Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

All right. Good morning. Thanks for coming back for the second day of the Industrials Conference. Kicking off the transportation track here with Union Pacific. I'm Brian Ossenbeck, who cover the rails and logistics for JPMorgan. Very excited to have Jim Vena, CEO; and Jennifer Hamann, CFO of Union Pacific. We also have Brad Stock here in the room. So I'm going to kick it over to Jim who's going to make some introductory comments, and then we'll go into Q&A. So Jim, Jennifer, thanks a lot for coming.

Brian, thanks for hosting. Thank you very much. Okay. I'm close enough, people should be able to hear me. So first of all, why don't we do the cautionary information, which says -- and I'm not going to read all this. I'll be real fast. I'd like to remind everyone that we will be making some forward-looking statements. These statements are subject to risks and uncertainties, so please refer to the UP website and SEC filings for additional information about our risk factors. I'm going to start by making a few brief comments for those not in the room, the presentation I'll be referencing can be found on our investor web page. So starting on Slide 3. Union Pacific team is executing our multiyear strategy to lead the industry in safety, service and operational excellence, which leads to growth. That strategy starts with safety and the obligation we have to operate a network that is safe for our stakeholders. As indicated by the stats on the slide, Union Pacific as well as the entire industry has made significant progress over the years. We exited 2023 with good momentum as we had 0 work-related fatalities and saw a 15% reduction in serious injuries. But we understand we still have work to do, especially to reach our goal of industry leadership. To reach our goal, we are investing in our people, changing our culture, continuing to improve our infrastructure and equipment and using technology to propel these efforts. For example, on the personal injury front, our team researched thousands of serious safety incidents and use those findings to refresh our safety strategy. Approximately 1/3 of all serious railroad injuries and the incidents are related to 6 choices individuals make each day. We call these go home safe choices, and we rolled out new policies and training to help employees prevent these potentially life-threatening behaviors. By focusing on these key behaviors, we believe we can drive reductions in safety incidents and improve the overall safety of our company. Having the right culture in place is key to a safer network. I can go on about the infrastructure, equipment and technology investments, but we'll save those for another day. But the key message is that the right priority is being placed on the safety of our network. Moving to the next slide, improving service and driving operational excellence. The next piece of our strategy is delivering the service we sold to our customers, and doing it as efficiently as possible. If you paid attention to our earnings release or other speaking engagements, you know that we've made great progress in both areas in the short period that I have been back at Union Pacific. But again, there's work to be done. The slide provides an update on our service and efficiency metrics for the month of February. And the key takeaway here is that despite the challenges, the weather presented in January, our network showed great resiliency and recovered quickly. While I still expect better performance, our February metrics demonstrated a significant improvement from where we sat a year ago. This level of performance is key to building trust with our customers as we look to increase their business with Union Pacific. But we must do it efficiently, not only to drive financial success, but to drive our cost structure to a place that allows us to compete in more markets. The efficiency of our railroad is on the right track, but understand there are plenty of opportunities to improve asset utilization, lower fuel consumption and increased train length to drive productivity. Turning to the next slide. Success in safety, service and operational excellence does lead to growth, and that's ideally what it's all about. We want to grow. Let's be clear about that objective. Near term, it was good to see February volumes back -- bounce back after the weather impacted January. Our volumes in February were up 6% versus last year, which includes an extra day this helps for the leap year, but we're pleased to see quarter-to-date volumes back to essentially flat versus last year. Longer term, the growth starts with leveraging our franchise, expanding our reach through new service products and providing our customers with a consistent, reliable service product that represents what we sold them. We've talked quite a bit about our new intermodal products, whether that's our Bulk and Eagle premium service, our Port Houston On-Dock or a new Phoenix Intermodal terminal. These are key products that compete in with trucks to win share and driving growth to the railroad. But let's not lose sight of opportunities we see to bring additional carload growth to our railroad. Our franchise provides numerous opportunities for us to benefit from industrial development in the United States, whether it through our construction products, network or petrochemical footprint. And we remain very bullish on the growth we've seen in renewable and biodiesel and the team is delivering with business development wins in these markets. Let's be clear. Kenny and our sales team understand their directive to grow our business, while Eric and his team understand their responsibility to provide our customers with the service we sold them. And the rest of the team understands the responsibility to support our overall strategy to drive long-term returns for our shareholders. The entire UP team is energized behind the strategy and ready to win. With that, Brian, over to you any question you want to ask me. And if you don't have any, I'm good, please take a copy of this, and we'll move on.

Thank you, Jim. I do have a few here, so we'll go ahead and jump right in. Thank you for the update. So it seems like the network is running pretty well at this point. But obviously, you mentioned a few things that you'd want to do better in over time. So any structural changes you think need to be made? Or is this more of the typical blocking and tackling and repeatability as you look forward?

Listen, I've been in this business, Brian, for a long time, and it's not a simple business. If it was, anybody could do it. And you could look at a network that tries to move 160,000 railcars a week or 153,000 like we're -- and change that we're running at this morning. And you think, well, listen, it should be really easy. Customers don't always work at the same level. They don't provide -- they don't release cars. So you're always flexing and inflexing the system. So do I think there's more opportunity? Absolutely, there's more opportunity to take us to the level where we need to be. And there's pockets where we're going to have to invest a little bit. But overall, I like the network we have, I like the originations we have, I like the mix that we have at Union Pacific. So I'm very comfortable and they have a clear sight of where we have to get it. And we're not missing anything. We're not short of people. We've been able to hire the people that we need. So we're -- and at this point in the last few months, any time we've looked them needed to bring in conductor or an engineer or heavy-duty mechanic, we've been able to find them wherever we look. So we don't have a structural issue there. I've talked about assets. It's more than locomotives, but locomotives is a great way to take a look at it. We have -- today, we have 500 locomotives part ready to go, meaning we could go outside and turn them on a base fleet that we need to operate the railroad in the 3,000 to 4,000 range depending on day of week and what's happening. And so we have lots of excess. And then on top of that, we have another 1,000 that we needed to do a little bit of work. That's -- we have as many units parked as some of the other -- the smaller Class 1s have operated in the railroad. So we don't have an asset problem. And our -- the infrastructure that we have in place for being able to move and increase business if we have to. There's pockets where we'll have to invest capital. But overall, the railroad was built to handle more traffic than we have today. So very nice place to be and that we bring it on, we bring it in at low incremental spend both capital and operating.

So on the service side, specifically...

Let me add something -- I'm not happy with where we are, okay? So that's just the way I am. I don't think I ever wake up in the morning and I go wow, Eric, the railroad is running real good. Thank you very much. Kenny, the business you've been able to bring on. I'm real happy with. They want to come back and tell me that we've got a coal problem, and I tell them I don't really care about the coal problem. It's your job to bring the business in and tell us if what level of service we need to be able to bring that business in. So I'm a happy guy this morning, but I just thought I'd let you know how I feel.

I appreciate that. I imagine happy can only go so far. And the coal problem, we will talk about in a little bit. But just coming back to the service. So when you think about what the shippers have kind of endured with the supply chains, not just for railroads or Union Pacific, specifically -- just broadly speaking, been quite volatile. So services you mentioned, is in a good spot, very good spot. Are they willing to bring back volume at this point? Is it there? Do they trust there's going to be there, the service level is going to be able to bring it back? Or is it just simply the demand isn't quite there enough to bring it?

There's 2 different types of customers that you have. There's customers that I've spoken with that are today giving us more business. And if you take a look at the entire Gulf Coast area, going from New Orleans all the way down to Brownsville, that's very important to us, that origination. And they're giving us more traffic. And we're able to win because they see the service and I talk to them. I've been out to petrochemical plants. I've been out to polyvinyl plants, and they want to give us the business. It's the way to move it, and we see that. When you're talking about the other piece of the business, service that's good for 3 months is just not long enough for people to say I'm going to change the way I want to do my supply chain and how I'm going to work. So Brian, we have some work to do and some consistency to keep it. Most customers do not want us to be super-fast, even though we have a network that allows us to be fast if we have to. We can run and the reason that if you looked at that math that we add up, we have 70 miles an hour in there, we actually do have -- we built the railroad, makes us safer because the tolerances are tighter. When you have to inspect and what -- how you can operate the railroad. But on top of that, it allows us. And we go from the West Coast to Dallas in just over 48 hours, and it's close to 2,000 miles. That's truck like when you can do that. But no one's going to make a change over a 3-month efficiency and service and driving that. So we need to make sure that we do it long enough that people are comfortable that they want to change their supply chain. And we're winning. If there was more ground parcel, we won an award for -- over the Christmas season, the rush season, as they call it, being the best railroad service for UPS, which is a great thing to win. It shows what we can do, and we delivered the highest level of any other railroad and the highest level of service. And there, they want speed and timeliness. They do not want to miss a sort. So we can do both. We can be efficient, we can be consistent and we can be -- have speed if we need it.

One thing the company just announced recently was the Service Performance Index that goes down to the customer level. So I want to ask you about that. Can you maybe just give us some background, what it is? What it measures and why you decided to implement it?

This might be a little longer answer. And if you don't mind, let me take a couple of minutes on it. So the problem with too many -- no, let me just back up. Let's just talk about Union Pacific. When we measure things, we have to make sure that we measure what is success for a customer, not what is success for the railroad. What the old TPC measure that we had actually was success against our trip plan that we have built. And it was driven by what we needed to do in our touch points. We've put in a standard of no more than 8 hours to put a railcar into a hump yard, switch it, inspect it, put it on the outbound train and get out. So we built it for ourselves, and we use that as a measure, and that's why the measure would never get to 100% because it wasn't reflective of what the customer wanted. And you have to be careful because you can change the result of things pretty easily. I could have -- first day on the job if I wanted to get the trip plan compliance up to 98%, I would have just changed it to 12 hours. That doesn't do anything because I don't want the people on the field to fix -- to start thinking that they have 12 hours to get a railcar through our system in places where we have to touch it. So wrong measure, it's gone. What SPI is it measures what we've sold to our customers. And it's the -- at a high level, that's what it gives us. Now it's a consolidation of everything. But in actual fact, we have specific measures and specific SPIs and we'll continue to do that with a lot of our customers. And some customers are comfortable that we just give them a consistency of how fast are we consistent? Do we do this in 3 days? Or do we do it in 2 days and others want something more specific. But the SPI measure, when you look at that, if we're in the 90%, that's a number that the customers and us have agreed to, and that's the number that shows how well we're doing. And this morning, we're running over 90% on our intermodal, which is -- that is a point where Kenny and his people can go in and see a customer, and they do not complain that service is the issue that should affect them on how they move. And that's why we made the change. It's much more reflective. Now it would have been easier for a guy like me, change it to 12 hours and -- or do my train speed by change in train numbers and all of a sudden, my train speed goes up by 10%, and everybody thinks we're doing good, but the underlying -- listen, I've been around too long. I don't like it when people play games. In fact, I would rather change that 8 hours down to 7 hours and force them harder to get cars out quicker, not longer.

Got it's very helpful, Jim. Maybe just focus on labor for a minute. You have these workforce agreements and maybe some challenges implementing them, specifically the 11 and 4 for the engineers. So I just want to see if you can give us an update on how that's progressing and if there's any sort of cost or additional headcount because it does sound like this might be or maybe an event for this year and for next year, it's just hard to say given this is a new program like how it's going to play out.

Listen, when I showed up on August 14, a couple of things had jumped out at me. One was the inflationary pressure from both wages, for wages and the input costs that we have to operate the railroad. So it's going to take us. This is a couple of years that will take us to get to where I think we need to be and where we can show what's possible, completely possible at Union Pacific. But I think the fourth quarter showed it, and I think the first quarter, I won't get ahead of my SKUs too much because we still got a few weeks left in this quarter, but I think it will show what's possible for us. And wages we have to deal with. We pay very well. There's a reason why we can attract people and people stay is as we pay and the benefit package that we have is top shelf. It's as good as anybody that coming out of a high school that wants to be a conductor, engineer, heavy-duty mechanic, and we're paying them $150,000 to $200,000 a year. That's what we pay for a locomotive engineer to operate trains. Now quality of life is really important for people, and we want the quality of life to be as good as possible, but we do understand that we operate 7 days a week. And we have this 11 and 4 that we agreed to before I came on. And I think it's workable but we're being very cautious about how we implement it. We're taking our time to make sure we understand it because the last thing we want is to add more costs where we're not getting the same work in 11 days as we did out of 15 days with people. And so far, we'll be able to figure out how to get over that. But in the short term, we're probably carrying some extra people to make sure that we don't affect the service level that we have to. So there isn't anything that I'm really worried about being able to deal. We signed also a sick leave 8-day sick benefit for people so that you take time off. Let me just clear something up. People always had the chance to take time off and they always will. If you're sick, we don't expect you to come to work. Brian is sick this morning, but he came to work, but I'm sort of a little -- I don't get sick so I don't really care. I'll sit closer to him. But at the end of the day, the employee has to decide whether they want to come to work or not. And if they're sick, we don't expect them to come to work, never have, never will. But we gave them 8 days somehow for some reason, so far, over 40% of those sick days have been taken in the first 2 months of the year.

I think it's actually 50%.

See now it has jumped up? On top of that, for some reason, I don't know what it is about NFL football weekends in January and February. There's a lot of people that get sick on weekends, okay? So it is what it is, Brian, you need to deal with that and you move ahead. You can lose a lot of sleep over it and say, boy, people before me shouldn't have done it. There'll be people that come after me and say, what the heck was Vena thinking. I don't think there will be too much, but if there is, right? So be it, and we'll move ahead from it. There isn't anything structurally that we have that we cannot get through and operate the railroad more efficiently than we are today.

Well, I do feel better sitting next to you already. So thank you for that. So something is working. But in terms of the cost for this, for the engineers and for potentially the conductors to shift to this more I guess, maybe perhaps a new way of operating. Is there -- the reason I ask is one of your Canadian peers came out a little while ago and say, well, their cost is about $100 million to do a bunch of these new work rules and sick pay. So I don't know if there's a [ wage ] and you can put a number on it. It seems like it's still kind of in-flight and maybe a little bit more if the conductors actually go forward with a similar sort of rule or a similar sort of agreement, as I understand it.

Yes. So that is an important point that you raised there, Brian, is we -- right now, we only have the work-rest agreement with our engineers. We're still negotiating with the conductors. And so that's still kind of TBD in terms of what that looks like and how we need to implement that. But to Jim's point, the main thing right now is you're seeing us carry a few extra employees as we're going through the implementation process and as we're working through the rollout of that and as we're also watching the volumes because the other thing that Jim has talked about is we want to maintain a buffer. We want to be ready to serve our customers and provide them the service they need. We're going to do it as efficiently as possible, but we've got to be have a little bit of slack in the system to deal with that. And so that's where you're seeing the primary impact come through. And that's our job as management is to offset the impact of that inflation through productivity, through price and through the activities that we're doing to grow the business.

So on the volume comments, I know you had the slide up there with a quick recap, but maybe you can give us a little sense in terms of almost done with the quarter, how are things trending versus expectations? And I know maybe the bigger picture question, just to get your perspective on the full year. I think UP is only one of the railroads not to give a revenue or a volume guide. And so I just wanted to get your thoughts in terms of why that might be the case?

Let me start in general about the guidance that we gave after the fourth quarter, and then Jennifer jump in and take through a little bit deeper dive on it. Bottom line is I'm just an honest person, I just tell it the way it is. And I cannot tell where interest rates are, what's happening to the economy, what is going to happen in the second half of the year, okay? I really can't. And if anybody in this room that's here live wants to put their hand up and tell me what's going to happen in the third and fourth quarter, please do that. I'll come and visit with you, and I'll ask you some pointed questions. So at the end of it, I think it would be not prudent for Union Pacific because that's where I work to get out there and talk about it. I always wonder when growth is -- when somebody announces and growth is always going to be from my own personal investments, okay? And I'm a client to JPMorgan. I have one of those new invest accounts and everything else here, and I got them on some other banks. So it's not all of you, Brian. But at the end of it, I look at -- I always wonder when somebody tells me the growth is coming in 3 or 4 quarters, okay? So I'm much more prudent, always will be, and we will deliver. And if the business is there, we're going to capture and we're going to capture more than our -- what people would think our share should be because of having a great network, great railroad, efficient and be able to give our customers a product that wins. So that's just the way I am. I don't expect us to change well We are not going to get out and tell you that we're going to do x, but guess what, it's all backloaded because then I'll have to come back in the second quarter and tell you what jeez, with water on the beans has changed. It's not going to be that good in the third and fourth quarter. I just don't do that. Okay. Jennifer?

Yes. So I think you hit the nail on the head in terms of the first quarter, Brian, we're flattish right now. The quarter started off a little slower than we would have thought because of similar weather. So our volumes were down 6%, 7% coming out of January. Rebounded very nicely through February, got the help of a little bit of an extra day. But then moving into March, you've got a little timing there as well with the Lunar New Year. So it came a little later this year than last year. But I think the important point is we are meeting our customers' demand needs today. We know we've got a little softness in markets such as coal, Jim referenced that earlier. You still have the interest rates that are impacting the housing market, and that has a ripple effect through our business. So while primarily it hits lumber, you also have some roofing granules and then you have the consumer product side of things everything that goes in the new house, the carpets, the lamps, the furnitures'. So that's an impact as well. And you're seeing that in some of the domestic intermodal truck supply. I think you read about that fairly often is still pretty robust out there, still pretty competitive market. So those are the things that we're watching. But Kenny and his team, I think, are doing a good job going out, talking to customers and winning some incremental business. And so that's why kind of over the long term, and Jim referenced this, we think we should outperform the markets that we serve because we have the great franchise, we're going to provide the great service product and the teams out there winning the business.

You bet. Well, it's a good point, Jim. You're the only company we're who doesn't have a back-half recovery built in. So I guess we won't have to ask you what happened in a couple of quarters. But in terms of the competitive dynamic, we've seen some international intermodal contracts change hands, not just for UP, but probably for some other ones I would guess, coming up. So I just wanted to see what your perspective on was just rail competition in the region. And then more broadly, when you look at some of the investments that BNSF, J.B. Hunt are making for inland terminals, obviously, quite some time away but some pretty significant capital expenditure. Is that something you think might have to be on the table? Are you considering something like that for UP?

Well, I think we are, Brian. I think we're ahead and we will continue to invest. We have the capability to invest. When we build our capital plan, listen, we spent $15 billion a year to run the railroad. So people forget that. But that's maintenance, that's repairing cars, looking at locomotives, paying people, you name it. And then on top of that, we have a $3.4 billion budget set up this year, $9 million a day on capital -- on the capital program. But the way we look at it is where is it that we think the business is and where we can grow. And that's why we already have developed a terminal in the east end of the L.A. Basin. And the traffic has been moving there for a couple of years. We did that on purpose. We've got ahead of the game to make sure that we were set up there. So if we need to spend more money, we will spend that. No problem at all. If we can reuse some of our facilities. We have capacity in the other terminals we have in the L.A. Basin. I'm just using that as an example of being able to bring more traffic in, more intermodal business and be able to get it in and out of the L.A. Basin and out of those ports. So we always want to be a little bit ahead of the game. We opened up the terminal in Phoenix, and it's not full yet. But we think there's a market there for us. It's a city that's growing. There's 5 million people living in that area and just [ watch ] the big changes in Arizona. So Brian, other railroads can spend the money, and it's -- for the industry, I think it's great, and I love competition. I'll put our network up against anybody. And if we can have an operational efficiency that's better than our main competitor. And then that opens up markets and allows us to do things in places that other people can't. This is not -- you don't build a capital plan. I always -- I find it a little frustrating when people say, boy, you're spending $3.4 billion. The big question is, is it a smart money that we're spending? Are we doing it at the right places? Are we -- why would we spend money on locomotives when we have 500 of them [ parked ]? We're rebuilding some, but I'm not going to go out and buy new locomotives when we've got that many. Are we upgrading them to make sure that they're Tier 4 and have the best systems in place? Absolutely. But -- so -- that's the way to look at it, Brian. This is not -- and does Union Pacific have the capability to be able to go spend another $1 billion if we thought the market was there and we could grow it, we'd do it tomorrow, okay? We've got the capacity and watch us as we go through on free cash flow and what we're doing this year. We have the capacity to be able to do that. So this is not a dollar [ INCNT ]. This is purely driven on what's possible and what we think we need to add to the network to grow our business, and I'm very comfortable with it. Very comfortable.

One more question on the end markets with coal. Obviously, natural gas is quite low. I don't think we expected it to be the slow to start the year. And stockpiles seemingly pretty high. Is this -- and natural gas prices are still volatile, actually been up a little bit and back down. So is this something the network can manage pretty easily, not that that's an easy situation to manage with that much volume down. But how do you sort of adjust for that? And are we kind of the run rate we should expect for the rest of the year when we get coal?

Well, listen, coal is always -- is going to be drag on our over time. We don't see coal -- our coal business in thermal coal growing. We see it dropping. It is what it is, like I've told the marketing people and Kenny and the entire team, I don't really care. That's part of being Union Pacific is, is we have a problem area on one. But tell me about the petrochemical industry. We have the plastics industry. We have the -- all the facilities we have for intermodal, the grain business that we have, our access into Mexico, our 26% ownership of the FXE, how can we partner? Can we nearshore more? Can we do that? And I'm absolutely sure we're going to offset that. So we can look at it as now would it be nice if natural gas prices went to $10? I guess maybe I should build it into next year's first and second quarter and then tell you that our coal business won't drop that much. I just don't do that, okay? So coal is what it is. I'm not worried about it, and we will react to make sure that we don't have too much capital and get ahead of ourselves and on the people front and on the expense side that we're set up properly to manage that change in business. Because what happens is, is there's a piece of our network where the coal is -- makes up a bigger segment of the pie. And we know we're going to have to adjust some of the assets and just the people up there and put them in other places, in Texas and in the southern part of our network. So it is what it is. I'm not worried about that. It was a good question, Brian. I know I was sort of jumping on it a little bit, and I apologize, but it is what it is. You're always going to have businesses that are helping you and businesses that are not. The soda ash business, they're expanding with everything that's happening and where that's used in the manufacturing of the glass. So people are expanding, and we love it. They're on our railroad, and we'll work with them to expand it and give them more export and more domestic use.

Okay. No, I appreciate the comments there. In terms of looking at the first quarter, most of the quarters in the bag at least last couple of weeks here. I think the commentary on the last call was it would be a little bit hard to improve OR sequentially from the fourth quarter to the first quarter, which seems to usually be the case. But then the broader commentary was like a more general improvement throughout the full year and maybe into next year. So I just wanted to see if you could put a little context on that, assuming that still stands. But any thoughts on the first quarter and where we stand?

Yes. I mean your comparison of fourth quarter to first quarter is right on. When you go into the first quarter, that's your lightest volume quarter of the year. That's also when you have some costs at the beginning of the year, they're a little higher. You've got some of the weather that you're dealing with. You've got payroll taxes restarting again. And so first quarter generally for us and the seasonality in our business is usually not a better quarter from an OR perspective, from a profitability perspective than fourth quarter. Our volumes then build through the year and then start to taper. Last year was a little unusual because we actually had sequential volume growth into the fourth quarter. Fourth quarter, as Jim referenced, was very strong for us. We had strong sequential improvement in ROR, 250 basis points and 10 basis points year-over-year. So I think the key way for you all to judge us as we move through 2024 is how are we performing month-over-month, quarter-over-quarter. Are you seeing us continue to be as efficient as we can be both from an OR and a capital standpoint? And are you seeing us improve the service metrics to our customer and getting every piece of business that's out there and available to us taken into context some of the headwinds we have, and we still feel very, very comfortable with that dynamic?

Okay. One thing I will forecast is we will have the best operating ratio and the best margin business, railroad in North America. So I'm not really worried about that. And I'm saying that because of -- people can go back and look at my history and what I've done before. And I have a clear view of how we get there, understand how we're going to get there. It's going to take us a little longer because of the expense side was way higher when I showed up in the inflation, but I'm not real worried about us looking at as we go through '24 and '25, where we're going to end up. I'm very comfortable with it. I know you've got me to forecast something, I can't believe it.

But with that time frame.

That's in the time frame. Nicely done. So in terms of the cost side you mentioned, in terms of price cost for the industry has been challenging for a while now. But I think the commentary that you guys have made is that price was not accretive to margin. I think that's more so on percentage terms, but on a dollar-for-dollar basis, it is accretive to EBIT.

That's correct.

So you can give us a sense in terms of like when that actually mean we care about the EBIT dollars, but I think people tend to focus on percentage maybe a little bit more. Is this still going to be an event through '24 and into '25? Like how are these contracts going to roll off? And now there's a big focus for Kenny and the team to get that sort of back into alignment?

Yes. So you're right on the commentary in terms of 2024 margins aren't going to be accretive. And the way that we talk about that is yielding price dollars that exceed our inflation dollars. And so it's really just a math exercise if you're putting the same dollar in the numerator and the denominator, you're coming out with a little bit worse number. And so that's where we're saying it's not accretive to our margins, but it is accretive to EBITDA. I'm not going to make a forecast of when that's going to turn other than you look at our portfolio, so call it 50% of our business is under multiyear contracts. There are escalators in there, but they're -- in many cases, they haven't quite kept up with some of the inflation because they weren't designed to keep up with inflation as high as it has been over the last couple of years. Then you have the other 50% of the business that we're actively out there touching. And that's where Kenny and team are being aggressive. And they've got that dual goal. They need to win new business at very good margins and at higher prices. And I think so far, I think they're doing a really good job with that. And delivering some strong price for us this year. We do have a couple of headwinds in our price because we give you -- when we talk about that not being accretive, that's a net number, too. So there's pluses and minuses. The minus, you've referred to one already in terms of coal. We do have some of our coal business that is -- have some linkage to natural gas and with natural gas prices being low, that's a headwind. And we do have some headwinds from intermodal pricing as well. So as those markets turn, that helps us. But really the key part is when we're out there actively negotiating business that we are selling the service product that we're providing to our customers and being pretty aggressive there to cover that cost inflation.

Perfect. Jim I want to ask you about the truckload conversion opportunity. You mentioned the carload growth story, which is obviously quite big as well. But from a truckload perspective, given the longer length of haul for Union Pacific, is that something you still feel like there's a lot of opportunity there. Maybe it is on shorter length of haul as well that we don't quite have as much visibility to, but do you have any examples of what you secured already? What you're interested in? How that might progress throughout the next couple of years?

I think the steps we've taken in service and consistency and recoverability and you can see that in January are really important for us to start getting in. And it's going to be a tough -- absolutely a tough market to win in, but if we can be very efficient in how we operate the railroad and we have the capacity to be able to deal with that business at the level it has to and provide the service. Listen, we are 70% friendly or greenhouse gas emissions than trucks. Does that -- I'll be honest, does it make a difference when we ever bring that up with the company, not very often. Most of them go, tell me what the price is and can you be consistent. That's what they give us feedback, and that's how we win the business. So we are much more. But at the end of the day, if we continue to operate service -- and that's why we're selling it hard. We're selling the type of railroad that we have and where we can bring people together. And we're working with other railroads. The railroad I used to work at CN to see how we can extend the reach so that we make it easier for people who want to have the truckload business on an intermodal, on our railroad. The new service we have coming out of Mexico. We are the fastest service moving containers and trailers up to Chicago from Mexico. Nobody can get anywhere near our speed, and that's important for us to see how we grow the business. So we're targeted. And I'm not going to tell you any more than that. The competitors might be listening in. And for me, it's -- I want to win that. But if you have good service and you have operational capability because you're a very efficient railroad operating-wise and margin-wise, gives you an opportunity to be able to grow that business. And I'll take like 3% or 4% a year, I'll be a happy person. It's -- I don't expect us to change everything and affect the way we price. Because overall, the value of who we are also is important to me, and we are not going to start cutting prices to be able to just go after business to add a whole bunch of revenue without understanding how it drives to the bottom line.

Okay. Well, unfortunately, we're out of time, but thank you both very much for the update today. Really appreciate you spending time with us.

Well, listen, thank you very much. Thanks for everybody listening in. I'm very excited. It should be a lot of fun, stay tuned, and hopefully, I'll come back there next year, and we'll be able to update you some more on where the heck we are in this journey. Railroads, a lot of fun. Great business. Thank you very much.

Thank you.

Thank you.