Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

I think we're ready to start here. Good morning, everybody. Thanks for coming. Anyone who -- anyone standing in the back, we do have some seating that looks like available upfront here. So please find an empty seat, if you would. My name is Brad Stock. I'm the Assistant Vice President of Investor Relations. I think I know a good portion of you, but those that I haven't, would love to meet with you after the event. We welcome those that have joined us here in Dallas as well as those online. So before we start today, I've got the task of going through a few housekeeping items to make sure that we are set for the day. First, a quick safety briefing. As shown on the slide, you're currently in the Century Ballroom. Restrooms are out these back doors and to the right. If you would please make sure all cell phones have been silenced. And if you get up at any point today, please tuck in your chair and also watch -- we got a lot of cords. So I just want to make sure we don't have any tripping. Should we experience any inclement weather, likely not to happen with the sun outside, but if we do, hotel staff will direct us as well as UP folks to the basement. If there's an incident where we need to evacuate the hotel, we will go across the street towards the AT&T Discovery center. And if there is a medical emergency, we have folks assigned to call 911, fetch the AD, and we have a number of CPR-qualified folks. If you have any special medical conditions, please write those on a piece of paper and stick those in your right shoe or jacket pocket. And finally, if we have an active shooter situation, we'll assess the situation of all run, hide or fight. Next, all the slides from today's presentation have been posted out to our website, and a replay of this event will be posted soon after the conclusion. So if anyone missed it or if you need to leave early. Finally, I need to keep my good friend, John Menicucci, and law team happy. So I have to read the safe harbor statement here. So today's Investor Day presentations contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, Section 21E of the Securities Exchange Act of 1934 as amended and the Private Securities Litigation Reform Act of 1995. In addition, management may make forward-looking statements orally or in other writing during and among today's management presentations and question-and-answer sessions. These statements contain a number of risks and uncertainties. Actual results could materially differ from those anticipated by such forward-looking statements as a result of a number of factors or combination of factors affecting the operation of the business and other risks identified in today's presentation in Union Pacific's annual report on Form 10-K in the year ended December 31, 2023, and in other reports filed by Union Pacific within the Securities and Exchange Commission. Forward-looking statements reflect the information only as of the date on which they are made. Union Pacific does not undertake any obligation to update any forward-looking statements to reflect future events, developments or other information. Okay. So with those housekeeping items covered, we will now kick off today's festivities. We will start with a video. And when the video is over, our CEO, Mr. Jim Vena, will be on stage. Thank you. [Presentation]

Well, good morning, everyone. I'm having my first cup of coffee, so I am going to keep it close, okay? I am a little bit of a coffee snob. So guess what? It's not the best coffee in the world, but they will do. It's got caffeine. So welcome to Dallas. I hope you enjoyed the video. It was put together, and all those words were done by our -- by Clarissa, who's our Chief Communication Officer. I think she did a wonderful job of showing who we are and what we do every day. So I think it's a fantastic video. And you can see the employees. This morning, as we're sitting here, we have 7,000 employees on trains handling the business. We have multiple thousands of people inspecting track, inspecting cars. They're the people that actually do the final delivery that moves everything. Yesterday, we moved 2.35 billion -- yes, none of that's on the slide. I don't like following the exact words they give me to say. So yesterday, we move 2.35 billion GTMs of product. Think about that number. So it's not a small enterprise, and we have a responsibility to do that. Did we move it well? I look at things a little deeper inside that we give out to everybody on a daily basis. But our car velocity was good. Could be better. Never happy with car velocity. But our business in some segments is up, especially the international, much more. But overall, if I look at how we're handling the trains through terminals, the cars, how we're switching them, we switched -- had to handle over 100,000 cars yesterday. And that means you touched them not on a true train. We have spotted over 130,000 railcars at customers ready to load, and that number is higher than what we would normally do. And some of that is because of the international. So I'm just giving you a feel of what I look at when I get up at 6:00 in the morning. Railroad is pretty good. Now thanks for coming to Dallas. And hopefully, yesterday, you had a little bit of fun. I spent the entire time out in the sun. And I know a few of you did also. There was a few wimps on the management side, and I'll remember them. Like I think Kenny Rocker spent most of his time sitting inside one of those business carts. So Kenny, if you thought I missed it, you're wrong, okay? And there was a few others. But at the end of the day, what we wanted to show you yesterday was a little bit of our history. And I think that Big Boy's steam engine is really representative of where railroads were and where Union Pacific was. But if you look at it where we are, what's really important to me, yesterday was fun. Last evening was fun. Today it's business. I got my tie on. I'm dressed for business. And we're going to be serious and take you through what we're going to be like and what we think we can do as a company in the next 3 years. We always are pragmatic about how we put targets out we don't get too far ahead of ourselves. But in this event, and why we're having this event, is so that we talk about what we see and what we think is possible for us in the next 3 years. And we're always pragmatic when we put stuff out. So the numbers are out for anybody to see, I think, at 7:30 this morning, our guidance. But hopefully, you all stay with us for the rest of the morning and listen to us as we take you through it, okay? You're going to meet a number of great employees, and this was one of the reasons of having investor conference, was for you to meet some of the talent that works with me every day at Union Pacific. And you're going to have them on the stage. You're going to have a chance to ask them questions. And I think it's a great way to get to know the team and see the kind of talent that we have. Also, why in Dallas? We could have -- and I joked around about it last night at supper, but seriously, Dallas is important to us. It's in the top 10 fastest-growing metro areas in the U.S. We also serve 4 of the other 10, whether it's Phoenix, and we see the growth that we're investing. So I could go through them, Denver, all the communities in the West and the big cities that we serve. And for us, that's really important. What do we do in Dallas? We have 2 intermodal facilities. You saw one of them yesterday. Mesquite is another one. And it's placed because of the size. Normally, you would never have 2, but it's placed there because of the size of the Dallas-Fort Worth metroplex. And we have a great classification yard. This morning, the dwell was 18.5 hours. That's a pretty good number. I know. You'll never hear me say fantastic number because there's more to give. But it's a pretty good way to say that every car that went through there -- and they humped close to 1,800 cars yesterday. You'll also notice that we want to use -- and you'll get more detail as you go with the team, we're talking about what are we going to do with some of the land that we own and how can we bolt on businesses that give us -- to bring more products to the railroad but also leverage that for ourselves if we think it's -- it helps us grow the business. And it's not just intermodal. We spent a lot of money, and you'll hear that from some of our senior VPs, and I'll leave it for them to explain. But welcome to Dallas. I thought it was great. So who are we? What kind of culture do we want to have in the company? And these 3 events in history tell you a little bit about who we want to be, okay? So I really talked about I want you to meet the team. And I think our strategy is clear. It's safety, service, operational excellence, and I'll take you through that a little bit. So let me take you back in time. By the time May of 1953 happened, there was 15 expeditions to try to get up to the top of Mount Everest, and they all failed, the first one being in the 1920s with Mallory in 24 disappeared until his body was found in the side of Mount Everest. But if you think about it, those people, there was a lot of divergent point of view on whether it was a smart thing to do and whether you could survive at a mountain that is high enough that the jet stream hits it at the top at 29,000-plus feet. But they were sure and mankind pushes. Now are we trying to climb Mount Everest? No. But on the 29th of May, a sherpa and a New Zealander climbed to the top and opened up a different view of how the world could be. And mankind always, and humankind, pushes the envelope to see where they can get. And for us, we no longer -- look, I don't listen to people when they tell me, well, coal could be a problem. So what? What do we do to make sure we make that up? We do have a great railroad, and we should be able to use our railroad and our network to grow. So it's all about what's possible. What's even crazier is there was an Italian from Northern Italy, Reinhold Messner. If anybody follows, it's a great book to read of his, okay? And he talks about he wanted to go up to the top of Everest, 29,000 feet with no supplemental oxygen. And everybody thought he was crazy. You can see one of my passions in life. That's why I've been to Mount Everest base camp 3 times, okay? And I went up a little bit, and it's not a big deal. That's not what we're going to talk about. But at the end of the day is this guy decided he's going to go up to the top with no oxygen. And did he make it? Yes. Everybody, doctors that studied that said, your brain is going to implode. You're going to have permanent brain damage. You're going to have a real problem. And Reinhold Messner is still alive in Northern Italy, okay? And that's what we want to do. We want to push the envelope, and that's who we are. It's what is possible. So if you want success, you need to make sure that you lay the foundation. And you can see this on what we've been able to do in the last 12 months, June 30. And we could have updated the slide, nothing's changed, and said it was as of yesterday. But sometimes you know it's good to just hammer down the timeframe and do it. It basically aligns with the timeframe. But our injury rate is down 22%. Our freight car velocity is up. Our terminal dwell is better. Intermodal service performance exited up 11 points. So we're delivering better service. That's the foundation. Now below that, it's about another 100 numbers that I look at every morning on a quick summary. And that's important, is that we are all aligned in the company. Those numbers are available to everybody that operates the company. There's no secret. So when I tell somebody like Hunt, Hunt Cary, who some of you were on the bus with yesterday, I don't like how fast your car velocity is on intermodal. I'm sure he's looked at it before me. So we don't have a lot of discussion. So what are we selling? What's our advantage? You heard me talking about the coal and the way we should look at it as leverage. If you look at this map, what this map tells you is that looking at the 23 states, we have a cross-section of a business that is used in the industrial production and the consumer across the entire 23 states. And of course, we go -- we partner with Canadian National and Canadian Pacific, Kansas City, to go into Canada. We partner with short lines. We partner with CSX and NS to go East. But for us, our origination franchise is really important. Let me just take a minute to go around. I think we've got a franchise that is the best when it comes to that crescent from New Orleans and the petrochemical industry from New Orleans all the way to Brownsville. And it continues to expand. And you'll hear some of that, that people are putting in more products in there. You can see the grain business that we have in the American plains. We have plastics in places. We have coal that still operates a number of trains every day. The West Coast, we've got -- if you go to Los Angeles, not only are we handing a lot of consumer products. We have the big international ports of L.A. and Long Beach plus our own domestic business in there. And I could keep on going. Lumber, steel, tin, so industrial products of all sorts. And we put that 70 miles an hour up there on purpose. We actually do build our railroad unless the curvature is too severe to be able to operate our freight trains at up to 70 miles an hour. And listen, they don't all operate at 70 miles an hour. But if anybody thinks that is not the coolest site in the world to see a regular length 15,000-foot train flying through to Tucson, Arizona -- east of Tucson, okay, and going 70 miles an hour as the interstate is running right next to it, and I'm in my vehicle in the interstate, that's pretty cool. And we sell that. It gives us, in some quarters, truck-like speed. Not everybody needs that speed. But the ones that do, we can go from L.A. to Dallas in around 2 days, and it's just under 2,000 miles. So that's what we're selling. And it's a great diversified business. We're serving the fastest-growing centers. And our access into Mexico, I can't leave that, gives us multiple entryways into Mexico, in all of them that go across. And you can see them listed on the slide. So what's our strategy? Let's get back to it. You've heard me say it. You'll probably hear me say it so often that you're sick of it. It's safety, service, operational excellence. And why start with safety? Listen, I've been railroading for a long time, okay? I think my first job was actually in 1975, but first time permanent was in 1977. In 1986, on February 8, okay, there was a head-on collision at the railroad I used to work on where a passenger train ran in and a freight train collided. 23 people from my hometown at Jasper, Alberta, a lot of them were on that train and died. The head-end crew, I still remember their names. We never sacrifice safety for what we have to do. We spend for training. We spend on technology. And we make sure that we have all the tools to be the best. I can name you the people on the train. There was [ Emo Miller ]. I'll stop there. So safety is a foundation of everything that we do. Now are we safe as a railroad? Yes, you could take a train of ours and run it around the equator 49 times before you would have an incident, a mainline or an incident in a siding. So we are safe. We are the safest ground transportation method of moving cars anywhere. What's service? Service is what we sold the customers. Some of them want high speed. Some of them want timeliness. Some of them want consistency. Some of them want Monday to Friday service only. Some of them want 2-time-a-day service. So service for us is what we sold the customer. And that's important that we don't lose sight of it. Now for the public, we have to tell everybody. And we do. We provide an index that says how are we doing it. But at the end of the day, we don't -- we look at that as a guide. More important to us is what have we done to the individual customer. And if you want to grow the business, you need to be able to handle that piece and deliver at a high level. The parcel, we won with UPS last year the carrier that had the best peak. And we didn't win that by accident. We worked hard to do that, and we have the railroad to do that, and we want to win it again this year. And that, during peak, UPS expects us to be just about at 100%. So we have that capability. But listen, a customer that is shipping fertilizer to a storage facility in Portland that has 150,000 tons of capacity looks at timing a little differently than somebody like UPS or FedEx or one of those. And that's what service is. Asset utilization, listen, every locomotive cost us a lot of money. And every piece of equipment costs us a lot of money. So for us, we sweat the access every day, but we keep a buffer. And if anybody was wondering what's Vena talking about when he's talked about buffer is, I think there wasn't a lot of people that expected the bump-up in Western International intermodal that happened here in the last 90 days. And I think we've been able to show people how we've been able to use that buffer in our railroad infrastructure, our people and our assets to be able to do that. Cost control is all about -- I have a mantra that I tell everybody. Think about it as if you are spending your own money. And listen, I got to have a little bit of fun, okay? I'm in work mode. I'm serious, but got to have a little bit of fun. So I forgot my ties. And I was going to wear a tie for supper last night. So I unload my suitcase. And I go, son of a gun, Vena, you idiot. Because I'm a process guy. When I pack, I pack from my feet up, right? That way you don't make a mistake. But something got to me, and I stopped at some point. And son of a gun, I opened up and go, I don't have a tie. Well, last night, I was okay. But this morning, I wanted a tie. So I asked some of the people that are here to help me. I said, would you guys mind going out to get a tie? So I don't know. They're crazy. They went to Neiman Marcus. Now it's a nice tie, but I don't usually spend that kind of money on a tie. So they must have thought it comes back to my mantra about spend the money as if it was your own. They thought, I'm sure Vena spends money and buys $350 ties, okay? Son of a gun. Anybody want to buy it off of me after? I'm willing to give it to you. And on people, it's the development of people. And the reason I started with telling you how many people were out there working today is we're in an office environment. They're out there working. Some people didn't like the heat yesterday. We have people out there operating at 100-plus degrees and at 20 below weather. It's an outdoor sport. And we do everything we can to retain people, which -- our retention is real high across the board. We don't lose a lot of people once we hire them. They're great jobs. The benefits we provide are top notch, as good or better than anybody. So we need to continue to develop, and I look at the people not as unionized in management. There's a group that are covered by the union. But at the end of the day, they're employees of Union Pacific. So we want to pay them all well. We want to give them a good work environment. We want them to succeed. We want them to be shareholders at Union Pacific, and we have a program out there that everybody can buy in and we match with 40% up to $15,000. And I'm proud to say that now we have over 40% of our people that work at this company that are owners of Union Pacific shares. And for me, that's really important because I wanted to be part of the business. I wanted to be successful just as the company is. So that's our vision and strategy. I wanted to talk to this slide, and I purposely put this one here. I give it a lot of thought, and I wanted this in. It's the balancing that we have to do every day at Union Pacific. The customer expectations are we live to what we've agreed. We deliver on that. And we have to do that. And at times, that customer expectation and what we've promised that we're going to do is going to impact our operational performance a little bit and our financial success. We want to price, but we want to price right. We want to do things that set ourselves into the right place of where we are. We think we have the capability to price, but you can't do that across the whole board easily, and you have to be smart about what the market gives us. On the operational performance, you don't want to be so lean that you can't handle the normal variations of what happens in our business. Listen, our business drops the amount of cars released on every weekend is normal to see a drop 15%, 20%, 25%. So think of the capacity we really have if everybody released on a flatline basis over 7 days a week. But that's customers. They're paying the bill. It's pretty hard for us to move them all to do that. But at the end of the day, that's the pressure you have and expectation and operational performance. And that drives the way, and we understand what our financial success is. What's our financial success? You've seen the metrics we put out this morning and the numbers that we think we can deliver. We're very prudent, but I'm very comfortable that even with all the balancing of everything that we do on a daily basis as a company, as individuals, I'm very comfortable that we're going to be able to deliver that. So what's the agenda today? They've got this timer up here. It says 000. I don't know what that means. Do you think I'm going over my time? But -- so what are you going to see today? The agenda is Eric Gehringer is going to come up. And I've known Eric since I joined the company last time in 2019 and before I went on sabbatical for a couple of years. And I think he's doing a heck of a job. He's a smart individual, understands the business. He's a little bit of an aerospace engineer kind of guy once in a while. So we have to get them back in line. But overall, I think you'll be impressed of his talent and what he's been able to deliver and what he can help with Union Pacific. Rahul is going to come up here and talk about technology. But listen, he's not going to talk about technology in the sense of there's technology out there. We look at it as what can it do for the railroad, how do we speed up the trucks going into our intermodal facilities, how do we handle it quicker, how do we make the UP experience for a customer better and how do we have tools built. And he'll take you through a piece so that we can make decisions quicker and better in the railroad and how we operate our terminals, our operating plan and what we're doing. Kenny Rocker, you know what, I was joking around about him, and it was the truth. He didn't spend any time out in the sun. But at the end of the day, Kenny is a heck of a sales and marketing guy. He's a leader. Don't kid yourself with that giggle and the smile that he has every so often. He's got this killer instinct to go win. And that's what you want. So he's a good relationship, and you'll see them take through in some of this team. Beth, who's our President, and pretty cool, she's the first female President of Union Pacific. And she comes up and is going to give you through a number of products. And Beth has had a great career across the company from labor relations to the finance side, to the customer side, to the human resource side. And listen, I think she's got a great presentation to show you what we're doing with some of the properties and everything else that we're doing looking forward. And then Jennifer, listen, I won't trade Jennifer for anybody. She keeps me grounded. She makes sure that we're prudent about what we're doing and the facts are the facts. And that's the way we are. And she does a fantastic job. So I'm looking forward to today. You won't see me again until the question-and-answer panel at the end because this day really is for you all to get a greater picture of the talent we have at Union Pacific, what our vision is of what we're going to go. So with that, thank you very much. We're going to have a little video, and then Eric is going to come up. Thank you very much. [Presentation]

Good morning. It's an exceptional video. It really captures on the technology side when we say we're pursuing what's possible. That actually captures many examples of us doing that today. Now as I think about Union Pacific, I focus on the fact that we are a truly exceptional company. It's actually what attracted me to UP 19 years ago. And as I think back over those 19 years, whether it was the 10 years I spent in field operations as our Chief Engineer, as our Chief Mechanical Officer, leading our transportation team or the role I have now, the same 2 things have always driven me. The first one is our mission. We fundamentally build America. I believe, at my very core, the prosperity of our country is tied to Union Pacific. And it's the greatest calling professionally that we can answer. The other thing that drives me on a very consistent basis day in and day out is I always believe there's a better way to do things, even things we're doing well today. If you talk to some of the people in the room that I work with on a daily basis, they'll talk to you about the fact that I always ask them, okay, even when we're doing good, what does great look like, and really reinforcing to our team that's the culture we want to have. It's almost a perpetual dissatisfaction with our results because it pushes us to always accept the fact that we can do better. So let's start on how we think about safety. Already this year, we're making tremendous progress in our safety results. We are clearly on the path to become the safest railroad. We're doing it with the strategy that you see here on this slide. It has 4 specific pillars. On the left-hand side, it starts with our work to prevent serious injuries. This is a program in which we target a specific set of our rules, rules that we know that any form of noncompliance can result in a serious injury. We spend more time in the classroom, more time in the field with our employees, helping to ensure they understand how to execute against those rules. You just saw at least half a dozen examples of the leveraging technology pillar of the strategy. On the commit side, we talk about this as it's a hearts and minds program. It's us being in the field to Jim's point, no titles, just people out with those that have done the work before and those that are doing the work now. We do that for 2 reasons. We want to provide education, coaching and training while we're out in the field actually doing the activities that run this railroad. But at the same time, we want our craft professionals who are those closest to the work to have an avenue to talk to managers about how do they think we should do the work and then using that feedback to continue to evolve how we think about safety. And then finally, peer-to-peer. Peer-to-peer is about a family culture. We are a family at Union Pacific. But also like a family, you have to be able to care for yourself when it comes to safety and those around you. And that manifests itself in having the courage no matter how few years you have on the railroad, how many years, what title you have. You're willing to take on the conversations where if you see something unsafe, you talk about it. You mitigate that risk. The proof that we have already that this is working is serious injuries year-to-date down 25% versus same time last year. Our derailment is down 15%, and our personal injuries are down 22%. We're not the safest yet, but we're going to be there. So let's talk about the railroad itself. And really no matter what type of audience I'm talking to, this slide always usually shows up because I believe one of the responsibilities in my job is to deepen the understanding of any person I come into contact with on how do we fundamentally execute operational excellence because for us, what that really means is how do you operate our complex 32,000-mile outdoor factory. And what you see on the screen are all the building blocks to accomplish that. And my hope here is that I'm going to deepen your understanding of how we do that on a daily basis because it feeds everything else you're going to see. So we start in our blues. This is the literal foundation of the Union Pacific because it's our infrastructure. We talk about 32,000 miles. But did you know that we have 110 million ties that we have to maintain and renew across our railroad? That's enough ties to go from here to the moon. We also have 89,000 miles of rail. We could wrap that around the equator of the earth 3.5 times. And of course, we have 16,000 bridges. Enough that if you actually stack them end to end, you can walk from Omaha, Nebraska and never touch the ground until you get to Colorado. We then, of course, have 273 terminals. Those collectively form the foundation of our service product. But when you think about our service product, you then have to get into the purples because this is really where the volume comes from and where the volume goes to. If we think about our ports as an example, PNW, L.A. and Houston, on average, 1.6 million carloads come from those ports every year. If you then expand a little bit beyond and you look at the interchange points that Jim mentioned, 2 in Canada, 6 in Mexico, hands down the best interchange franchise of any railroad. And as a result of that, we get about 1 million carloads every year that come across those 8 interchange points. And we don't only interchange with Canada and Mexico. Inside our 32,000 miles, 600 different locations where we interchange traffic on a daily basis. And we do that with 260 different entities that range from short lines to other Class 1 railroads. And then finally, we have approximately 10,000 customer facilities that we serve. It starts to give you a better feel from when we talk about operational excellence. What do you actually have to do to accomplish that? Then you move to the reds and the reds are some of the most important because they are fundamentally how we move freight. You start with our locomotive fleet. We've talked to you before. We have about 3,500 locomotives in our mainline fleet. Each one of those locomotives has about 200,000 parts. Each one of those locomotives on average will go 81,000 miles in a year. As a result of that, we perform 3 million inspections per year in our locomotive fleet. That generates 6.3 million specific maintenance tasks that have to be done to ensure that they're reliable to deliver our service product. On the car side, a fleet of 343,000 cars in our inventory, 20 parts per car, 81,000 to 84,000 miles traveled every single year. 13 million inspections are performed and 1.6 million repairs performed every year just so we can ensure that we have the cars our customers need and they're reliable. Then you move to the oranges, and this is what ties it all together, specifically our transportation plan and our locomotive plan. Up to this point, we've talked about asset classes, tracks, signals, bridges, terminals, locomotives and cars. The T-plan and the L-plan, which is what we call them, that's what actually connects everything. That's what dictates on a daily basis the trains we run, how long are they, how many locomotives they have, where are the locomotives in the train, how many mechanical repairs do we have to do. And then, of course, you have the yellow, crews and dispatching. On a daily basis, we're dispatching 2,500-plus trains across our system. And of course, we wrap our safety systems around all of that. So when you hear us talking about building America with operational excellence, this is how we do it. And these are the results of that work. When we think about service, it's what we sold our customers. Operational excellence is how we deliver that service, and king among the way we do that is terminal dwell and car velocity. You can see the results over the last 8 quarters in the top 2 charts. You can see the trend of continuous improvement through all 8 quarters. That is critical to our service product. The faster we can move cars into a terminal and back out of a terminal. First, we generate capacity. Second, we generate car velocity. Car velocity drives fluidity. Fluidity is what drives our service product. When we get bogged down in parts of our railroad, that is a massive headwind for our service product. It's not what our customers paid us to do. So our job every single day is to look for opportunities. And you can see the results on the service side. Again, same trend. As our terminal wells come down, car velocity has gone up. To Jim's point, it's never good enough. I'm not happy with the 214 we got this morning on the 7-day. It should be more like a 220. But you can see the results on the service side. And we hear that feedback from our customers, that they're satisfied with our service across the system. So now when you think about inside of that, how do we think about productivity? And I always talk about the fact that I think some people, not all people, they have a misunderstanding about productivity. When they hear the word productivity, they think just dollars and cents. That's actually not why we focus on productivity at UP. Productivity is about growth. We know from all of our history and current state right now that the more productive we are, the better we put Kenny and the team in positions to compete not only for the markets of today but for the markets of the future as well. And you can see we're doing that on train length, right? Continuous improvement. Second quarter of this year, best quarter in the history of Union Pacific. That included the best month in the history of Union Pacific, which was in June. However, the thousands of people that are out on the railroad today, they said that wasn't good enough. So in July, they beat the best ever. And then in August, they beat that. Train length will continue to be a very important productivity initiative for us from a capacity perspective, a dollars and cents perspective and a service perspective. Top right, locomotive productivity. Lots of things go into locomotive productivity, but 2 are far bigger than everything else. One is our fleet size, all the work that we've done over the years to ensure that we keep that fleet as lean as possible while still maintaining a buffer that we'll talk about in a minute. The other big item is locomotive dwell in our terminals. And it's a simple measure, and we don't complicate things for our teams. It's the time between when the locomotive arrives in the terminal and when it leaves the terminal. If you go back and look 4-ish years ago compared to now, we're down about 35% in our locomotive dwell. 6 of those 35 points have been delivered in just this year alone. That's a testament to all of you that we still see opportunities on a daily basis today, even in something that we've improved 35%. Workforce productivity, large increase in 2024. But most people think about workforce productivity for transportation. And while clearly there is transportation productivity in there, don't forget the mechanical team best record ever year-to-date on their head count per asset, asset being either a locomotive or a car. The engineering team, you just saw examples of their continued work to automate operations, which dramatically reduced the number of people that we need while improving the safety of how we do the work. And then fuel consumption, good trend. You see it leveling out a little bit here over the last 18 months. There's people in this room specifically that have the best list of our portfolio of initiatives for reducing our fuel consumption. In fact, it's the best that I think we've ever delivered. It focuses on things that start with fleet size, but then it focuses on EMS, which we've talked to this group about before. EMS is one of those systems like PTC. You can keep bolting on improvements, even going all the way down to the anti-idling technology that we're working to be able to get on our locomotives. So we've got opportunities in all 4 of these, and that's one of the most important messages I would ask you to take away. So now do we have the actual capacity to grow? Definitively, yes, because you need these 5 things to do it, and we have them. On our mainline capacity, we've invested over the last 5 years more than $900 million. Those investments are usually in 3 things. It's either the construction of a new siding, the extension of an existing siding or the adding of double track. And we'll talk in a minute about where we're doing that over the next 3 years. Terminal capacity, I want to be really clear here. Terminal capacity starts with process improvement. It's the work of thousands of people every single day to once again look at how do we do it today, where do we see the opportunities, get them on the railroad and let's keep moving that metric in the right direction. In addition to that, we've invested nearly $600 million over the last 5 years in most of our manifest terminals and some of our intermodal terminals. I say most from the perspective of when you think about a project like Inglewood, at nearly $125 million that we've spent in a phased approach, those are big investments for us. And they have big returns because the commercial team continues to drive growth out of the Gulf Coast region. Locomotives, we still maintain a fleet of about 500 that are buffers staged across the system in certain locations. And you can see us actually using them. When we had the hurricane that most recently hit down in the Gulf Coast area, we pulled some locomotives out of that fleet so that we can pick that car velocity back up. With the international intermodal that Jim mentioned, we're using some of those. That's why they're there. They're there to deal with variability. They're there to deal with seasonality and our volume. And most exciting of all, they're there to deal with the business development wins that Kenny and the team are bringing to the railroad. From a people perspective, it's the same thing. We've got extra crews surgically and thoughtfully placed around the system that we can call upon for growth. And then, of course, for freight cars, not only do we have cars stored across the system. We're still investing hundreds of millions of dollars in our fleet. Some of that investment is to replace cars that have aged out. Some of that, once again, is the business development wins that Kenny and the team are bringing to the railroad, and there's no better reason to buy cars than that. So let's talk about those investments on our mainline and our terminals over the next 3 years, and I'm going to underline that. This is over the next 3 years. Some of these projects have actually already started to be constructed. We start with our dots that show as green. These are those mainline projects, siding extension, siding construction, double track. Some of them that have my highest attention are the green dots that you see up in the Pacific Northwest, siding extensions and siding construction. That will allow us to continue to drive growth into the PNW. What I'm equally excited about is on the Sunset. You can see some green dots on that. In 2025, we're going to recommence with doing additional double track on our Sunset route. We've got about 127 miles of still single main track down there. That's a direct result of the growth that Kenny and the team have in our long-range plan. The yellow dots are our manifest terminals. You're going to see us continue to invest even more in our manifest terminals. And that's a direct result of ensuring that we have the capacity to handle the growth over the next 3 years. Those investments take 2 forms. At the most basic fundamental level, it's going into a yard, extending tracks, adding new tracks, or as we'll talk about in a minute, implementing new technologies, some of which you saw on the video, all with an eye towards generating capacity. The other form that it takes is where we actually put what we would call as a bypass track. So if you have a single main running through a terminal, it's adding another track next to it, say, for about 3 to 5 miles so that you can circumnavigate that terminal and promote fluidity in the terminal. And then finally, the intermodal. Kari and Kenny are going to talk about this at length. But in addition to the 1 million lifts that we've added of capacity over the last 4 to 5 years, we still have investments that we're making. And they're investments that are all tied to growth that's on the railroad and coming to the railroad. And then finally, as you think about that growth, it's one thing to say we're building things. But we don't want to just be that company. We want to be the company that takes great pride in the manner in which we build things and the service product offerings that we put on the Union Pacific. These are 4 examples of many examples where we're demonstrating better than we ever have before agility and speed. Up on the top left, the L.A. Basin, the Inland Empire, an area in which it's just inundated with warehousing. We've created an approach in which we've repurposed part of a yard, which is our West Colton yard, and through a phased, which means judicious, investment strategy. We build some, Kari and the team fill it up. We build more, Kari and the team fill it up. And that's exactly what they've done there. We started at 25,000 loads per year, and now we've got 140,000 loads, and we're building to nearly 0.25 million loads. Same thing with Phoenix from the perspective of speed. Old UP 4, 5 years ago, if we had said we want to have a new intermodal terminal in Phoenix, it might have taken us 2 years to do that. As Kari will talk about later today, it was a fraction at that time. On the right-hand side, you see our service products that are new to the railroad. Once again, not spending weeks and months and quarters developing these. Rather, it's Kenny and the team saying there's demand there, what service product do our customers need and coming to us, helping us understand that and getting it on the railroad. The one that's L.A. to Chicago, that was about actually bypassing G4 to go to G2, which gets you closer to the heart of Chicago. That train is out there and it's running. Falcon and Eagle Premium, this is all about the service that we've established coming out of Mexico going into Chicago and then eventually Canada, some of the best performance intermodal-wise that we have on the entire system. So the bottom line for the operating department is as we think about operational excellence, we're demonstrating that on a daily basis. But that mentality, that perpetual dissatisfaction with our results, that's our culture because it's in that perpetual dissatisfaction we continue to challenge ourselves from going from good to great. Thank you. The next person up is going to be our CIO, Rahul Jalali.

Good morning. I am excited to talk with all of you today. I've been on the railroad for nearly 4 years, and prior to that, spent 24 years at Walmart. And these experiences really define my worldview, which is focused on being customer-centric, being operationally efficient and running safe, secure tech. At Union Pacific, we always start with safety. And in my world, that includes cybersecurity. We're excited about setting industry standards and regularly collaborate with best-in-class partners as well as the government to keep us secure. We have built a strong foundation of platforms across our business, starting with the Salesforce CRM for marketing and sales to the industry-leading platforms for operating. And we are in the process of implementing SAP for our back-office systems refresh. What excites me is that we are beginning to thread these platforms with free-flowing, rich, real-time data that enables the development for features, driving operating efficiency and customer centricity. As you saw in the video, we take pride in being the first railroad to deliver the next generation of core operating systems with the completion of our NetControl transportation management system. It is built with an advanced micro-services architecture that is generating 6 billion API calls a day. This volume rivals what you may see from some of the most admired companies in Silicon Valley. Yes, that's coming from Union Pacific. Combined with AI and machine learning, we see an opportunity for the next generation of productivity. Eric and I have set an aggressive goal to deliver $100 million in productivity over the next 3 years from these efforts. You saw an example of this in the video, but let me tell you about a few more. First, let's start with the agile transportation plan. Again, you saw that on the video. It's an initiative where we're focused on developing a better-quality transportation plan and enabling the capability to replan on demand as things change. In our large outdoor factory, things evolve rapidly. And our transportation plan should also evolve to optimize the millions of car connections we execute each year. In turn, that optimization improves network fluidity. You heard Eric talk about 5 critical resources required to grow. And we are leveraging our rich data layer to optimize those resources for maximum efficiency. An example of this is using our data to expand the footprint of remote control operations performed across our network. We also see this opportunity to help our frontline employees. And one way is through decision support tools, Terminal Command Center, which you saw in the video provides a real-time view of terminal performance, advancing our ability to drive productivity. In future, we'll enhance Terminal Command Center to equip those frontline employees with turn-by-turn direction for consistent execution. That consistent execution will drive improved service. Finally, we have several initiatives around automation in play to help drive productivity as well as capacity. One example is the semiautonomous crew repositioning in our yards. In this pilot, a vehicle capable of driving itself will position to pick up a crew and then the crew that drives themselves back or simply vice versa. We are piloting the tech at a location right here in Texas this year with an opportunity to expand thereafter. If you think about the scale of van rides we use annually, which is more than 100,000 in our yards, you can begin to see what this innovation will mean for efficiency and cost. I again want to emphasize that we are beginning to use AI pervasively in all these efforts and continuously train our AI models on the real-time data. And our technologists are now deeply embedded, partnering with the operating expertise of Eric and his team to redefine operations. Now equally as important is the customer experience, and I heard a lot about that at the dinner last night. So let's talk about that, how our platforms will enable growth for -- with our customers. Customers have told us loud and clear that they would like to see an accelerated shopping journey, whether they are new customers or existing ones with new business opportunities. Using this real-time data integrations, we've reduced the time to onboard for the new customers already by 20% to 25%. Now my friend, Kenny, and I never are happy with that number. We want to get that onboarding process even better. So we'll go back to Jim's challenge of what's possible. We are continually evolving to reduce the friction across the entire customer journey. We're also getting very sophisticated in connecting directly with customer supply chain systems, which in turn reduces calls into our customer care and support teams. And one thing that excites me about these interactions, that we are now developing bidirectional pathways with our key customers. In addition to the information that they request, we're also pushing the data to the customers that will help them make more agile supply chain decisions. Finally, customers have told us when it comes to visibility, again, I heard that a lot at the dinner table last night, they would like to see 3 things. Where is my stuff? Can you be exceptional in exception management? And when an exception happens, notify us in real time. And we agree wholeheartedly with that. In response, we're actually developing a new product that will arrive later this year called Customer Vision, and we are not doing that in a vacuum. We have a pilot group of more than 100 customers who have started to provide feedback from the very first line of code that we are writing. That is customer centricity to me. Ladies and gentlemen, we have a very talented tech team at Union Pacific, and I'm excited by the tech-powered era of railroading that's getting unleashed at UP. Thank you. And next we have panel with Brad.

Okay. So as some new faces get situated here with Eric and Rahul. Before we take questions from the audience, I do want to kind of -- I want to allow these new speakers to kind of get involved in the conversation. And so before they answer a question, I'm going to ask of each of them, I will ask them to kind of introduce themselves and give you a little bit about their background. So starting here first with John and Steven. We've heard from both Eric and Rahul and saw in the video how technology is evolving to drive productivity. So can you help us understand how on a day-to-day near world, how you see that playing out and how you see productivity being driven. Well, let's start with John.

Good morning. A little bit about myself. I began my railroad career 27 years ago on the ground. What that means is I switch cars and classification yards, and I move trains from terminal to terminal to begin my career. One of the things you've heard Rahul talk about you saw it in Eric's video. I was one of the first few people on the Union Pacific to ever have an RCL license to operate in a classification yard, running remote control operations is something I'm very familiar with. Throughout my career, I've had various field operating roles, eventually leading teams that operated terminals and line of road facilities across our network, becoming a general manager of two of our service units. I've had a number of what I would call network roles as the head of our service design team, who is responsible for building the transportation plans for our customers as well as being the head of a group that was responsible for the strategic plan of our five critical resources. And then my most previous role, was as the Head of the Herman Dispatch Center, our Network Operations Center, who's responsible for dispatching and distributing locomotives and crews across their network, all of those experiences inform and build my decision-making on a day-to-day basis in my current role. But to answer Brad's question, there are two really notable things that stand out. For those who had the opportunity yesterday to go to Dallas Intermodal terminal, you saw our autonomous tie-in loading machine. And for those that are maybe less familiar, distributing ties across their network is a critical step in actually doing the tie replacement work that needs to be done every year. If you think about it in terms of yesterday, today and tomorrow, tomorrow is the machine. But yesterday, that work was done by hand, by people literally in a car lifting 200-pound ties and throwing them out along the right of way, a very laborious, very hard work, if you can imagine doing that yesterday in the Texas heat, all day long for hours upon hours. Today, we use a backhoe that's attached to a gondola car and we picked those cars out and we do it. While it's a major step forward, it's certainly a very laborious and time-intensive operation. So today, to do that same work with that backhoe, it takes multiple days worth of track time to do that. Call it, sometimes those projects are around 10 days just to get the tides distributed out there. Tomorrow, at the push of a button, you'll be able to do that in just a handful of hours. What does that mean? That generates latent capacity on the railroad that we can use to grow into the future without the need for added capital. It's a huge -- in addition to that, obviously, there's more workforce productivity associated with that. So it's something we're very excited about. In addition to that, the second thing that comes to mind is a new tool working with Rahul's team and the network planning team, they integrated transportation planning tool. And that tool really takes the planning of our transportation plan down to minimizes it to maybe just a few hours. You can use that both in a tactical sense and in a strategic sense. The tactical sense when we have major service interruptions, being able to come up with a plan that will minimize the impact to our customers is paramount if you're going to have a multiple day outage, try to serve our customers well. We can use that tool to speed up that process and reduce the iterations that it takes to get the plan right for those circumstances. On a strategic -- a strategic level, -- you hear Jim and others talk about reducing touches in our yard or reducing car connections in our yard. So Jim started off the day talking about the number of cars that we handled. If we can reduce those touches across our network, we can speed up the cars, improve the reliability and compete for business that we might not have been able to compete for in the past.

Thanks John. Over to Steven.

All right. Thank you, John. So I started my career about a little over 19 years ago, kind of a similar path that John had, I started out on the ground and worked various switchman, Brakman Conductor, as well as an RCL operator as well. And then moved into the management career and had the opportunity to work various field positions. I too had two general manager positions in the field with our South Texas service unit in our Mid-America. From there, I moved into a few different AVP roles, two of them being network level type positions. The first one was over our network design, designing the transportation plan for the network. And the other one was over asset distribution, which was managing and distributing their entire fleet that we have on the railroad on top of our crew management services. And I also had a third AVP role, which was our operations for the Northern region. So to present now, I'm the Senior Vice President of the South. And so to get to the question, when I really think about technology, I'm thinking about productivity in our terminals and productivity, specifically around how many cars that we're processing per minute. So there's two applications that I'll cover as well, one of them being the Mobile NX. And Mobile NX is already, as you saw in the video, produced over 20% of productivity in those terminals that we cut it over so far. And if you recall, there was a gentleman standing next to a large monitor processing cars that's Mobile NX. That's what I'll be referring to. So when you think about it, think about it in a sense of an assembly line. So Mobile NX in the essence of an assembly line, there's 10 people on assembly line producing x amount of widgets on a shift. Now relook at that assembly line and think about now four to five people doing it versus the 10, but producing more widgets in their shift. So that is Mobile NX inside of a railroad, inside of our rail yard. So what used to take us two to three people to process now takes one to two altogether processing more cars per minute. So the next application I'd like to cover is the hump computer systems that you saw in the video as well specifically though the application of variable speed. So if you think about how we used to process cars historically inside of a hump yard, it was a stagnant speed, call it, 1.6 miles an hour. So with variable speed, based on a lot of different inputs based on the cut that we're processing, that now will fluctuate anywhere from, call it, 1.6 to 3-plus miles an hour, again, allowing us to process more cars per minute. So when you think of it in terms of productivity, there's a lot of benefits there from the growth standpoint, but you also got to think of it from a could it drives consistent reliable service, through the ability to be better in our connection performance, but also recoverability and recoverability becomes really important when we deal with variability and kind of like what we've had in the South just last week with Hurricane Francine. So having that recoverability and be able to process more cars per minute speeds up the service that our customers expect from us on the recovery side. So really excited about the technology and what it's doing for our terminals, and we're really just getting started with these cutovers. So looking forward to the future and the additional productivity gains that we're going to get from that.

Thank you. Thanks, Steven. Carl, your team is responsible for the company's operating metrics. Where do you see the most opportunity across the network to drive better freight-car velocity and improve SPI?

Thanks, Brad.

First, I'll say I started with Union Pacific about 18 years ago, a little over 18 years ago as a management trainee in Denver, Colorado. I spent the majority of my career in field transportation roles at different terminals working in 10 different locations, some of those multiple times, including three general manager positions before I move to a Chief Mechanical Officer, role at our headquarters for a few years. And now I've transitioned into the Head of Network Planning and Operations where we designed the transportation plan. We do capital and resource planning, and we run our measurement systems as well as our joint facilities in terms of how we work with our interchange partners. To answer your question, Brad, I'll start by saying delivering the service that we sold our customers is really all about executing on our fundamentals and leveraging technology to help us do so. In our manifest network, car velocity opportunity is all about making car connections at our terminals. We have to execute on our switching plan, our train build plan, and we have to effectively manage our assets to make those connections. We're using technology like net Control and terminal Command Center to improve our decision-making and to be more predictive in planning. And at the same time, we're giving real-time information. We're putting it directly into the hands of the employees doing the work through the use of those software tools and our mobile devices. And in our intermodal network, car velocity opportunity comes down to two words, and that's train speed. If -- to improve on our train speed -- we have to execute effectively in our dispatching. We have to execute effectively at every train stop how long a route. You can think of every train stop, whether it's planned or unplanned, like a pit stop in a Formula One race. Every employee involved as a role to play, whether it's the engineers, the conductor, the train dispatcher or the terminal manager. If they understand their role, if they work as a team and if they execute at a high level, the train stop time is minimized, stay ahead of schedule, and we have a chance to win the race. At the same time, we're using tools like John mentioned, to reduce the number of times the trains need to stop along the route doing intelligent blocking at our terminals and with our customers to make sure that cars can move as far into the network as possible with as few stops at terminals along the way as possible. This minimizes the transit time, it minimizes variability. It's really the combination of execution and technological improvements that will improve our car velocity and ultimately drive our service performance index.

Thanks, Carl. So we will now open it up if anyone from the audience would like to ask a question. We'll start here with Tom, we will have someone bring you a mic. [Operator Instructions].

Sure. Tom Wadewitz with UBS. I wanted to get your thoughts on the opportunity to speed up certain services on the network and how that creates more volume with customers. I think one example, I think you sped up your L.A. to Chicago service, took out some days. So which parts of the network or kind of customer segments would be responsive to speeding up the network and where in the network, can you do that where you just run the trains faster and generate more volume.

It's an outstanding question. In fact we were talking about that last night at our table. I think I'm going to have John answer that question.

The way I would think about it is twofold. One is there has to be a need for it from a customer's perspective. You've heard us talk about we do what we say we sold the customer. So to the extent that, that is real, I think there are opportunities really across the board. We have two levels of service on the intermodal side. One of them is what we would call our premium service, which is our Z trains. And those are very challenging schedules to meet things that we do every day, Jim mentioned that. But at the same time, if there was a need commercially from Kenny and Kari's team to come to us to speed those up, we have other -- we have the second level product. And if it was commercially viable, we could speed up those trains as well, largely broadly across the network.

You saw an example when I went through the example for the Falcon and the Eagle, right? Those were both I trains before we converted one to a Z train and we're running that performance better than we ever had before. So to John's point, if it's there, we want to bring it to the railroad if it drives growth.

Thanks, Eric. I think Chris Wetherbee.

Chris Wetherbee from Wells Fargo. I guess I want to think about capacity that you might have on the network today and how you sort of stay ahead of what the potential volume growth opportunity might be. In particular, thinking about the two regions or Northern and Southern, I think the growth profile might be kind of different as we look out over the next couple of years. How do you think about the capacity you have now? Is there a way to measure that?

I'd be is ready to answer that question because it's a very consistent conversation we have because of the Gulf Coast and so much growth that we have coming to the Gulf Coast.

So when I think through generating capacity, I will tell you when it comes to investments of steel in the ground, that's one of the last things I'll look at. So really look at it in three different -- I'll break it down in three different portions. One of them is, I think you've heard someone earlier today talk about execution, right? So if you think about what a terminal is capable of, are we actually meeting those deliverables inside of a terminal. And if not, what are we doing to close that gap. And then we don't stop there because we're never satisfied just because if we're setting new records inside of a terminal, where do we find additional minutes to reduce our tack times to be able to process more cars. And the more effective we are at that processing, we're improving our connection performance, and we're organically creating capacity inside the terminals. So that's where we spend a lot of time with our work on a day-to-day basis. The second aspect, and John mentioned it earlier about eliminating touches, that's the work that we've been knee-deep in here all year in the south -- looking for opportunities to run a more efficient transportation plan and eliminate the touches in the cycle of a car. So instead of staying with the status quo, having an average of, let's just say, 5 touches per trip, how do we eliminate that and reduce one of the connections, which can ultimately almost save a day in the transit as well. That's how I think about from an efficient transportation plan, generated capacity in the terminals. The last thing that we'll go to is actually on the investment side because there are productivity gains that we've been able to realize inside these terminals, and we have the capacity to grow now.

And I'd remind people that one of the strategies we've had in place now for the last 4 years is even when we do get to the point of the last resort and making the investments, it's almost always a phased investment, right? I ensure that we get the volume once we start to receive the volume, we make the next investment.

Thank you. Ravi?

Ravi Shanker from Morgan Stanley. Rahul, a question for you. You spoke about customer visibility tools. What is the time line for rolling that out? And second, does that help get customers on the same page as you guys in sharing the improvement in service that you're having? Because I think there's been some friction in the past about the railroad saying we're improving service but the customers saying we don't see it.

Yes. The first phase, Ravi that is coming this -- later this year, and then we'll continually evolve. So I said we have actually formed a group of over 100 customers from across our network that's given us feedback. So we want to make it what they would desire it to be in conjunction with visibility, [indiscernible] my staff, money exceptions. And we're going to start with the first and inform our development process based on the feedback that we get. But the first phase is coming in December. Ultimately, when customers have -- as the service improves they're having to get to -- when they deal with railroads to a disparate set of places within our systems to get to the information. This is one single pane of glass where they will start and they can drill down, they can reach out. They can actually create tickets from the same place. So first phase coming in December with a very robust plan to kind of keep scaling it up. over the course of next year.

Tony, and then we'll go over here to David next.

It's Tony Hatch. Where does RailPulse fit into your customer visibility and for the future?

Yes. So we were early into the RailPulse coalition out there. So we are very supportive as a company around RailPulse, but is just not RailPulse, let me take a broader view, Tony, around our ability to develop IoT. So for our container fleet, we have over 80% of our own container fleet now equipped with IoT. And on the RailPulse side, as an industry, there is 5,000 cars that have been equipped with the IoT devices. Now on the railcar side, the number is pretty enormous. At the UP side, we have about 500. It's just a very small fraction. But what we are developing is use cases, both on the container as well as the rail -- on the railcar side on -- what is it that the customers want, right? Where is my car? Can we give turn-on directions or any other data that is -- that can be acquired from that IoT devices? We're in the process of developing those use cases a little bit more advanced on the container side, but applicable very much on the other side. So the speed of implementation will depend on how fast really the shippers get IoT devices put on these railcars.

David Vernon from Bernstein. So Eric and team, you're running a model now with 9,600 foot trains getting closer to that 10,000-foot level. Several years ago, it was shorter. All the infrastructure is built for some of those shorter trains. I'm just wondering if there's still points in the system where you're maybe not running at the right level of productivity or you're having to do workarounds to accommodate some of the infrastructure that's not been adjusted for the longer train lengths. And as you think about that investment program over the next couple of years, how should we be thinking about those bottlenecks coming away and opening up some further opportunities for productivity or efficiency?

So Kari's group is actually the tip of the spear of our train length initiatives. So Kari, do you want to respond to that initially?

Yes. So when we think about train length, we really think about it in terms of an opportunity to generate mainline capacity and give us a platform for growth. So we don't think about it in terms of just how do we make the number higher. We think about it in terms of what do our customers need? What service have we sold them? Are we utilizing any latent capacity on a given train symbol, whether it be tonnage capacity with the number of locomotives that are on the train, maximizing that or leveraging the routes that you mentioned that have previous investments in the double track or siding extensions. So the way we look at the network today, there is latent capacity. In a number of places we have terminal capacity. We have mainline capacity and we're continuing to leverage the latent capacity on the individual trains. We'll continue to do that. You saw on Eric's slide the number of run-through projects and mainline projects that are still yet to come in places like the P&W and then more of a terminal focus on places like the Southeast and around the soda ash patch area in Wyoming. So you'll see us continue to implement the strategy we've been working on. It's -- The proof is in the results where we've set record train length over the last few months, and we've had a 30-plus percent gain over the last 5 or 6 years. That will continue as we move forward.

I have to keep us on schedule here. I don't have -- I can't sit and ignore the 0 like Jim can. We'll keep us on schedule here. So next, we have a break. So we have a 15-minute break. We'll ask -- we'll start with a video when we come back. You'll hear the train horn to try and get us back here, so we stay on time. I know a bunch of you have flights that you want to get to. So we're going to keep this on time. So thanks, everybody. [Break]

All right. Good morning. So before we start, I got to clear out some things. This whole thing about me on a train, drinking tea and stuff on the air conditioning. So yes, normally, I like to go on office when Jim comes after me. But I got to tell you, I had a lot of fun in that steam engine. There was a few people with me. I took a few videos. I took several pictures. I was in there for about 15 minutes and yes, I will high. So I went to the train to have some good conversations. So I do resemble that, Jim. What I'm telling you, I'm going to come after you, if I can, next time. So again, my name is Kenny Rocker. I'm the Executive Vice President of Marketing and Sales. I grew up in the company in the late '90s. By the mid 2000s as we were going through the pricing renaissance, I really learned the importance of maximizing price and the impact that it has on margins. 10 years later, after a few more increased responsibilities I got an opportunity to lead a large team and really got to understand the importance of culture and setting high expectations and being very responsive to our customers. 2018, 2019, I got promoted into this role. It was around this time that I also met Jim and got to understand the importance of a lower cost structure and what productivity meant, which really puts us to today and putting it all together with safety, service and operational excellence for growth. And I'll tell you on a personal level, I have a passion for growth. Our commercial team has a passion for growth. And as a company, you don't want to get on the wrong side if we're trying to grow it. So I want to talk to you about how we plan on growing today. And I want to keep this simple. There's three ways you can grow your revenue, the first is business development, and you can do that a few ways, and I'll talk to you about the few ways we're going to do that. The other part of it is product development. And I look at product development hand-in-hand to business development because you get to product development by listening to your customers. And the other piece and the last piece that I talked a little bit earlier about is maximizing [ part ] price. And as I mentioned, we've always been very price disciplined, meaning the last to lower, the first to increase. Here recently, we've just taken a lot more risk as Eric and the team have really given us a good value product to put in front of our customers. And I know Jennifer also has a slide she'll be sharing on price a little bit later. So let's jump into things. First of all, it starts with culture to me. What kind of culture do you have selling the product out there and delivering to customers what you sold to them? And so far, from a culture perspective, we look at it and we say, we want to be very nimble, and we want to be very responsive. As you can imagine, if you've got a whole bunch of hunters on your team, -- the last thing they want to do is go to some committee meeting or a second committee meeting. I have to go talk to 10 people about a deal. So delayering, cutting out the layers has made us very responsive, that's the way we win with our customers because we can respond first with products and solutions. The second part of that is also making sure that we touch more customers in the supply chain. Let me just simplify that. We don't just call on the folks that pay the freight or the large shippers. We get into the weeds and we go to the plants of the receivers. We talk to the receivers. We're there looking at both sides of the supply chain. So we're talking to more customers now than any other time in our career. Rahul talked about it a little bit earlier. We're leveraging technology. Let me just tell you what that means on a real pragmatic level as a commercial leader. Our commercial sales teams don't want to do a lot of administrative things -- they don't want to worry about managing through contracts and you don't want them to either. We want them doing less administrative things and learning more about the markets. Technology has allowed us to do that. We can respond very quickly, same-day real time through a phone or through an iPad on a rate. We can get a contract out much quicker. We can see real time where the cars are as we're working with our customers to really talk through the service product. The other part of it is our commercial incentive plan, and that's just compensation. I'm motivated by compensation. I don't deny that. I want to get paid and our commercial team leaders want to and we want them to, we want them to obliterate the goal. And part of that comp plan, just in case somebody is concerned, and I'm also saying is for Jim and Jennifer while they're here. There is a price component to it. So it's not just the volume growth, it's also maximizing the price to achieve that comp plan. So again, that comp plan helps us go on offense, build up campaigns to learn more about the business. But culturally, I want you to know that we're fired up and very responsive and very hard charge in here. The other part of business development -- and you saw a little bit of it with Chick-fil-A and McKinley and being here at Prime Point is literally just landing customers onto our network. How do you get customers on to the network. And you can see over the last couple of years, over 180 different construction or expansion. How do we do that quickly. Someone asked me over dinner to quantify where you got it now. You can see the $700 million that's there that's added in terms of revenue. We're proactively going out there working with customers. And let me talk about that a little bit because we've talked about prime point, there are 3 different ways we approach the land and with customers. One, is a deep understanding of what our customers are trying to do. So there's not a day that goes by our team isn't saying, where are your major hubs, where are your major distribution centers, where do you see a gap. We want to fill it in. The second thing we do is, as you would expect, we talk to a lot of the large commercial developers. So we talk to CBRE to say, "Hey, we've got a facility in Phoenix. We've got a facility in Kansas City. We've got two facilities in Utah". because a lot of times, the way everything goes down, the customer will go to one of these commercial developers it will come to us as Project Jennifer. We'll never know who it is. It will be anonymous. But if we're proactive in our engagement strategy there, we're able to make sure that Union Pacific is front and center. And then the last piece is the chamber of commerce, the economic development centers. We're also engaging them. We've got a great relationship with the city of Houston with the City of Dallas, with the City of L.A., with the City of Phoenix and so forth and so on. These are very attractive pieces of business for us, higher ROI, great margin for us, and we're very ferocious about attacking that part of our business. You can see the pipeline that we have there. It's a very robust pipeline, and I'm excited about it. I'm proud of it and bullish about the future based on that pipeline. The other part of it is product development. So we're listening to our customers. If we got a deep understanding of the markets, then we can put products up against them. And products can be broad. And so I just want to talk about them in a very pragmatic way in how we look at the products. Eric talked about it in kudos operating folks about some of the products that they've set up in a very short time. Minneapolis, Southern California, Inland Empire, and I'll talk about that a little bit later. Phoenix is one. But also what discretely was talked about when Kari was on the video or other products. We've had 11 different new services coming out of the Port of Houston. We've added on 9 different new services on our intermodal network outside of the port of Houston. On the carload side and Jackie and Jason will be up here a little bit later, we purchased trans loads. In our Phoenix site, since we purchased that facility, we've had 40 new customers that are at that Phoenix site that weren't there. Since we purchased the West Coast site, it's double in terms of the volume. So we feel very good about going to our customers and provide optionality for them. On that customer experience side, I heard a question about visibility and what it gets you. What I like about visibility is it takes away any data wars. Customer has their data and they want to tell you where the car is. We got our data. GPS is undisputed. and very clear, and we've been sharing that. The other part of that value on the GPS side is that for those containers, the containers that 80%, Rahul mentioned, that has GPS, the productivity is better. The dwell is less. That makes sense. Same thing on RailPulse. I heard a question about it. We get to find out, hey, where are those cars -- when are they unloaded and let's get them back to us. Rahul talked about the 6 million API hits. Well, guess what, 3 million of those API hits from customers. We've got 65 different unique products out there. We've got close to 300 customers that are on APIs and humbly we lead the league on the API creation. So adding all that value to make it sticky and also go on offense. So how? A lot of folks -- well, how are you going to grow? How are you going to win? Which of the markets? We've got a whole bunch of markets that we could lay out how we're going to grow and where they're going to win and -- but for the sake of time, I'm going to walk you through four of them. One is just over the road. You can see the data. That's the largest long-term pie that's out there with the annual truckloads. Second is Mexico. And you can see the investments that are going on there in Mexico. And some of that has already been iron in the ground, and we're talking to those customers, but tremendous opportunity for us coming out of Mexico. The petrochem markets, and I'll talk a little bit about it a little bit later. And then finally, the renewable fuels and grain and grain products and I'll get into the weeds on this. First, let's just go into grain and grain products and let's just talk about a few things. I'm going to say 30% 3 x. It's not a verbal type. I'm not mumble in or something. But I'm going to say it 30x because there are three different unique parts of this. Back when Jason did the Investor Day a few years ago, we gave a number for where we thought renewable fuels would go. Since that time, that amount has jumped up by 30%. The announced expansions, the amount -- announced production has jumped up 30%. During that same time, we've grown over 30% as a company with that product. And then the last 30% is that over the next 10 years, it's being forecasted that it will grow by 30%. To have this many 18-plus facilities on our line or comment on our line announce is just a tremendous feat. And it gives us physical capacity to ship that product. Here's where I think this product is really underappreciated. Jason and I went to Europe over the spring to talk to traders about the soybean mill. So when you create the oils, that go into these renewable fuels, it creates a byproduct. You all probably know that if I'm bringing it up and boring, you just don't go to sleep while I'm here, go to sleep a little bit later. But it gives you a byproduct -- and that byproduct, the way you should think about the byproduct is anywhere from 3.5 to 4 more railcars. So you make one carload of oil, you get the soybean meal, it's got to go somewhere. That's why we were in Europe because it's got to go somewhere. It's got to be exported because it's not enough U.S. consumption. We don't talk about that enough. The other thing we don't talk about enough is pitching and catching. I'm more of a football fan, but I'll use a baseball analogy. And the pitching and catching means those oils, we move it to the processors, they process it. And in some cases, we get to move that finished product, the fuels, into an end market. So we may send the oils in Nevada or somewhere like that, and then we'll capture those fuels going into the West Coast into California. So switching gears on the grain. A lot of folks tend to think about grain as a mature market. We don't do that at all. We don't think of it as mature at all. And you can see, based on the data we have down there, that we're growing it out. We're building it out, not just in the states but also in places like Mexico. So I'm foreshadowing some things. So 20-plus facilities. I think we called out Dalhart, Texas, but it's really all over our network that we're growing, and we see that growth that's coming online. The petrochem markets, and you can see the stats. We've had some really solid growth, Jackie, over the last 5 years that we lay out there. And humbly speaking, we're the market leader when it comes to the petrochem markets. Petrochem is not just plastics, there's just a lot of other feedstocks that go into it that we move. It's caustic. It's VCM. Those are all things that we move on our network. And Eric and the team have just done a great job of making sure that we're investing to be able to support that product. We've got the fastest, most reliable service product to the East over our competitors. We use that when we're talking to our customers. Because we have storage in transit, SIT network, more than twice, closer to 2.5 than 2, we've got 2 up there, we talk to our customers about that, and they like that optionality. For us, remember, it's 2 moves. You move from the plant and the SIT ways there as value proposition for us, and then we move it out. Customers appreciate that. That's a competitive advantage for us. Again, a lot more investing that will take place. And we've got more expansions coming on, five more expansions over the next couple of years. Again, very good margin product that we like. Mexico, here's where I think I want to make sure we are not being underappreciated on Mexico. Yes, I got to hit it hard. We've got the shortest route. We've got the fastest service. We're shorter by 300 miles. In the video, you heard Kari, we got it daily. We move out of Mexico daily. You can catch a ride with us daily. That's a big difference than everybody else. But here's where we're underappreciated in, in Mexico. We can go throughout the U.S. We can go to the West Coast. We got an EV OEM. We're moving parts, too, going to the West Coast. That's the optionality that we have. We talked about the grain network. Those 6 gateways give us optionality, and we build upon that. Truck conversions and over-the-road conversions is something that we talked about. And again, if you can look over the last few years, you can see what we've done. And it's like the -- like you hear people say, follow the money. You can see where some of the money has been and some of the investments, and that's allowed us to win new business. The Swift business that we won, the Schneider business we won. And what makes me so mad about when in Swift and Schneider is that the market has been so crappy, you can't even tell it. It was a great win, but that's going to change. The market will come back. There's going to be 2 parts to that. One is going to be the volume. And the other part is that as the truck rates go up, that's also going to be more value that we'll be able to provide the corporation from a price perspective once the truck markets go up. Again, along the way, we have strategically filled in where we thought there were opportunities, where we thought that there were gaps, and we've done it in a very productive manner. And it's been great to see Eric and the team and Jim and our management team be very deliberate in that. After it's all said and done, call it around 1 million lifts that's going to be there. Okay. So just to land the plane here. As a management team, as a leadership team, we're very cohesive, and we talk a lot about safety, service and operational excellence. And we also talk about what's possible. We don't mash our hands, no mashing of teeth, wringing our hands. We go out there and put those products together. The team has a host mentality, and we're very ferocious about business development. We will maximize price, and I'm very bullish about where we are now. I'm very bullish. So with that, I think I'll turn it over to Beth Whited, who's our President. Beth?

All right. Good morning. I also am wearing a suit, no tie, scarf. I'm serious. I want to start off with some fun because I don't know who Kenny thinks he is. International man of mystery, with this whole, "I came up in the late '90s." What does that even mean? Yes. He's just trying to fudge his age. I won't tell you what it is. I'll be honest, though, and say I started at the Union Pacific in 1987. So yes, if you do the math, that's 37 years. I've had a really great, good fortune to have a fantastic career. Spent about 15 years in finance, about a dozen in marketing and sales, have had strategy, HR, labor relations, customer service center, kind of you name it. I think they made me president because they couldn't figure out what to do. Like she's done everything else, maybe we'll let her have a shot at that. But anyway, it's my honor to be the President of Union Pacific, and it's wonderful to be here with all of you today. One of the last jobs that I had or part of my responsibilities was human resources and labor relations. I'm guessing that some of you might have noticed that some of the other railroads have started to enter into labor agreements with their unions. We, like them, agree that our employees are our most important resource and that they deserve very competitive pay and benefits. And as a matter of fact, we think our employees are among some of the highest compensated in the industry. However, we are so focused on our strategy of safety, service and operational efficiency. We think it behooves us to spend some time with our unions in this negotiating cycle to talk about ways that we can work together as part of our agreements to improve availability and modernize work rules. So that as we emerge from this negotiating cycle, we're able to really ramp up our ability to provide that consistent and reliable service that our customers want and need from us. So that's the focus that we have at UP. There's a lot of time left even before we serve notice, another 6 weeks or so. And so we will be engaging in that bargaining with our unions as we have done over the past many years. So you may have more questions about that later, but I just want to address that. So part of my job is strategic planning, and that's really what I'm going to talk about now, what we do in strategic planning and corporate development to support the growth initiatives at Union Pacific. What you see here are kind of the 5 areas where we play. I'm going to talk about the 3 on this slide, and then I'm going to dive a little deeper into emerging growth markets and leveraging the real estate assets. But first off, expanding our network through acquisitions and partnerships, we really want to look at opportunities out there to help us either close gaps in our service territory, reach new markets that way, find ways that we can improve our operational efficiency or reach and grow. So that could be partnerships with transloads. It could be purchase of transloads. You've seen us do some of that. It could be different kinds of collaborations with short lines and other rail providers. We have a number of things in the hopper that we're doing there, and we're excited about the opportunities. You've heard a lot about culture today. I'll talk to you about one thing that we're doing to really try to drive strategic understanding through the entire employee base. We developed a training called How We Win Together. And it really is explaining safety, service and operational excellence in an interactive manner, all the way down to the very frontline person working at Union Pacific. We've put, I think, nearly 25,000 of our employees through the training this year, with overwhelmingly positive feedback because it's the first time in our history that we've ever said understanding the strategy and the why of the decisions that we make is so important that everybody needs to be a part of it. And we want them all in that conversation because we're relying on all of them to bring their opinions, their best ideas and thoughts to us. And if they don't understand what we're doing across the network, they won't be as good at it as we want them to be. Because of its wild popularity and the results that we've seen from it, we are actually doing a 2.0 that will dive a little deeper in 2025, and it will be combined with our safety training as we roll out through the year. We're pretty excited about that. And then delivering sustainable advantage versus trucks. We already have a sustainable advantage. You saw some of the things we're doing to become more sustainable. We believe that for some customers, that is a decision point, and we're going to sell it. Moving on to talking about emerging markets. We work really closely with Kenny's team on this, but their job is in the here and now. Of course, they're always helping customers land new facilities and things like this. But our team is trying to look out over the horizon and say, what markets are coming that could really represent potential for the rail industry. And I've got 2 here that really talk a bit towards sustainability and net-zero aspirations for customers. So as people try to drive more of their greenhouse gas production emissions out of their environment, carbon by rail or the sequestration of carbon is emerging as an opportunity area. And for us, this green circle represents kind of the core ethanol production. They're a really big focus area for us because as you produce ethanol, every carload of ethanol produces about another carload of CO2. So that capture for the -- and it's relatively easy for them to capture in their manufacturing process. Some of it is served by pipeline, a lot of it isn't. Pipeline approvals are difficult. So we are offering rail opportunities to those customers. And you can see by the God's grace of the Union Pacific franchise in blue, those areas are prime sequestration points. And we are working closely with the site under development with a company called Frontier Carbon Solutions in Wyoming, where they're permitted. And we're actively sourcing with them and partnership customers to use this facility that we hope to see go under construction very soon. Another one, and this really builds on the biodiesel and the renewable story you heard in the video from Jason as well as from Kenny, sustainable aviation fuel is really starting to emerge as the next country, if you will, in the biorenewable space. Today, airlines are using less than 1% sustainable aviation fuel, but they've made commitments to be at about 10% by 2030 and up to 35 billion gallons by 2050. Again, there will be a huge opportunity for us to move that biodiesel, or I mean, that biofuel for the aviation industry by rail. And we are working with both the producers, as they either convert old facilities to be for sustainable aviation fuel or they build new, and as well as the destination markets, where the airlines want to use it. So it's an exciting opportunity for us. I won't spend a lot of time on this because Kenny did hit it a bit. In strategic planning, we take a slightly different take on the developing of land for growth, though, so I'll spend just a second on it. We own roughly 1 million acres of land in the United States, the vast majority of which, of course, is used for rail operations. But there are, call it, 10% or something like that, of those acres that are available for us to do other things. And the best thing that we can do with that land, if it's close or adjacent to our network, is to develop it so that we can land customers on it who will then ship by rail. And in the past, we were a little bit -- I'm going to use the word lazy, and we would say, hey, we have this land, and it'd be great if you wanted to build something on it. And what we've discovered through relationships with real estate developers, who we're now partnering with, is we have to be further along than that. We have to know about how much power we can get there. We have to know more about the environmental impact. We have to know more about water resources, et cetera. And so we have identified a number of locations along our network, about 60, where we're actively saying, what can we do to develop this, like what we've done at Prime Pointe, and how can we accelerate that process? And we're pretty far along with about 11 of them. And I think we decided that we were kind of grandiose. And we called Omaha the Omaha Metro as opposed to Los Angeles and Chicago, which certainly aren't metros, right? But anyway, we did that because it said Council Bluffs, when we originally wouldn't know where that was. And then we made Omaha sound like it was super fancy and called it a metro area. But anyway, these are the locations where we're pretty advanced with our process with those developers, and we're excited about the opportunity that, that's going to bring us in terms of growth. So all of those things that we're doing are trying to really leverage up all the things that you've heard from everybody else about improving the service, making ourselves efficient, holding ourselves accountable for how we spend the money and being able to grow on top of that. With that, I think we're going to bring up a panel so that you all can ask questions.

Okay. As folks get situated, like the last panel, I've got a question for each of the new faces up here, and so that we can kind of get them in the conversation. I'll also ask them to kind of introduce themselves before they answer my questions. So we're going to start with Jackie. So Jackie, your industrial business team covers a wide range of products. And then in the video, you highlighted several areas that you could see significant growth over the next 3 years. That included areas like rock, forest products and metals. Can you go into a little bit more in-depth on some of these opportunities?

Sure. So hi, everybody. I'm Jackie Bendon. I started in Union Pacific in our corporate audit department. And then after a couple of years in finance, I wanted to go work with our customers, so I went to our subsidiary company. And then in 2009, came back to the railroad to work with our plastics customers. And at that time, plastics was a very mature market. It was going to be, I thought, a boring job. We were talking about maybe importing plastics into this country. And of course, fracking took off, and the rest is history, as you saw it in the video. And so it's with that lens, I want my team to be really focused on knowing the market, understanding where there's opportunity and growing revenue in carload for UP. So on the video, I talked about rock, metals, forest. So a little bit about rock. Rock is a market that you cannot be complacent in, and that's what I love about it. It's project-based, projects start, and they end. And we have to constantly be working with our customers to understand the projects that they're trying to supply rock to. And I'm really excited and pleased with the ability that our team has done to grow our rock franchise. We have the largest rock franchise in Texas. We moved last year over 1,000 carloads of rock a day for construction projects. It was a record year. We're not going to have a record year in rock this year because of the weather challenges, but the order books are strong. So looking forward, I'm really excited about the opportunities to move as much rock as possible. Metals. Metals, what we're seeing in the metals market is a shift from the integrated steel producers to EAF. EAF is more regional. And what I love about that is it takes scrap inbound, and then we get to move the outbound bar and rod and coils. So it's a great use of our asset. So we want to locate those new mills that SDI, CMC is investing in on UP. And then lastly, forest. So look, the forest housing market is not very strong right now. But fundamentally, in this country, we need more housing. Housing market will eventually improve. And when you see the capacity that's been taken out this year, it's been in Canada and the Southeast. So that puts our producers in a great spot to provide the fastest-growing markets in the U.S. that we serve, California, Texas, Denver, Utah, that puts us in a great position. So when I look at my market, while it's a challenging economy right now, I think we're just poised for growth.

Thanks, Jackie. So Jason, you highlighted pretty heavily in the video, and Kenny talked about it with renewable, and then the grain markets. Highlight some other areas within your team, within the bulk team, that you're excited about.

Yes, thank you. I'm Jason Hess. I started my career right out of college. Probably the cool thing to say is I grew up in the '90s as well. So I've had various roles, leadership roles in all of our business teams, industrial, as well as premium. I was the Vice President of our Customer Care and Support, Vice President of Ag Products, Vice President of Premium and now currently on my role. Yes, renewable diesel is getting a ton of attention and rightly so, as Kenny mentioned, 30% growth, and you have 30% growth coming in the future. The really cool thing about that, and I'm really proud of our team, is this business didn't just show up, right? It was -- as you kind of hear about, an emerging market. But my team had to go out, spend a lot of time with customers, learn their business, understand what they needed and help bring them to the railroad. And that was a great model, and I think that's why we've had some success, and we're going to have success in the future. Now that same model, we can take and use for other emerging markets or other businesses. One you don't hear as much about is diesel exhaust fluid. Diesel exhaust fluid is an additive that goes into diesel engines, that helps with emissions and global emission reduction. That's the market, prior to 2016, we didn't handle a single carload of it. And in the last 3 years, we've seen about 60% growth in this market. And going forward, when you look at it, there's about 60% to 80% more growth projected by 2030. So we can take that same model of making sure we're out in front of the customers, helping them locate facilities or blending facilities for the DEF that eventually ends up in truck stops so you can blend into the trucks, but take that same model to make sure that customers are locating on Union Pacific. In other areas, our strong service product and our efficient service product has allowed us to take business away from trucks. A couple of areas we've done that, one is in fertilizer. Fertilizer, traditionally, there's some business that was fairly short hauls, fertilizer being produced in like Kansas and Oklahoma. And it needed to get to co-ops in Iowa and Nebraska. You wouldn't even think that, that would even be a rail opportunity, right? It's going to be trucked, it's way less than 500 miles. We've been able to work with those retail fertilizer folks, and we've got 20 new opportunities just here in the last couple of years of actual locating and putting in rail facilities. In some cases, are expanding or even rejuvenating old rail facilities to move fertilizer a fairly short haul. And that's because we're more efficient, and we can compete on some of those shorter hauls. The last one I'll bring up is we hear a lot about our import beer business, but we have a large domestic beer producer who has traditionally shipped all their outbound beer via truck. And some of that's because of regional focus. But this particular shipper is seeing the value of rail by being cost-effective, being efficient. They also see it as part of their -- just their goals in terms of sustainability. And that particular large beer producer is now even going out and acquiring new railcars and assets and working with their distributors to convert to rail. And a lot of that is the same thing, being more efficient and having a good service product and showing the value for that customer so they can switch to rail. So lots of great opportunities. I know we mentioned grain a little bit. Kenny touched -- did a great job of mentioning that we don't want to think of grain as just a stagnant market that's not growing. There are shifts happening, and we're getting out in front of those, too. So just lots of great opportunities for us to grow in the bulk area.

Awesome. Thanks. Kari, intermodal within your group kind of gets a lot of attention. We don't want to forget about autos. So can you remind investors about our strong autos franchise?

Sure. Good morning, everybody. I'm Kari Kirchhoefer. Next month, I'll have 32 years at Union Pacific. I've worked in all of our commercial areas, and I've had the opportunity to lead our industrial team, our customer care and support our subsidiary, Loup, and now my most recent position is leading the premium team. Turning to the question. Our automotive business represents 21% of the premium team portfolio. We are the largest finished vehicle carrier west of the Mississippi. We own -- we operate or access 40 vehicle distribution centers, and we serve 6 vehicle assembly plants. In addition to the movement of finished vehicles, we also provide the expedited handling of automotive parts to Mexico, the U.S. and Canada. As mentioned at some of our previous earnings calls, we've talked about some of our significant business development wins with General Motors and Volkswagen that will fuel growth for years to come. General Motors is also a great example of us taking advantage of near-shoring opportunities. In addition, Union Pacific is also the largest railroad moving electric vehicles in all of North America today, and we are ready for growth moving forward as that market continues to expand. Let's talk a little bit more about some short-term opportunities. This year, we worked closely with our OEMs to develop land bridge opportunities. For those of you in the room, historically, this would be a business that would land on the U.S. East Coast port and then truck locally into their markets. And because of capacity issues on the vessels, they came to us and said, "Can you find us based on your West Coast ports? And could you move this business long haul east via rail?" We've been very successful in doing that for them this year, and it's brought on nice incremental growth. So overall, for us, it's all about a strong service product, which we have for both finished vehicles and parts. So we are poised and ready for growth, both now and well into the future.

Thanks, Kari. Okay. We will open it up to some questions. We're going to start with Brandon Oglenski, and then we will go to Brian Ossenbeck, then we can move on to the next.

Yes. Brandon Oglenski from Barclays. Kenny, can you talk more about this delayering process and how that's helping unlock potential in your organization and going to market with your customers? Because if we go back in prior UNP Investor Days, there's always been a pretty positive volume outlook. But I think, in hindsight, we never really saw that achieved in the past. So what's changed now?

Why don't I start, and you all jump in. Jim has the vision of pushing the work down to the lowest level, to the frontline users. That's not just on the commercial team, that's across the company. How it works here on the commercial team, look, if you're a commercial leader and you've got a deal that you want to work on and you're trying to get approval for it, if you have less layers, that's less approvals. That's just one part of it. The other part of it is just from a culture standpoint. One of the great things that I like about Jim being so involved in the commercial team is that he knows the business. And I can go to him and say, "Hey, there is a need in Phoenix for Kari and I that we want to have a ramp there." That's just a discussion with Eric and I and a few other folks on the management team, and it happens. That's a cultural change. That's a responsiveness change. We talked about it from the time we made a decision to put Phoenix up, to several weeks later, we stood up a ramp. That's a huge difference. And that's what we mean by how delayering has helped us. Anybody?

Maybe I'd add to that. When we're building, I mentioned all these new facilities, and we're trying to get them on our railroad. We have processes. Obviously, you want to make sure you locate them in the right spot. But something that process could drag on, a customer has to submit a 10% drawing, then more time just buying you would do a 30% drawing, which, eventually, some of those, we've streamlined that fewer layers, fewer approvals, as Kenny mentioned. But now we give the customer with fewer layers, fewer approval. I'll call it my counterparts. John Turner in the North, if it's in the Northern region, kind of get this going really quick. He understands, his team understands it, and we can get that approval much faster than we have in the past. And that's what customers need. They need to make decisions because they have -- they may be looking at different options.

We'll go to Brian, then we'll go to Jeff over there.

All right. Brian Ossenbeck with JPMorgan. Beth, a question for you on labor. Why have we seen the other railroads go ahead early and individually with these negotiations? What is UNP looking to accomplish here. Work/rest rules have changed across the industry. You're working on something on the engineers right now, and maybe is that fully implemented? And what are you looking to negotiate in this next round of bargaining?

So I can't really speak for why others decided to go early. Maybe they didn't see as much opportunity in their labor agreements to modernize and find efficiencies and availability opportunities with their workforce. So I don't know why they chose that. When we look at it, when we step back and we look at our agreements and some of the things that are pain points in terms of being able to use crews more fluidly in certain terminal operations, we think it has value and we think it improves service. And we want to address it and talk about it at the same time as we're talking about the whole package. I think you asked about the work/rest rules. We're partially implemented with the BLET. I'm sorry, off the top of my head, I can't remember the number of locations. But we're partway through that process. We're still negotiating in some locations over different makeup of what the crew pools would look like. We would hope to have that behind us and move forward with the rest of that implementation. And then we still have that work/rest process to do with the smart TV conductors.

Jeffrey Kauffman?

Jeff Kauffman from Vertical Research Partners. Kenny, I have a question for you. So over the course of the last decade, there's a lot of traffic that should be on rail that isn't, right? And some of it used to go on rail, but service and consistency force people to make a different decision. You got every reason to believe it should be on rail. It's cheaper, it's more sustainable, et cetera, et cetera. Outside of the growth objectives that you highlighted today, can you address how big this market could be, how much opportunity it theoretically could be? And what is required, in your opinion, to bring some of these customers that had to move away from rail or would like to use rail but are hesitant to do so? What would it take to bring them over the [ transit ]?

So let me start off with the last part of the question on what it requires. And that's part of our customer engagement strategy of just sitting down with the customers, spending time with them face-to-face, going over data that shows where our service product is. That's the first thing. As we do that, as we're able to do that, we can also ask them some very important questions, how much is going via truck versus how much is going via rail? What customers do is if we're not as consistent and reliable, they will hedge truck versus rail, meaning they're going to have an assurance policy. If rail is at 60%, they'll say, "Well, we're not sure we're going to have truck at a certain percentage as an insurance policy." As we're more consistent we're able to ask for more business. We're able to get -- build that confidence so that they can move more. That's on the carload side. On the -- I'll call it bulk or unit train side, as we're able to have a more consistent, reliable network like we have today, you're going to naturally get a little bit more tonnage out. You're going to pull ahead more trains of soda ash. You're going to pull ahead more trains of rock. The rock network that Jackie talked about, it's a very truck-competitive market. As we're able to pull more of that ahead, we're going to get more tonnage. For Kari's product, the same thing. We have some customers that we candidly that may be in the parcel place. We charge them for it. We're able to have a more reliable product. On the other hand, some of the customers that may be just using our baseline domestic product as that service is reliable. yes, we're going to ask for more business. When I look at that and how I size that, I look at that in terms of just outperforming the markets. You're not going to hear me say it's going to be X percent more or 1% more, 10% more. I look at it as good growth and just trying to outperform the market.

The next question is from Bascome.

Yes. Bascome Majors, Susquehanna. Kenny and maybe, Beth, if I look at the second quarter, your business was just under 1/3 of revenues from bulk, just under 1/3 from premium and a bit over 1/3 from industrial. If we walk your views on the markets out 3 to 5 years, do you see that mix changing markedly? Where are the biggest opportunities and why in the mid-term year?

Yes, I'll start off. Look, nobody is going to get me to go out and forecast this as a mix. That's a pretty dangerous thing to do. What you will hear me say is, you heard us size up the markets and how large they were and the opportunities in front of us. We'd expect them to grow out. But to get in the forecast and the mix, that's probably not something you'll hear me do. But you see the size of the market, you know where the service is today, and you see what we're trying to accomplish.

Go with Jordan and then Ken to wrap up.

Yes, hi. Jordan Alliger at Goldman. You talked about Mexico as being one of the growth areas, $140 billion of announced investments. Is there a way to maybe translate how that could relate to revenue opportunity, volume opportunity for UNP? I know there's -- you mentioned $1.6 billion of revenue potentials out there. Is there a way to get a sense or size up that opportunity specifically?

Yes. The way we look at the business, we put it into different categories. And it starts off as a conceptual. And then as we get into the negotiation phase, then we feel a little bit better about it. We have good visibility to it. Right now, all of that expansion that's been announced has not been put in the ground. And so as that gets put into the ground, we'll feel a little bit better about having the size on those pieces of business. I think the encouraging thing about the $140 billion is across the board, and it touches all of our commodities. It touches adjacent commodities. It touches Jackie's. And for sure, it touches a lot of Kari's products. So I can't size what that will show up like. We need to see a little bit more of those investments put into the ground, but our strong service product has us prepared.

Ken?

So Ken Hoexter from BofA. Kenny, I think I might need to change the title into Kenny multiple pages instead of Kenyatta pages.

That font was size was small, okay? And it was single space, thus.

I heard the margins were big. So I guess, bringing near term for a second. Intermodal -- or Kari, I guess, maybe intermodal is really on fire kind of out of the West Coast now, seeing these volumes. We heard earlier, it was pre shipping out of tariffs or what was going on in Canada or East Coast port strikes. Can you just give us a minute, maybe a little more near term in terms of what is going on? Is demand starting to rebuild? Is that ahead of the rate cut we saw? Is it inventories are going up? Can you provide some perspective? I know a little bit near term. And then, Kenny, just because we've heard so much going on in Mexico with the grain side, I don't know if Jason want to address that. Just what is going on in terms of the grain crop just as we start this process? Is that going to be an issue going forward?

So first of all, and Kari will get into the details, remember, we came into the year with a contract loss on the international intermodal side. So we were really expecting not to have a great year on the international intermodal side. And this really talks to the agility and the cultural change that we talked about with Eric and the team quickly jumping in and handling all of that business having a buffer. And you can see where we are quarter-to-date, the double-digit growth. So that just shows how the network can flex to capture all of that tonnage.

Yes. So I think that's a great question about international. And many of you in the room have been asking me that over the course of the last day. I will say this. The key to us keeping the growth that has shifted to the U.S. West Coast is making sure we got a strong service product. And I can tell you this, in the month of August, we moved a record amount of tonnage off the U.S. West Coast. We are going to beat that this month, thanks to our operating team and Jim and their focus on that. . And that, and working closely with the Port of Long Beach and the Port of LA, has us set up to not expect a large transition to move back. So we are anticipating that the shift that has occurred from the East to the West, a large portion of that will stay. In the PNW, I think it's a little bit more up in the air. They've already -- the Canadian labor negotiations are done. As you know, we have been notified by one customer that they are reopening the Vancouver port of call. But the really good news is the customers have been so pleased with the UP service coming out of Tacoma, but they are going to continue a port of call there as well. So while I think a portion of that will shift back, we also expect to be able to keep a portion of that coming out of the PNW as well. So long term, for at least the next quarter, we are looking at strong volumes continuing to hit the West Coast.

So Ken, you heard my answer in D.C., so you don't need to hear it again. Jason, you want to...

Just to follow up the grain quickly. It's been a strong year on grain, going to max scale. I mean, part of that's driven by crop's conditions, but a lot is also driven by being efficient, productive trains. We get up to 6 different gateways to get into Mexico, not just one. So we're able to leverage those gateways to actually do more business and have more flexibility. We've got a lot of business development efforts, too, to capture more of the Mexico business going forward. Those things are paying off. And if we can keep offering a good product, we get the border fluid again, I still see Mexico as a great growth product for us going forward.

Thank you. Good discussion. We are -- as we exit, our CFO, Jennifer Hamann, will take the stage.

All right. Well, good morning, everyone. I'm Jennifer Hamann. I'm the CFO of Union Pacific. I was going to say I grew up here, but that seems to be a common theme around folks. So maybe I just need to say, I was a child prodigy, maybe. I started when I was 12. No. Like many others, I started at UP right out of college. I've been here almost 33 years. Worked through a number of different roles, starting on our corporate audit staff. Worked a number of roles in finance. Where I know many of you from is my time in Investor Relations, when I had Brad's job. I also spend a little bit of time in marketing and sales and workforce resources. It's great to have you all here today, both in person and those that are joining us online. And I know what you're all here for is to see what's new and hear what's new at Union Pacific. Now many of the things that we've talked about today are familiar themes. But I do believe that the approach, the conviction in this pursuit of what's possible within our company is really quite different. The teams walked you through our strategy that we want to be the safest railroad, one that meets our customer commitments by delivering the service product that we sold them and doing so in a very operationally efficient manner. Now before I connect that strategic imperatives to our financial performance, let's first look back at what Union Pacific has been able to deliver to our shareholders over the last 5 years. We've returned over $38 billion to our shareholders in the form of dividends and share repurchases. That equates to nearly 40% of our market capitalization returned to our owners, which is near industry-leading levels. And we did that during a period that featured a global pandemic, severe supply chain challenges as well as a freight recession. So a pretty challenging business environment. Another measure of our long-term performance is return on invested capital, or ROIC. Last year, we led the industry at 15.5%, and our expectation in 2024 and going forward is that we will continue to maintain that position of industry leadership through effective capital deployment. Another area where we expect to be an industry leader is through our rail operating efficiency. And the best way to measure that and compare us against our peers is operating ratio. If you look back on the line chart, in the second quarter of 2023, we reported a 61.9% operating ratio. That was basically middle of the pack, and we had unfortunately been trending in the wrong direction. In the second quarter of this year, we reported a 60% operating ratio. It was our third sequential quarter of improvement and placed us now in the position of leadership in terms of both the first quarter, second quarter and year-to-date with our operating ratio. Now you're not hearing me stand here and declare victory over that number. We know, and you've heard from the teams today, there are additional opportunities for us to improve. But I very much believe that this early progress is a proof statement that our strategy is the right one and that it's working. And I also want to point out that we, at Union Pacific, do not do any, what I'll call, fancy math around our operating ratio. It is straight up. It doesn't include any real estate, and it doesn't have any other adjustments. I also want to make sure that everybody understands that operating ratio is an outcome. Having an industry-leading operating ratio is the outcome of our ability to successfully execute on our strategy. So let's get into that. If you look at our industry, we essentially have 3 ways to drive profitability: it's productivity, it's price and it's volume. When you hear the team talk about industry-best safety, operational excellence, those are absolutely the right things for us to do as a company for our employees, for our customers, for the communities that we operated in. It is also productivity. Now Eric and the team and Rahul gave you a number of different examples of how we are driving better productivity, which will ultimately lower our operating costs. I'm going to give you one more example, and this one is with our strategic sourcing team. That team has worked cross-functionally and come up with a process that they're calling a first-call strategy. So through a competitive bid process, they're identifying across a number of different spend categories, vendors that can be the best performer at the best total cost of ownership. That vendor then earns what we call the first-call distinction. We then give that information to our frontline managers, the people who are empowered to make the decision about who they engage with to do work for Union Pacific. It's a tool in their toolkit to help them be operationally excellent. And it's driving savings for us today to the tune of about $10 million annually. Now I share this story because I now have responsibility for the supply chain team. So as Jim likes to tell me, I am no longer just the scorekeeper, I'm also in charge of driving operational savings. Now you heard Eric, Kenny and Rahul all talk about the things that we're doing to make our service product better and to distinguish it from others. And that's critical to our ability to attract and win new business. It's also critical to our ability to support core price. And I'm going to compact the price in a minute, but we deliver tremendous value to our customers when you think about our labor efficiency, our fuel efficiency, and our greenhouse gas efficiency as well as the billions that we invest in our network annually to support that service product. But achieving long-term growth really is what I'm going to call the Holy Grail for the rail industry. It's something that we have all been pursuing, but not consistently attaining. Now you can blame call our other commodities. But at the end of it, we have to have a different approach to pursuing long-term growth. And I believe what the team has articulated for you today is that different approach. And you've also heard one of the great proof statements today about why we believe that approach is winning, it's in that international intermodal space. That business volume that has come to us was unexpected and not only have we handled it well, at the same time, we have improved our operating performance. That is critical to be able to flex like that with our customers and to give them the confidence that they can award more business to us, and we will successfully handle it for them. Now let's go back to price. So as many of you know, I have been in the investor space a while and price has always been a hot topic. In fact, I've been around long enough to remember the conversations around legacy price. So it's in the spirit of legacy price that I want to talk to you about UP's repricing opportunities against the higher inflationary costs that we've seen. So let's start with inflation. Inflation really started to move above historic levels in 2021, and then it really accelerated the last few years, primarily driven by a hot labor market. But within the rail space, in particular, we settled some expensive labor contracts plus have the added cost of the work/rest agreements and paid sick leave. We are committed, though, to be able to offset inflation through our pricing activities. And even though that inflation picked up for us over the last few years, we were still able to yield price dollars that exceeded the inflation dollars these last several years, unfortunately, just not quite to the level that it was actually accretive to our operating ratio. And when you look at 2025 and beyond, we do expect inflation will stay somewhat elevated but probably a little bit lower in the 3.5% range. So how do we attack that? Well, if you look at the pie charts, you see that annually, we are able to reprice about 50% of our book of business. The other 50% is covered by long-term contracts. Between 2022 and 2024, we've repriced about 75% of that long-term book of business, which means we still have 25% that we have not yet priced yet. So there's upside there. I would also say we have upside in a couple of other areas. Kenny mentioned one already, and that's the domestic intermodal side. Since we instituted the dynamic contracts, we have not experienced pricing upside. As that market comes back, so will our price. And I think it's absolutely fair to say, for that part of our business that we repriced in 2022 and even in early 2023, there is still price upside there because, at that time, we really didn't fully appreciate the stickiness of the current inflationary environment. You heard Kenny and Beth both talk about our different approach to the growth. You heard the team talk about it. It was listed on the video. So there's a lot of activity, obviously, all coalescing around one theme. We do think that this strategy supports the growth story here at Union Pacific. And again, I think this gives you a bit of an early proof statement that we think it's working. In the second quarter, against a 23% decline in our coal volumes, we actually improved and saw a slight growth in our volumes overall. Third quarter to date, our volumes are up about 5%, against an 18% decline in coal. So again, an early proof statement, but we're going to take that win. Now as we look long term or at least over the next 3 years, we think what we're doing to go after our customers' business through our investments, through our differentiated service product and business development efforts, that's going to enable us to grow volumes that exceed the markets that we serve and that our revenue will exceed the volumes. And that's supported, obviously, by that differentiated price -- excuse me, differentiated service that we're going to price into the marketplace. Now with that long-term view about revenue exceeding volume, I do need to make one small caveat, and it's actually quite relevant to today's environment. Again, going back to international intermodal, which you've heard a lot talked about today, it's a great business for us. It's a big driver of our third quarter volume growth. In fact, if you look at our international intermodal volumes, it's up over 30% here in the third quarter. That business comes with an average revenue per car that is 40% to 45% below our company average. So the related revenue that comes with that volume growth is maybe less than what you might otherwise think or expect it to be. Now when I started out today, I talked to you about and gave you a proof statement about the success of our strategy when it comes to capital deployment. As we look out over the next 3 years, we intend to follow that same formula for success, but with a couple of important challenges -- or excuse me, a couple of important changes. First of all, unchanged is the fact that we are going to continue to invest in our franchise. UP's best-returning asset is the UP franchise. So we will continue to invest for growth and for productivity. Over the next 3 years, we expect that to total between $3.5 billion and $3.7 billion. That will be below our historic benchmark of roughly 15% of revenue. So what's changed there? Well, you heard Eric and his team talk about the fact that they have created capacity through their efforts at operational excellence, and they have capacity to grow across their critical assets. And in addition, as you all know, we've also continued to invest for growth post pandemic, even though volumes, in many cases, have not got back to those pre-COVID levels. Now when you think about capital, too, and you heard Beth mention this in her section, we are also looking at other areas where we can deploy capital. So not included in that $3.5 billion to $3.7 billion range is if we see a discrete opportunity to invest in something that will drive productivity, a one-off acquisition or anything that could support further carload growth to our network. You should know that we're going to make those investments, but only if they are going to drive shareholder value. Another part of our capital allocation strategy that is unchanged is with our dividend. Union Pacific is very committed to its dividend. We've paid it for 125 consecutive years. We also are committed to the fact that we have a 45% dividend payout ratio that's industry-leading. You saw actually in the third quarter, though, that even though we're trending a little bit above that 45% dividend payout ratio, that we did, in fact, increase our dividend by 3%. That marks the 18th consecutive year of dividend increases. This also marks a slight change in our capital allocation strategy relative to dividends. We understand that shareholders value consistency. So within that construct, as well as the fact that we want the 45% dividend payout ratio, we are committed to annual increases. Now some years, those annual increases may be more nominal, like in 2024, but in other years where we have greater earnings growth, we would expect to see greater growth in our dividend as well. We also are remaining very committed to our share buyback program. Since we instituted share repurchases as a company back in 2007, we have generated an internal rate of return of almost 15%, while at the same time, avoiding $17 billion worth of dividends. In '24, we expect to buy back about $1.5 billion worth of shares. And over the next 3 years, we expect to buy back between $4 billion and $5 billion worth of our shares on an annual basis. We will fund much of that through the cash flows that we generate as a company, but we will also use our balance sheet capacity. And let's talk about the balance sheet because our balance sheet is also a priority for Union Pacific. You heard Jim mention both last night and this morning that it's the job of this management team to build on the legacy of those who came before us. One way we do that is through the management and optimization of our balance sheet. Union Pacific has a strong investment-grade credit rating. We have excellent access to the credit markets and good demand for our paper. We also have the best combination in the industry between our weighted average debt maturity at 20 years and the low cost of debt below 4%. We also have been very prudent or pragmatic in how we have managed the annual debt towers and in no year do we have more than $2 billion that comes due in any given year, which gives us great ability to pay that off with cash, if we ever decide to do that, and we actually did do that here in 2024. So when you think about our approach to the business as a management team, what you've heard us talk about today, maybe not using these exact words, but it's all been about controlling the controllables, whether it's the management of our balance sheet or whether it's the execution of our strategy. The one thing we cannot control is the economy. The economy is really -- call the market for us. You've heard us reference market before. And that essentially sets the floor to which we then are tasked without performing that. So what I'm showing you here is S&P Global's latest outlook of the economy over the next 3 years. And it is showing growth over that period, although we would call that growth somewhat muted and somewhat back-half loaded as well. Now the one thing that I think is important to note here is that when you think about that economic outlook, with those muted prospects, it's also assuming that you have -- or excuse me, it's not assuming, but it's in the face of the fact that you have a truckload market that just kind of bounced along the bottom for the last couple of years. And of course, we all know the Fed, after 4 years, just made its first rate cut. So I do think there's the potential for upside here, but that's just something that we're going to have to watch. Now as I've walked you through the strategy, I've already laid out the majority of UP's targets over the next 3 years. So let me just give you a pretty quick summarization of where we're at. So we'll start on the top line. And again, that's rooted in market or S&P Global's outlook. But within that, we expect our volumes to grow faster than the market and the revenues to grow faster than the volumes. When we make that statement, we are not including any impact, up or down, from fluctuating fuel prices or from what happens with coal demand. So we're setting that aside. We are also committing to the fact that our pricing will become accretive starting in 2025. So pricing will begin to help our operating ratio. And over the 3-year period, we will continue to maintain an industry-leading operating ratio. And the combination of revenue, accretive pricing and productivity will enable us to produce, over the 3-year period, an earnings CAGR that ranges from high single digit to low double digit. When you think about that range, at the low end of that range is the economy forecast that S&P Global has. At the high end of that range is more robust growth. Again, over the 3-year period, we will invest in our franchise for growth and productivity. We will maintain a strong investment-grade credit rating. We will deliver value to our shareholders through dividends and share repurchases, and we will maintain an industry-leading return on invested capital. To say that our team is excited and motivated to deliver on this service performance, this financial performance, over the next 3 years, I think, is an understatement. We are very confident in our ability to execute on the fundamentals of railroading. We have the strategy that is going to set us up for success and the UP team is ready to deliver. So with that, I'm going to bring the panel on.

Okay. As we get situated, just to be mindful of time, we are -- I've told folks, and I want to keep that commitment. We will be done at 11:30. So we will take questions until 11:25 and then Jim wants 5 minutes to wrap it up. So we are going to just start right in. We'll start with Scott, and then we'll go to John. And then I see the other hands, too.

It's Scott Group from Wolfe. So I want to try and unpack some of the pieces here. You've talked about 3.5% cost inflation going forward. Is there any way to think about maybe Jennifer or Eric, how much of that we can offset with productivity? And then on the pricing side, Jennifer, your comment about price becoming accretive to the OR. Is that simply a view of inflation slowing? Or do you actually see an opportunity for the price to improve given some of this legacy pricing [ untracked ] opportunity, if that's sort of the term you want to use.

Yes. So I'll maybe hit the last part of your question first. I mean, absolutely, we believe that we have further pricing upside from where we're at today. And that comes across a number of different things. It's a better service product. It's continuing to touch parts of our business that haven't been touched.

It's market recovery. Thank you.

It's market recovery.

Well, what happened there?

On the truckload side -- we lost it again. And then it's just also getting back actually some of that business that we may be -- while we price and we got increasing price from it. It maybe wasn't quite the level that we needed relative to what's happened with inflation. So it's kind of D, all of the above, is really what it is there, Scott. On the inflation side, we do see it coming down a little bit.

What's going on here?

So we'll look to offset that as always. [Technical Difficulty]

Can you all hear all right?

They'll get it. Okay. Anyway, on the inflation side, that really is something that we always task the team is to offset some of that with productivity. So that's not a new thing, but that is where we see the inflation coming in is at around 3.5%.

I think you covered it with the exactly -- the closing comment, and that's what you've heard from the team today and me today when you think about that portfolio of initiatives, especially that particular quad chart I talked about, workforce productivity, locomotive productivity, that's at the forefront of those opportunities. And Scott, to your point, with volume growth as we plan that's a tailwind for us to be able to capture even more productivity in all 4 of those fronts.

Okay. We'll go to John and then...

Jon Chappell,, Evercore ISI. Jim, maybe Eric as well. There's been a lot of talk about labor. We've talked about you going on your own, and we have like the [ work rest ] and we have the paid sick leave, et cetera. But in some side conversations, you've talked about other things that you're looking for in the negotiation. So there's so much focus on this 3.5%, it may end up being a ceiling, it may end up being a floor, whatever the case may be. Can you just go into a little bit more detail on what you're looking for in these negotiations, the optionality you get, the flexibility you could potentially win despite the number and what that means for you with capacity, with growth and with margin?

Okay. So, it's pretty simple. It could be a 20-minute answer. If you wanted to get into all the detail of what we're looking at. But if we want to frame it is we congratulate the other railroads that have signed contracts, and they feel comfortable with what they have and they're going through the ratification process. And hopefully, it all works out for them. For us at Union Pacific, we would -- we understand where the increase is going to be in wages. Some of that has already been agreed to by others. But at the end of the day, we are very, very set that we need to improve our service product. And you only do that with some changes in the collective agreements with all of them, not just the locomotive engineers and conductors. So the SMART, BLET but the rest of them. And we think it's best for us to negotiate with the entire package to be able to sit down and do that. And we're very, very focused on how do we do that in a cost-effective manner moving ahead so that the wage increases are reflective of what's happening to the inflation in the economy and how we move ahead. And remember, we're not late in this game. As Beth explained, notice goes out for the starter negotiations in weeks, so not in days. And the last increase that we just put in at 4.5% last July is in place until July -- June 30 of next year. So that's the way we think about it. And always, everything that we do, we look at how we make Union Pacific better. And better is better service that drives increase in business and capability to price better and making sure that our employees who are the highest-paid employees in the industry. So they get more money already that are properly compensated, so we draw in the right people and we're able to recruit, which we haven't had a problem with. So that's the answer, Jon. Sorry for the long answer.

Okay. We'll go to Jairam and then Fadi, in the middle here and then Fadi is on the left.

Jairam from Daiwa. So Jennifer, you talked about a 15% kind of IRR on buybacks. At the same time, Kenny, it looks like the payback period on the investments that you made to get new business is pretty good as well. So just trying to understand and it looks also that there's a lot of opportunities in terms of soda ash. I talked about renewable diesel. So how do we kind of balance these 2 as far as capital allocation goes. Would you need more investments going forward, especially given that you kind of kept the CapEx pretty much flat?

Yes. I mean within the growth prospects that we see longer term that was all included in that capital range that we gave you of the $3.5 billion to $3.7 billion. And the reason maybe that feels a little low for some people is that you're maybe not fully grasping the additional capacity that we have on the network that we've created today.

I'm not sure what is going on today.

Somebody back there is playing some tricks at me. So, no, I mean, we've created capacity. And obviously, $3.5 billion, call it, 25% to 30% of that is growth capacity that we're going to be putting in. So I feel very comfortable with the combination of being able to support the growth projects with the capital allocation strategy that we laid out in the buybacks. But as I also said, if there's a discrete opportunity that we have to take that's going to drive more business to the bottom line, UP is our best-returning asset, and we will invest in it.

So we have Fadi over here, give him mic.

Fadi Chamoun from BMO. A couple of quick ones. One on the revenue guidance side. I mean, you laid out a lot of interesting and -- details about kind of the self-help opportunities on the commercial side. But then when we look at the revenue kind of gross overall guidance, if we are assuming inflation is 3.5%. So pricing at or above that and with the economic data that you put revenue growth could be in the mid-single digit easily just based on those 2 metrics with high-single digit. What I'm trying to understand is really like what is the self-help contribution in here? Where is the kind of growth in volume that is above the market being assumed? Because it feels like guidance is really driven more by the economy. And maybe the other piece of it, what is the incremental margin contribution you're assuming? I think in the past, you talked about something in the 65%. I'm not sure if anything changes here as far as mix go? Or as far as kind of inflation goes, if that ratio still is the right assumption moving forward?

Yes. So a couple of things there. So on the incremental margins, I mean, we do think that we'll be able -- we've not put an exact number on it this go around, but we do think we have the ability to grow with very strong incrementals. That's part of the whole strategy that the team has in terms of growing train length, reducing our train starts and just being overall more efficient with how we move the business. In terms of maybe if you're feeling like there's a disconnect there, I think there's maybe a couple of things to consider. Our guidance about revenue greater than volumes, I set aside any impact from fuel, and I also set aside coal. So if you're then trying to get to a gross revenue number, you do need to take into account that coal is a declining business for us, and that's likely not going to change over the next 3 years. The other thing is mix. Kenny declined to answer the mix question earlier, but I will. We do see some of our strongest growth opportunities in the intermodal side of the world. And I just gave you some very specific information relative to international intermodal and the average revenue per car difference it has with the company average. Domestic Intermodal is better than that, but it is still towards the lower end of the range. So I would say those are maybe a couple of things that we need to factor in.

Chris and then go to Walter.

Chris Wetherbee from Wells Fargo. I guess, maybe coming back to the self-help question there for a second. So, I guess, when you think about the potential macro implications, if we end up seeing below the range, I know you talked about $100 million of productivity, I think that was on the slide earlier in the presentation, what are the other levers that maybe you can pull to sort of improve that or maybe add to that? And I guess maybe a separate question would just be back on the pricing piece. I guess, if you think about the pricing opportunity ex truck, can you give us a sense like outside of the Intermodal business, sort of what the types of improvements you're getting now. And if you can potentially get that acceleration in price even if the truck market does not recover, say, in 2025?

Yes, I'll take the price. As it stands today, and I said this explicitly, we're taking more risk. And the team feels more than comfortable with the amount of price that we're able to capture today, especially with the service product that Eric and the team have put out in front of us, especially with the investments that we were making. And you've heard me say this before on the earnings calls, our customers also -- they're experiencing the same inflationary pressures there too. So there's nothing that concerns me about our ability, our fortitude to go out there setting aside the domestic truck market to go out there and get the price over the next few years.

So then going back to your self-help question. I think I should clarify that $100 million plus that was on the slide was just around technology. So that doesn't encompass all the process things that we are doing or other things that we're working on to drive productivity. So I think there's a lot of self-help opportunities that we're looking to explore across the board. And Eric, I know you laid out several but maybe you might want to highlight a couple more.

Yes, let's build on a couple of more of them. So when you start thinking about cost per car handled in our terminal, that's one of our greatest productivities that our teams look at locally. When you hear us talking about things like level loading or moving touches, that's where you start to able to eke out that cost out of the system. When you also look at it, and I mentioned it today, but I've got to mention it again because it's so important, I'm not satisfied at 15.5 hours on our locomotive dwell. There's still opportunities on that front. Yes, opportunities in some areas may be bigger than others, that's still an opportunity for us as we continue. And then we push our teams, whether it's in the mechanical team, the engineering team. We want them to continue to get more and more efficient in how they repair our infrastructure, our locomotives, our cars. That's going to continue to be an opportunity for us with or without technology.

Walter?

It's Walter Spracklin, RBC Capital Markets. My question is on your labor force growth over the 3-year period that you've outlined is with your productivity improvements that you're achieving. Do You expect to get labor growth to come in below the volume growth that you're expecting and perhaps give us some indication around that cadence of growth in your labor force over there?

Our position, Walter, is pretty straightforward. And you've seen it with our results over the last year. I think we're doing a good job of rightsizing with where the business is. We'll continue to do that. We don't see ourselves growing anywhere near the amount of business that comes on the railroad and have a one-for-one increase in the number of people that we need. In fact, we see a substantial decrease as we move ahead and that's our focus. And I think we've shown that we can deliver that already with us now being under 29,000 employees. We need the right number of employees to operate the railroad. This is not about chasing a number. This is about doing those thousand things that we look at. Can we use different processes in the management team. Can we -- how do we look at billing? How do we look at customer contact? How do we look at real estate? How do we look at operating our trains every day, our yards every day? How do locomotives turn? Can we do them faster and still get the same quality. Can we do the railcars. I could keep on going here for 15 minutes. We look at that every day to see how we can be more productive, and that's why I'm very comfortable with what we've done, and we'll continue to do that as we move ahead.

We'll go to Ravi. Thanks. Walter.

I love that question. I was ready for it, Walter.

Ravi Shanker, Morgan Stanley. Jennifer, if I may follow up on the pricing question. You said that you've not -- or customers have not given you enough pricing to offset the inflation you've seen so far. But is there a risk that as inflation starts to come down, you may get some pushback from customers saying, "Hey, inflation is coming down. So why should we give you that pricing back?" And maybe, Jim, very quickly to you as well, if macro in the next 3 years is weaker than you think, how do you think about balancing your commitment to industry-leading OR versus growth?

Let me Jim, jump in on this price first. So Ravi, we don't [ lead ] with costs when we're talking price with our customers. We have never done that. We won't do that in the future. Yes, we can talk about inflationary pressures, but we don't [ lead ] with that. The fact that we've got a solid, consistent, reliable service product out there, the fact that we can point to them and show them the investments we're making and to be reinvestable, we have those conversations with our customers. So no, I don't see as the inflationary pressures change or move a little bit, that's stopping us from going out there and achieving what we need to do to maximize price. .

The only thing I'd add, Ravi, on price, is I think the value we provide our customers in a lot of segments, when we look at how they're doing themselves in those segments allows us to be very bullish that we can price because of the value of the product that we're moving and the service that we're providing. That's why if we're not providing the service and makes it way harder for us to talk. So I'm very comfortable with that. And the question about the economy it's always. It would be easy if you could set the world and say the economy is going to grow at 2.9%, inflation is running at 2.01%, and the world is flat. Well, we operate the railroad. It's not flat. We have some big grades. We need locomotives. And it's -- and the world, we don't know. But the way Jennifer laid it out was very important in that we want to structure the company financially so we can go through the ups and downs. And our peaks, we want higher; and our lows, we want not as low. And that's the way we look at it. And I think we have the company and the talent. The reason I didn't spend 2 hours up here, which I could have. People have heard me go in the company and they go, is you're going to get off the stage. So is this because I wanted you to meet the talent of the people that are supporting that work with me every day to do that. And OR, yes, OR is important to us. Yes, we want to be the leaders. But it truly is a result of what you do. If you focus too much on driving to a specific number, like if you came out and said, UP is going to be a [ 55 or 56 ] OR, you can make bad decisions inside the company trying to drive towards that number instead of looking about what we are. This is who we -- this is what we want to do. We want to deliver to our shareholders like we have in the last year. Last year, our shareholders have been able to get a return of 16% if they invested to us 1 year ago today, okay? I just looked it up before I came up on stage. And that's what you want. You want a good return for our shareholders. You want to be sustainable. You want to be able to pay that dividend and you want people to say they can go up and down and deliver us a good value. And I'm very comfortable with where we are. Now let's not pool around on OR, Ravi. We're going to be the best, right? Like I'm not playing this game to sit in the dugout. I want to get up in the ninth inning, bases are loaded. We're down 3 and I want to hit the home run, okay? Other people want to do whatever. That's not my world. And this team is the same. Otherwise, they wouldn't be up here with me. Thanks for the question.

[indiscernible] Tom and then to Ken.

Tom Wadewitz from UBS. So you gave us the guidance and what's the right underlying assumption we should have on volume, is it like 1% to 2%? Or is that -- are you thinking a bit better than that? And then, I guess, the second question, Jim, for you. You started off with the kind of talking about redefining possibilities. And you talked about Mount Everest, what's the Mount Everest for UNP, right? Is it -- we're going to just defy the industry's low volume growth and grow volume better? What would you say is something that would be like new possibilities that you try to achieve at UNP that's the Mount Everest.

So on your volume question, Tom, I specifically didn't give a number to that, just like we didn't give a number coming into 2024 because our crystal ball isn't quite that refined because I could have given you a number, and I would have been dead wrong. I mean the best example is international intermodal. We thought our international intermodal volumes were going to be down, maybe double digit this year, and they're up double digit. So we just have to be flexible and nimble to handle whatever comes our way. You see the base case assumptions, put a point or so on top of that whatever you want to do, but we're going to handle it, and we're going to turn it into profitable growth.

Okay. Ken?

You want me to answer that last piece.

Sorry. I love it. He doesn't want me to answer.

I'm going to next question. Well, it's like a political forum. I'm going to talk about something completely different.

Multiple questions got me. Sorry, go ahead.

Why did I have that slide up is, yes, I talked and I was -- I spent a little too much time in the very first opening. And I do -- even though it went to 0, I want to try to get us on time, and we are stopping at 11:30 okay, because some of you have to go. So we're going to finish the questions and I want to tie up for a couple of minutes. What we look at when I put that up is what's possible. And if you think about the history, it's not -- Roger Bannister was up there when he ran the sub 4-minute mile. And the humans for the longest time, thought it was physically impossible to do things. So the win for me at Union Pacific is when I walk out the door, and I came in with 1 box of things, I'm going to maybe walk out with 2 boxes. I'm not one of these guys that wants a bunch of trinkets on the walls, okay? So I'm going to walk out with my 2 boxes. And if we have a team that optimizes what's given to the railroad, that's a win. That's what we want. A team that can handle the adversity that happens in this business, things happen like who the heck thought we'd have a hurricane hit us in July. It's a little early. So at the end of the day, the resiliency and how fast we recover and we can show our customers and the country that we are doing our part to grow and be part of the U.S. economy, that's a win. And having the right-sized company with the right amount of people, talented that we can win. I'm going to go on my sunset and I'll drive around the UP mainline there when I'm going to hike up in the park outside of Tucson, not that far from my house, and I'll watch those trains. And don't worry about it. I'll count the number of cars, I'll count the locomotives and I'll time it to see how fast it's going or I'm going to the next board meeting. That's a win for me, Tom, okay? Thank you.

It's Ken Hoexter from BofA again. Thanks for the presentation. And Kenny, I'll take it. Thanks for the AC. The greatest growth on your lower -- is now on your lower or average yielding product as you're highlighting international intermodal. But yet you still see revenues outpacing volumes. So, I guess, we're talking about the legacy contracts catching up. You're talking about improving productivity, the best OR in the industry. So maybe, I don't know, Jen, can you talk about thoughts on incremental margin targets? Is that something you can -- you're comfortable addressing here? And then near term, I just want to understand your messaging just given the international margin -- international intermodal growth, is that bad for margins near term? Is that the signal you were trying to talk to?

For the international intermodal piece, it's a couple of things. It's the revenue and it's the margins. And where I specifically made my comment was the fact that the view that we have that long term, we should be able to grow our revenues in excess of our volumes. When you have international intermodal up 30% in the quarter and being the main driver of your growth, it's hard to achieve that target. So that's why I made that comment, and that's what I was getting at with that. In terms of incrementals, we're not going to give you a specific number. But I think what you should be able to see us do is to return to maybe more historical incrementals, maybe a little bit better than that as we're driving growth efficiently across the network. That's the expectation that we have for ourselves.

Okay. So listen, I said I was going to get you all out on time, and we'll do that 11:30. First of all, thank you for coming. Second is there was a lot of people that put together you think about getting that steam engine down in place. That crew worked until very late in the evening and after midnight to make sure that big steam engine looked positive. I can't believe so many of you when I went around last night talked about what was the best part of the day and you said the steam engine. For me, if something is sitting, I don't love it. So the only time I like it is when it's moving, but that's fine. And it was a lot of hard work. And you could see the quality of the team we have to put this event together. I think we -- the team did a great job of trying to show you who we are because that's very important. And I'm going to get some feedback talking to some people that I know and one is my wife, and she will give me feedback on whether we're doing a good job for investors because that's the way she looks at it. She's looking purely at the result. If we look at what we did and what we laid out today, we laid out a very reasonable plan that we want to lead the industry in returns. We laid out some detail, which we don't normally do on an annual basis. And we talked about the $4 billion to $5 billion in share buyback. We talked about industry-leading OR. We talked about earnings per share, high single digits to low double digits. I'm very comfortable that we can spend right and make sure that on the cost side, we'll improve. And I'm very comfortable with how the service levels are running and what's possible for this company, we can beat in the marketplace, anybody else that's playing against us. That's the challenge. But don't kid yourself. I understand we have to look at the regulatory environment. We have to look at the governmental environment. We look at how we deal with communities that we operate through, and we handle those things on a daily basis because it's very important to do the right thing. And we also understand that we are owned by shareholders. So I think we've covered every one of those. We have a company that's going to deliver good, strong value for our shareholders. We're going to be very prudent in how we do things as far as the length of trains and how we operate so that we lessen the impact about what's happening in the communities. And we have to manage what's happening; and we make sure that the goals are very similar, the FRA goal is very similar. We want to be the best. The STB goal, we want to provide service at a reasonable price. And I think we do that. So if we do all that, success in the next 3 years. And I'm looking forward to doing this again in another 3 or 4 years. I don't think we'll do them every year. Maybe we'll do it before the guidance comes up. But I really appreciate you all coming in here. Thanks for all the questions. The questions were great. Hopefully, you've met the team. This is quite the team. I'm very proud to work with all of them. Thank you very much. Have a good safe trip home. Thank you.