our expectation is that production will be recovered through the course of the year. While our bulk business is down 4%, reflecting the impact of the weather event, strength in export grain remains. Grain and grain products is up 14%, but coal being down [ 17% ], offsets that growth. Even prior to the storm impact, our industrial volumes were down year-over-year as a result of energy-related declines. Strength in forest products, driven by that strong housing market, remains an area of growth in the quarter. The impact from Texas storm continues to affect our industrial, chemicals and plastics business as the majority of the overall top line impact from the event lies within that business group. We're working with those customers to support their recovery and are ready to serve them. Turning to Slide 6. In early February, we announced that our science-based targets to reduce greenhouse gas emissions in accordance with the Paris Agreement were approved by SBTI. Our target is to reduce Scope 1 and Scope 2 greenhouse gas emissions by 26% against the 2018 base by 2030. This is a very important step for Union Pacific in our sustainability journey. Additionally, for many years now, we've participated in the carbon disclosure project. We're excited to announce that we received the grade of A- in climate disclosure, demonstrating our leadership in that area. Additionally, we received a supplier engagement rating of A, indicating we're effectively engaging our suppliers on climate change. Union Pacific firmly understands the role we need to play in the fight against climate change, and we are committed to being a leader. Turning to Slide 7. We entered the first quarter 2021 recognizing some year-over-year challenges related to business mix and fuel surcharge revenue, but with an expectation to grow volumes. Unfortunately, the weather impact I just discussed, which affected both our revenue and expenses, added another degree of difficulty. Additionally, fuel prices have risen in the quarter, providing an additional headwind. For example, we're currently paying about $1.90 a gallon. While our fuel surcharge programs will ultimately cover this increase, we do have about a 2-month lag. So while our full year guidance is unchanged, the impact of weather and fuel in the first quarter will prevent us from making year-over-year operating ratio improvement. An improving economic outlook, strong volumes across a number of key areas and our expectations for productivity going forward provide us confidence in the full year. Finally, our virtual Investor Day will take place on May 4 with more details to come. We're excited to lay out our strategy to drive long-term value for all of our stakeholders. And with that, Brian, I'll turn it back to you for Q&A.

All right. Great. Thank you, Lance, for the rundown there. Just to focus on the short-term firm here, you mentioned ORs not going to improve in the first quarter. I think you already previously said that there's chance it's going to deteriorate year-over-year. So was the change from -- obviously, what's happened between now and the last time we spoke, but what was the main change, the weather impact and seeing snow in Houston? Or were there are some other end markets that maybe weren't coming up to speed as what you thought? You mentioned cold, but clearly, that was going to be challenged from the beginning of the year. So is there anything...

Brian, it's entirely about fuel and the weather event. Those 2 things alone, when you take them out, I think we're going to see underlying strength in the business as we report the first quarter. But January started out very well. February was deeply impacted by the weather event. March looks like it's coming along just fine. And I think we're just going to run out of runway.

Right. Okay. One thing that we've all seen, obviously, is service challenges through weather and, even before that, with a lot of congestion on the West Coast ports, but one thing I think we haven't really seen is UP kind of similar issues as your peers. So why do you think that is? And we've also seen you putting in some surcharges and maybe some adjustments in terms of the minimum commitment program. So are those to kind of tweak the situation and get through what we've seen now? Are there more changes to come? How do you keep that fluid when it looks like there's just no end to the containerships offshore?

Yes. So let's start with the MCP program and the surcharges. Those surcharges are built around making sure we have boxes available in the EMP and UMAX programs for our committed customers. And we were finding some of those boxes were making their way in an inefficient way away from the MCP customers. So to control that, what we do is we put those surcharges on and increase them pretty dramatically to force those boxes back, so we can make sure they go to the committed customers. So it's been a very strong market late last year and into the early part of this year. Most of those surcharges, if not all of them, are off at this point. When it comes to our performance in the West Coast, the rail service product has been sound. Our third quarter difficulties with the snap in e-commerce volumes and parcel volumes, they were pretty much addressed in the fourth quarter or going even into the fourth quarter. And our service product there was really pretty sound and stayed very good into January prior to the weather event. So what we're trying to do is work with the ports to create much more transparency and visibility across the supply chain and also make sure that we're all speaking to the same KPIs or at least the KPIs that are relevant to getting boxes off the dock, into a well and move them. There's a lot of transload demand that's happening in the L.A. Basin. And to a large degree, that's kind of bullocks up the supply chain with the international boxes trying to be put back to Asia as quickly as possible. IPI or international boxes coming inland has really been disrupted more so than normal. And I think that's kind of screwed up the overall supply chain with an excess demand of domestic boxes.

Right. And I think when you look at the other thing we've seen in the West Coast -- Western rail dynamic, rather, is this gap in the OR has really -- is really just grown. But still, we have seen competition that doesn't seem like there's been a change at all. Like you mentioned, coal earlier in the year and the contract loss, that is going to weigh pretty substantially on the whole business. So how do you just keep on doing what you're doing? Is there anything you can do differently in regards to managing through that competition? Is it still going to be a headwind? It feels like we keep talking about this every year, regardless of how big the OR gap gets.

Yes. We do have a strong competitor in the West, and also we compete aggressively with truck. What we're doing about it is taking our better service product. It's more reliable. It's very consistent, and also taking our lower cost structure and competing and making sure we're winning business that can support itself on the railroad, and we're doing that. We see across every single one of our commodity groups, whether it's in the industrial products area, crush flash or refined product in the bulk area, it can be grain. It's also -- we've won some business in the coal world. And in the premium business, we're seeing a really good bid season right now with beneficial cargo owners and shippers, and we're also seeing some wins in the automotive space. So we're seeing wins be able to come from the better cost basis and our better service product, but we do have a very strong competitor in the West, and they're not lying down.

Clearly not. One of the other challenges, I think, the industry has done a pretty good job so far with is just labor. So with the expectations that things come back, we've got through the weather issues, how do you feel about positioning of labor and headcount on the network? It's always challenging to get the volume right and then to get the right people in the right place for the volume. You hired a head. Do you feel like you've got more of a buffer? How do you approach that coming out of the cold snap?

Yes. We feel like we're in pretty good shape as regards labor, Brian. We haven't run into labor as being a fundamental issue with being able to support our service product. We currently still have a fair amount of our employees furloughed somewhere near 2,000 just under, and our callback rates to this point have been somewhere between 70% and low 80s percent. So those numbers tell me that if we need to call back labor, we've got the ability. We can put them where we need them, but we're also still seeing plenty of productivity opportunities, both in train length, in locomotive productivity and how we maintain the railroad. So I anticipate this year, even on the kind of growth we're anticipating, labor is not going to be that big of a deal for us. I think we're in pretty good shape.

Okay. One of the other concerns, I guess, just from a bigger picture perspective on the operating side is just currently Jim Vena has been a big change agent in part of getting PSR up and running into the point where we are now, performing quite well. So the concern is that some of the operational focus and discipline leaves with them. I'm sure the current team would disagree. But maybe you can give us a sense as to what you, Jim and the operating team are doing to make sure there's really a seamless transition.

Yes. Great question. We've been working on that transition basically since the day he showed up, right, Jim? One of the reasons we hired Jim was that he'd be a really good catalyst for us, both in pace, in risk-taking appetite and also in perspective and just seeing things that were old to him, that would be new to us. And for the last 2, 2.5 years, he's done a really good job of helping the team learn from him, see those things. And you know railroading is a team sport, right? It's -- Jim doesn't wake up and make every decision last year for everybody on the railroad. The idea is to help train and help our team see what needs to be done, make sure we have the metrics in front of us that are the important ones to move and then make the right decisions. So what Jim is working on right now with me and for me is more intermodal focused. We've got a couple of special projects and some terminal projects I want to make sure he keeps his eye on. But the team that is underneath Eric Gehringer, they're the ones that have been running the railroad for the last couple of years, and they're fully competent. They're very, very good at being able to find productivity, taking risk and making it real. And they're the ones that have been generating the kind of performance we saw all through last year.

Yes. It has been a pretty substantial performance improvements in a lot of areas sitting all-time records, and we do like the KPIs that you put out there. The one that we continue to, I guess, ask questions on is just on the fuel economy side. I know that mix is an impact to that as well, but when we look at just benchmarking UP versus the peers, there is a gap. It seems like it's been there for maybe a while, so I don't know if it's really going to close or what could get it to close because it seems like you're already running pretty heavy trains. What else could -- what else should we be looking for to close the gap because it's a OR story and it's an ESG story as well.

Yes. You're exactly right. It's maybe most important as an ESG story and a climate change support story. Yes, so your point is valid, and that is there's a gap between industry leadership and us, and it used to be mostly about the Canadian railroads and UP, and I see CSX has made a real strong move. If you look back to last year, we improved about 2 percentage points in our sea rate. We think there's more of that to come, and there's a structural difference, right? We've got bigger grades than anybody else in the West, and that will impact fuel consumption. But we're confident we can be better than what we are right now, and that's mostly about making sure technology continues to take hold in EMS. That's the system that helps an engineer run a train fuel efficiently. We also think there's continued improvement that can be had with train size, so that will help. And there's continued improvement that can be had as we rebuild the locomotive network, the locomotive fleet. We're not buying new locomotives, but we are still investing in locomotive modernization. And every time we do that, the unit is more reliable and it's more efficient. So there's going to be a little tailwind created by that.

Got it. Okay. You mentioned intermodal growth clearly is one of the strong points here, and Jim is working on some of this, I guess, wrap up in terms of the specific projects. But when we think about intermodal growth at UPs, you've said historically mix dilutive or mix is you're down, but that seems like it's starting to change. What are some of the steps you can take to maybe close that gap? Are there any investments? Or is it really more about getting service consistent and execution to get essentially paid for that?

Yes. There's really no different magic in the intermodal product than there is in the carload product. It's all about turning the assets efficiently, and you've seen us make a fair number of changes over the course of the last year, 1.5 years in terms of assessorial charges that are targeted to help our customers know the behaviors that help keep the assets efficient, whether it's chassis or boxes, dwell time on the ramp and behaviors that kind of get in the way. So it's about getting the box from where it is into a well as efficiently as we can. That means keeping the ramp time low; making dray, the driver experience very good, enter the gate, know where you're going, preferably drop the box off track side as opposed to put it into storage; and then we can move it over the road efficiently. We've demonstrated that our service product is rock-solid once you get it over the road. And then once it hits the destination ramp, it's about getting it grounded as quickly as possible and then making sure that we have a home for it on the street somewhere, so it doesn't dwell in the yard. One of the things that we're working very hard on is an intermodal train reservation system, an ITR, and it's gaining traction in fits and starts. But at the end of the day, that's not meant to retard future volume in anyway. It's meant to match current capacity with current demand. The better we can do that, the more we can make sure that those assets turn efficiently and reliable. And we need about, call it, 3- or 4- or 5-day advanced notice, depending on where the demand is going to be, for us to match our capacity with demand. And so we're working really hard to get that mature and to get customers comfortable with it, so that they can see participating in a very effective ITR is a self-fulfilling prophecy to have a really good, sound, reliable service provider.

That's interesting. It brings up the question of just supply chain and connectivity and visibility. And I think you made comments in the past about needing to get there better in intermodal, in particular. So is there anything you -- any connections, any other things you need from your customers? It sounds like it's probably something that just builds gradually over time. I guess, the question is, structurally, do you need better visibility, better coordination that's maybe not there yet? Or is it just something that's already there and you just got to get it turned on and maybe get better acceptance in the market?

Yes. In our market for the intermodal product, you can imagine there's a spectrum of customers. Some are very, very tech-savvy, and others less so once you're in our IMC world and deep into the IMC work. So what we're working on is making sure our information and our technology is seamlessly connected with our customer base. Usually, that's through APIs, and we're getting more and more buy in to using APIs to make greater visibility happen across the supply chain, but it also doesn't have to be that complex, right? It can be as straightforward as making sure we get good participation in an effective ITR, part of that bonus is on Union Pacific and making it very easy to deal with, and then rolling out products like we've rolled out in UPGo, where a dray driver can show up to a gate on a ramp and know exactly where they need to go with no interaction with humans. It should be ultimately paperless. And so that can create a better environment, a more efficient environment for the dray community. That's giving us more visibility there as well and then across the spectrum, making sure that we've got good visibility at each ramp and that our customers see that and good visibility across the network. Ultimately, what our customers are relying on us for is making sure we get across the road, we got good ETAs, we land the product where they need it landed in the ballpark of time where we said it would be, and that we hold them accountable for draying it off quickly so that they can get to their destination, use the box and the chassis asset wisely.

So I think you also hired a new CIO. I think it was late last year. You can talk about what they're doing, why you brought them in, what their background is and what they bring to the railroad because, clearly, it's getting more connected and more digital by the day.

Absolutely. Yes, our new CIO is Rahul Jalali, and we hired him early November from Walmart. And what he brings to the table is a deep knowledge base both in technology but, more importantly, from my perspective, the concept of a platform and a technology ecosystem, so that our customers can view us from the product platform perspective when it comes to technology. So his experience base was international. It was transforming the store experience. It was about having to keep those systems up and running at 4 9s reliability. All that translates to us, and what we really benefit from is increased pace of change. He's got a very strong appetite for minimally viable product development, so agile is a kind of a way of life for him. We've been working more and more towards an agile environment. He's just going to accelerate that for us. And then you talk about that product or platform perspective, and what that means is instead of building out big monolithic structures that take a long, long time to develop and are based on precise kind of demands put on us by the -- whoever is buying the product, we're instead working with our customer base, finding what the opportunities are and then very rapidly deploying something that could work and testing it and then building off of it in concentric range to ultimately get to a place where you've got a full-blown platform. But instead of waiting and building it out in its entirety, and usually getting some part of it wrong, you're advancing it in increments quickly. And if you fail, you get rid of it. You replace it with something that works. And we're already seeing that happen inside the company on things like UP vision, which is a tool we use in the operating department, and that's now being translated with our customer base as well.

Great. You mentioned earlier that the truck load competition and being maybe a beneficiary of the current pricing environment. So based on some of the work we've done, UP has probably the biggest opportunity to convert freight off the highway over 750 miles. What's -- how do you look at that market and that potential and kind of gauge the wallet share that you have right now and maybe what it could be? Then also, if you can just tell us if you -- why are customers converting now as a way to figure out what you need to get them to say yes and to remain sticky and not just move with the truckload cycle.

Yes. Amen. That's a great question, Brian, and that is the future, right? Growth is so important for our value creation as we look forward, and we agree completely with you that there's a lot of opportunity out there. We think about it as share of our customers' logistics spend. We call it wallet share. And the baseline that has to happen is we have to have reliable and consistent service, right? Every customer tells us, "Do what you say you're going to do, and I can build around you." And then the second thing we have to do is keep our cost structure low, so that we can compete against truck. Truck has some inherent advantages, a lot of route flexibility, but we have inherent advantages in that our cost structure is quite competitive. So for us to win, we've got to smartly leverage that cost structure. We've got to make sure we keep our service product highly reliable and efficient. And then we've also got to continue to invest in technology and ease of doing business. We've got a project right now that's called user experience for customer experience, and what that means is we're investing a lot of time and attention in making the user experience on Union Pacific systems much easier, kind of much more intuitive, much more consumer like. We think if we do that, we take away some impediments from shippers choosing rail versus truck. Part of it is making sure we're there to educate them on what role we can play, but part of it is helping them not choose a way because they get frustrated because they don't know a STCC code for a particular commodity. So we're investing a boatload of time and resources in that right now, and I expect us to accelerate that.

That's a good point. In terms of the -- improving the operating ratio, I mean, clearly, you're focused on growth. That's part of the three-legged stool you mentioned in prior times, assuming that's not changing. But we tend to think of -- the market tends to think of you have -- there's a trade-off at some point with growth in OR, and that's probably true to a certain extent. But we look at it that you have additional capacity. And as long as you have the discipline to bring it on at the right characteristics to the network, then you can probably still do both. So I don't know if that's the right way to look at it or one way of looking at it, but how do you look at balancing those 2 dynamics, which are clearly what everybody is trying to figure out? Like where does that go right now? And how are you positioned to move in the future on that curve?

We think you're 100% right, Brian. We did not think there's a trade-off as we look into the future between growth and operating ratio. We think there's room for both. The way we think it's going to work is exactly as you point out. We do have some excess capacity, both in the network and in other assets, whether it's locomotives, some of our freight car different types. And in that context, we're not going to be silly or kind of stupid about how we bring business on. But to the extent that we bring business on that's got good attractive margin, it fits the network and it fits into how we're running the network, we think it's going to be additive, and that gives us a lot of opportunity to create productivity off of that growth, which will allow us an opportunity to continue to improve margin. So we look forward. And as we've guided this year, and we look into future years, we think there's margin improvement at the same time as we're growing. As a matter of fact, we think growth is the way towards some of the next steps in margin improvement.

So when you look at the mid-50s OR, that's always the gold standard, the double nickels. Some of us thought that 2021 might be the year that, that could come to fruition, especially after the fourth quarter was quite strong. I know there's a lot of tailwinds then, and there are some headwinds now. Clearly, weather has been a challenge. It's always hard to gauge the full year when you start January 1. But when you look at the -- all the moving parts there, was there anything that really held back from making the fourth quarter or recent performance more broadly the proof point that, that is possible? Or was it just too much to get into that early in the year to put your foot down and say this is the year? How do you think of that -- or at least maybe the structure of how we should think of getting to that -- the 55 at some point?

Yes. So well, let me start with our guidance and just reaffirm it because it's a hell of a good year, right? We said the starting points of 58.5% operating ratio last year, we're going to improve that 150 basis points or more. We said $500 million in productivity this year and some growth, I think mid-single digits growth. I can't remember the exact number, but that's a hell of a good year. Now the fourth quarter was one hell of a good quarter, and it did have a fair number of tailwinds. But at the guts of the quarter, it demonstrated what we're capable of doing when you have decent price, pretty good growth and really sound productivity working together. We think that formula continues to work as we look into the future. Now one thing about this year, it's becoming a little clearer, but at the very beginning of the year, it's pretty damn cloudy as to know exactly what's going to happen in our served markets. Think about what I said at the very beginning. The parcel and e-commerce part of our business is booming, and that's about consumer spending money and buying things. But the industrial economy is not. It's still lagging. So there's a disconnect there broadly in the industrial economy, and we need to see the industrial economy start picking it up a little bit for us to feel really, really confident about what's going to happen in 2021 and 2022. But having said all that, the guidance still stands. And in that guidance, I think it's a hell of a year. And I'll never argue against you, Brian, if you say, "Well, you should be able to do more if you grow better than you guided," because I think that's true.

Yes. Well, there's expectations and then there's fair expectations, but I understand the point. When you think of the -- switching gears for a second into maybe the longer term. Positive train control has been with the network and with the industry for some time now. It's finally in place. Interoperability is up and running. I know it's a challenge for UP in prior years to get all those bugs worked out. Trains were stopping, clearly not the most efficient thing. Are you at the point where at least you can see some maybe green shoots in terms of getting some benefits? Can you run dynamic blocks? Is it too early to think about maybe some positive coming out of this mandate?

Yes. Brian, look, so it is a little too early on dynamic block, but there's a lot of exciting things that the infrastructure, that positive train control represents allows us to do. And so just 2 good examples. The first is, I mentioned EMS, energy management systems on the locomotives. The structure that EMS plugs into ultimately is PTC infrastructure. There's a lot of communication that goes between back office and locomotive dynamics that are happening on the locomotive, and EMS is feeding back information to the engineer for the engineer to prompt on. And even now, it can run in autopilot. Once the train has started, EMS can essentially run the train in cruise control to -- for maximizing fuel consumption. That would not have been -- we would not have had nearly the path -- the straightforward path we've had if we hadn't first invested in positive train control. The second thing that we do is kind of both an operating practices and a safety perspective. We've set up a team of individuals called Operating Practices Command Center here in our Union Pacific Center in Omaha, and they can communicate with any train at any time around our network. And what they do is they use the feedback loops that are fundamentally built off of the PTC mesh of communication and information, and they monitor trains. And as trains are approaching a particularly difficult territory for that type of train, they'll contact the engineer and ask if the engineer would like a little dialogue about what's coming up and how best to manage the train from a safety as well as an efficiency standpoint, and that would not have been in place had it not been for all of the PTC spend. And that has huge benefit to us, both in ultimately knocking down things like derailments, human-factor derailments, but also that will be a help when it comes to fuel consumption.

Right. So that does seem to tie in a little bit into the ESG story from the E and the sustainability and the safety side. You mentioned you had a slide on ESG overall. You've been putting out sustainability reports since, I think, like 2009. Clearly, it's been more of a focal point for just about everybody now. The AR has its own white paper out on the topic. But when you look at the business perspective, I'm sure there are some who are allocating some freight awards based on ESG, and relative emissions is clearly part of truckload conversion as well. But do you feel like that we're just at the early stages in terms of that being part of the commercial decision? It's at the strategic level, but it's not at the procurement level when it comes to actually making those freight decisions on which mode and with whom.

Brian, it is starting to show up at the procurement level, mostly in the larger, more sophisticated shippers. I see an ongoing periodic review of big wins that we've secured. And in the last couple of months, I can tell you, there is about 4 or 5 fairly substantial wins that are predicated on us being a help to that customer in their own sustainability goals. And that's becoming a bigger and bigger story, and we emphasize it with every single one of the customers we talk to because we can help them. We're not only helping ourselves. We can help them. Last year, by choosing to ship on Union Pacific Railroad, our customers saved or avoided 25 million tons of greenhouse gas emissions. That's a pretty big deal.

So we only have a couple of minutes left here. Maybe just to talk about -- you mentioned the stimulus, and there's obviously a lot of things coming out of Washington under the new administration. One thing we try to keep an eye on, too, is just on the regulatory side. So we've got a new STB Board Chairman. We've got 2 new members. It feels like activity is picking up, but maybe not activist, as how we would at least characterize it. But there's some big issues in front of them or at least they've been talking about. So how do you view that at least from the rail perspective? And what are your expectations in terms of the ongoing dialogue and looking at some of these issues, which, quite frankly, have been around for years?

Yes. Well, so we've had very good relationship with the STB to this point. We've maintained those relationships with the existing Board members. We're starting to build relationships with the new Board members. We think it's critically important that the entire Board understands how the economics of a railroad work and what's important to have happen from their perspective, so that we can continue to attract capital and put it effectively into the railroad. The creation of the STB was all about making sure that railroads had an opportunity to become revenue adequate, attract capital and not face kind of the situation we were facing in the late '70s, and it's been a home run. So we constantly are educating the new members about that history and about why it's important. They do have a big docket in front of them. I'm pretty confident they're going to be prudent in how they work through it. And we've been proactive as an industry and Union Pacific as a leader in proposing some different things for them to think about as they're facing their docket. One thing that's really pretty damn important is when it comes to thinking about revenue adequacy, over the last couple of years, the Board has talked about maybe using that as a measurement, as a yardstick for whether or not there would be any rate control. And we turned that around and said, "That doesn't make sense because we're competing for capital against a broad set of industrials." So we proposed, instead of just looking at the railroads and are you earning your cost of capital, look at our ability to earn against our cost of capital versus all of the competitive environment for investor dollars. And if we're way, way out of that box, let's have a conversation. But if we're just competitive in that box, then let us compete. And the data shows, we're basically in the middle of the pack when it comes to that comparison. And in many cases, in comparison to the customers that are complaining to the STB, we're not earning as much against our cost of capital as they are. So I think that's a really good eye-opening use of data to help the Board see the competitive dynamic we're talking about when it comes to trying to attract capital.

Right, right. Okay. Maybe we'll just wrap up with -- I know you gave us a little bit of a sneak peek on the Investor Day. Clearly, you're going to have earnings between now and then. But just from like the objectives and the messaging that you're wanting to set out and that we should expect for this sort of event, it's not in person like I think you initially wanted, obviously, everybody wants, but to show kind of the bench strength of operations. So I guess, what are you planning on talking about? Or at least what should we be anticipating to hear from you in terms of the longer-term view, the strategic view? And who -- I guess, who we should hear from at the event as well?

Yes. At the highest level, Brian, what you're going to hear from us is a clear articulation of the strategy going forward that creates value, should be very easy to absorb and understand. We know that there's a question mark about, "Hey, what is the bench strength at UP?" And let's be a little bit more granular about how exactly you're going to continue to find ways to have a reliable, consistent service product, continue to drive precision scheduled railroading, continue to find productivity. So you'll see us be pretty direct and straightforward about that. There's -- I think we got to show our investors how we are going to grow, what those growth engines are, what the legs are, how much opportunity there is and how we're going to secure it, and then wrap that all together with some markers for what the next handful of years should look like and then measure ourselves against those markers. So Investor Day is going to look just like that: strategy, confidence building our operating capability, confidence building and our ability to grow and then wrapping it together with a scorecard that you're going to be able to measure us against for the next handful of years.

Okay. Well, the scorecards of late has been pretty good and detailed, so thank you for that. And thank you for the preview. I know it's a hard thing to talk about, but not give away too much, especially right now. So thanks for entertaining that question. That's all the time we have for questions today unfortunately. So Lance, it was great to have you again today. Thank you for all your time. Thanks to everybody for joining. And I hope you have a good rest of the conference.

Yes. Thank you, Brian. It's been a pleasure.

Thanks a lot. Talk to you soon.