Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

All right. We're going to go ahead and get started with the next presentation. It's a pleasure to welcome Union Pacific. We've got a lot of interesting things to talk about here. We've got Jim Vena, CEO; Jennifer Hamann, CFO; and Kenny Rocker, CMO or Head of Marketing. A pleasure to have all 3 of you here. Appreciate the strong presence and participation in our conference. We'll do this fireside chat like we've been doing. Jim, I don't know if -- or Jennifer, if you have any initial comments you want to make, and then we can dive into things.

Yes, I wouldn't mind. So let's start off with the boiler plate. We're going to say a whole bunch of things, read it all. What's really interesting is we used to be able to put the boiler plate in a couple of lines. But now with the merger, lawyers have got about 4 or 5 pages of it. So if we can go to the next piece, let me know when you've read it. Basically, everything we say is public information and and to be used in the right way. And if you want more detail, please go on our website to make sure that you get updated or get a hold of our IR people and for any detail that you might want to have a question on. So what I really wanted to start off with is to talk about where we are with the merger application and where we are so far and what the path looks like to completion. Bottom line is before we came to the point that we wanted to make sure internally that we were set and looking for an opportunity to be able to go through a merger, with another railroad, we wanted to make sure that the company was in the right place. And that was really important that financially, we were well set up. And I think Jennifer you can correct me if I'm wrong or touch some of the points. But at the end of the day, I think we're in a good place, correct?

Very good.

That's it, just very good, okay. I was hoping that she talked for a couple of minutes, but that's okay. So we're very good, okay. And that was really important to us is that we have the capability to be able to handle this merger and handle it with the financial resources that Union Pacific has and where we were with debt, amount of free cash flow, the amount of opportunity that we have with who we are. We also needed to make sure that the railroad was operating at a high level, operationally, okay? So that we weren't trying to fix the operation, the basic fundamental of who we are and what we're trying to do at Union Pacific. And I think we've done a really good job. And what we've done is we've changed the culture at Union Pacific. We drive decision-making down now to the lowest level. That's not an easy thing to do, when you've taken decision-making away because you have more information and easier information in the company. It's really important to be able to try to reverse that because the person at El Paso today has a better picture of what's happening at the U.S.-Mexico border, what the trains look like going across, the amount of traffic that needs to go, what the customers locally. And everything doesn't always operate perfectly. So if there's something that needs to -- a decision made there about how we operate today, they can talk to the customers locally and say, listen, do you mind if we're going to be a few hours later or we need to change the way we service you today so that we can have the least amount of impact. And we're doing that. And we're -- our culture is also now if you make a mistake because you're willing to take ownership and make a decision. Now we don't let them make decisions about what our dividend is going to be, okay? That's a different level. Jennifer won't even let me make that decision, okay, all by myself. But that's key to who we are. And I think people can see the key metrics that you see outside as far as we've been able to remove touch points on railcars. We've been able to speed up the network. We have more resiliency. If we have something happen, we are able to recover faster. That's all real important and that was important to have in place. So given all that, we found the partner. We found the right partner for us. We found a partner that we think that will allow us to -- have customers be able to move traffic and move their business across the United States of America seamlessly and remove touch points. We remove touch points. We're able to speed up their traffic, their business so that we remove hours and actual fact in some of the days of inventory and expense on their side that they have to do to be able to handle that traffic. So for us, we think we're in the right place. So where are we after we announced. It took a lot of work. It's not simple to go through a merger with a company the size of Norfolk Southern and Union Pacific. It's an $85 billion transaction. But we think -- and we know that it's financially a great move for the new Union Pacific. And we're the new Union Pacific, just because of our heritage since 1862 since tied to Lincoln. So for us, that's really important. And I think we have a great brand, and that's what we're going to be as we move ahead. That doesn't diminish the brand for Norfolk Southern, and we'll make sure that -- we use it as a piece of our heritage and who we are moving forward because we -- there are some very strong employees at Norfolk Southern. The ones I've met over the years and the ones I've met since the merger announcement, they have strong people that want to win, and that's the culture that we want to have as a culture that we move ahead. So we're moving forward with the application after we -- and I was hoping that at the end of this week, in fact, it looked really good. And then we had one contractor that needed to do some rework on some product and they needed to -- because we want to make sure that, that final product is at the level that is exceptional. So that when we give it to the STB that they're comfortable that we've answered the questions and giving them the information that they want. So it looks like we're going to be closer to the -- in 2 weeks that we'll have the application go in, looks really good at this point that it does. Am I happy? No. Are we paying this contractor to be able to this economist company to do the work for us? Yes. But I'll tell you, if it was Kenny, he'd be in big trouble, but -- I'm just joking Kenny. But at the end of the day, I think we want to do it right. So expect us to have the merger in and close to the end of the 2 weeks from now that we'll hand it into the STB and we'll start that clock process going. So that's where we are. We're very comfortable with the railroad, how it is, comfortable with the decision to move ahead. We have a compelling story. And the compelling story is pretty straightforward if you look at it. Is it good for the country? Absolutely. There's no way that the United States of America is the only country in North America that doesn't have a railroad that operates seamlessly across the country to be able to give the shippers, the producers, the industrial base that we have, the capability to move copper from Arizona easily -- easier into the eastern part of the U.S., whether it's lumber from the southeast that can cross the Mississippi, getting into Texas and California seamlessly so that there isn't the handoff that happens with 2 companies. It's also we're able to sell a product that gets them to market quicker. And by selling that product quicker, we're able to open up more opportunity and more competition for others. We're also in the world economy here. This is not just as simple as looking internally at the United States of America. I was visiting one of the largest soybean crushers. It is the largest one in North America in Mexico. And they said to me, Vena you think that it's -- you think that the issue of competition is the other railroad or the other railroads, it's actually another country. Brazil is trying to get in there to take that soybean that most of them are shipped from the United States of America into Mexico to get crushed. So that's what we're selling, and we're real happy where we are. It's been fun to watch the reaction to tell you the truth. I've sort of enjoyed it. I was sure that it sort of gives me a feel, if it was really as the CEO of a company, if your competitor is doing something that's illogical and will harm their business, then you know what, we're a little self-centered. We would just not say anything. We'd let them do it. But the reason we have so much noise coming from our other partner railroads is they see the advantage. They see the touch point removal. They understand what we're going to be able to offer and they're going, how do we compete against that? So you either get your game going, which a lot of them have with the new services that they've announced, trying to get ahead of the merger or you need to do something on how you price and how you move things. So that's why the complaints are there. And I'm excited. I really am, and I think the whole team is. Jennifer?

Actually, Kenny, why don't you talk about fourth quarter volumes first?

So, I'm in the top right. Just -- you can see the numbers. I won't read numbers to you. But what I will do is go from top to bottom as you look at our bulk business, we had a win on the coal side earlier this year, and we've seen natural gas prices favorable, and that's been encouraging for us. Our grain and grain products business. Jim talked about the grain side a little bit earlier. That's been strong, moving quite a bit into Mexico. Our Industrial business, our carload business has also been pretty solid, as you can see. If you look at it, markets like construction have been strong, plastics, industrial chem, our metals business. And just like what you're seeing out there in the macroeconomic indicators, housing starts are negatively adversely impacting us, but we're keeping an eye on that. Our premium business, think of that as international intermodal, domestic and autos. Domestic has been challenged, negative around 4% to 5% so far. International volumes, we've seen that sequentially go down throughout the year. As you all know, we had a little bit of a surge over the last, call it, 18 months with stop and go with the tariffs. Really excited about our domestic intermodal business, which is -- which has been a positive for us, and we've seen quite a bit of over-the-road conversion. But you know Eric, we're here and Jim, the management team we're coming from a place of strength with such a strong service product that we still are encouraged as we continue to go throughout the quarter.

Yes. So that's a great place to leave off. If you look on the left-hand side of the slide, you see that strong service product depicted there. The network really is running very, very well. In fact, on Monday, we posted a freight car velocity of 245 miles per day -- car miles per day. That's an all-time record. So the team is really humming, high level of service, high level efficiency. And you see it's not just here in this quarter. It's been a track record that we've been building over the last several quarters. Unfortunately, that can't fully overcome what we're seeing in terms of some of the volume challenges that Kenny just referenced, quarter-to-date, down 4%. As we go into December, still have 30 days left to ship, and we'll certainly running as well as we will. We'll be picking up every carload that we can. But we know that's against a very tough comparison against last year's December. We're also seeing the mix maybe be not quite as favorable as we would have hoped it would have been by this time of the year. Kenny referenced the international intermodal being down. That certainly helps us from a mix standpoint. But where you're seeing some of that growth, coal, rock. Those unfortunately, are some of the lower arc commodities that we move. And then you also have some of the higher arc commodities like lumber, like some of the specialized the food and beverage, those are a bit pressured right now. So mix is slightly unfavorable relative to where we thought it was going to be. The other thing is, obviously, when we talked about this back in October, we do have some merger costs, $30 million to $40 million that will be incurred here in the fourth quarter. And if you look at our other expense line, probably a little bit of pressure there with a couple of casualty items. So probably a bit of a challenge for us here in the fourth quarter, more so than we would have liked to have in terms of finishing out, what really is otherwise going to be a very strong year for us. 2025 is a year where a lot of first for our company, still leading the industry by the time we get to the end of the year in terms of operating ratio, return on invested capital, embarking on the historic venture of the merger with the Norfolk Southern and really executing on our strategy and on the fundamentals, which has helped position us to be where we're at today. So a little challenge here and there, but very solid performance, great position to be in otherwise.

So Tom, that's all we have. We didn't come with a lot of slides, but bottom line is it'd be boring if everything was perfect, right? So, I love the challenge. This quarter is interesting. But I love it that we have the fundamentals right and what we're doing. So the way we go.

Great, yes, thank you. Jennifer, maybe just to drill down a little bit on your comments. So I guess whether you want to look at like kind of OR year-over-year or earnings year-over-year, do you think you show improvement in 4Q? Or how should we look at that?

Given a 4% down volume, that's going to be a very difficult thing for us to be able to do.

So including the $30 million to $40 million merger costs in the earnings number, it's maybe a little difficult to be up year-over-year in earnings?

Yes. And as I mentioned, a little bit higher on the other and then just the mix not being quite as favorable as well.

What's the year going to look like though, overall, pretty good?

Oh yes, full year -- like I said, full year, we still feel very good about it. Still, we'll have industry-leading OR and ROIC. But fourth quarter will be a challenge.

And any thought on how large the derailment is that like $50 million were the 2 derailments combined or $20 million or any ballpark on that?

We haven't sized it fully, but it will pressure that. We've given some guidance on that other expense line. It will probably pressure that towards the higher end of the range.

Higher end of the range, okay. Maybe one or two more for you and then swing back to some of the broader topics. How do you think about inflation next year? Is that kind of 3.5%? Or what's, just when we think about kind of some of the inputs to margin performance?

I think he's going to get you to answer a question you usually don't answer, but go ahead. I love it.

No, we're still working on our 2026 plan a little bit. But I don't think you're far off, 3.5% to 4% probably isn't too far off. As you know, we've got agreements with all of our labor unions, they're all ratified, yes, good point there. So -- which is great to be done this early. But you've got about a 4% wage increase there. You've got health care costs, you've got a few other items. But that's obviously our challenge as a management team and Kenny's challenges to go out there, achieved pricing to help us offset that. And then we need to work on productivity to be able to offset the inflation as well.

So Kenny, I know you're -- I would imagine this is part of your job. Maybe Jim, you're doing this too, or all hands on deck, but you've got a lot of customer support letters for the deal, right. Do you take it a little bit easier on price given you're looking for customer support on the deal? Or is that no change? I mean, I don't know if...

We've always been disciplined on pricing, but you got to lead back to that slide with that service product where it is. We can walk in the customers. We're not talking about delays. We're not talking about issues. We can leave with the service product and talk about the pricing. So -- and we're not shy or we're pretty dogged in that.

You think price is stronger in '26 and '25 or similar? Or how would you think about it directionally?

Too soon to call. We haven't set that budget up, but the key points are we got a strong service product, and we're going to be pretty disciplined around that. We always have.

Okay. So Tom, it's an interesting question to get asked about how you think about pricing. Of course, we want to increase price right? That's just inflation is going up, costs are going up, you need to increase price and you need to increase more business and bring it on. That's what Kenny and the entire team are out there to do every day. Fundamentally, it's a different conversation when you can show the customer that we're moving their railcars faster today with that car velocity so that they need less of a fleet, they need less impactful, less inventory, less all those things that people need. And that helps in the conversation. But we're also cognizant of the fact that you have to look at what the economy is, you can price yourself out of a product by being stupid about how you price because something else will replace it. So it's complicated. That's what Kenny needs to be able to do. And we need to -- sometimes, we need to look at things a little longer term, Tom. And that's something that railroaders have not done really well is to think about what is it that we're trying to do. If we're trying to build the market, sometimes you have to be smart about it. Now don't get me wrong. This does not stop the pressure that Kenny and the team feel to go out there and price. We expect them with the high service level and what we're able to deliver for our customers, the value that we give that we're looking for increases in prices. And Kenny knows, if not, there's a carwash looking for a new manager, at the end of the day.

I'll be sure about that.

At the end of the day, that's his job, okay? And he's got it. I love having Kenny with us, all joking aside, he's got the right balance, understands the business, understands the markets. How long have you been doing this, Kenny?

8 years.

But how long in marketing?

30 years.

He hates to tell people add up how old he is, I don't know. I tell everybody, I'm 67 okay? It doesn't bother me, Kenny.

But Tom, the other thing you asked about price of the main thing is we're also looking at volume growth, too. I'd be remiss. If all we said is, "Hey, we just talk about price. We're going and trying to grow the business.

Yes, we're building in the places. We're doing -- we're investing in railroad.

Putting the new products in place. So we're doing that, too.

Jim, why do you offer that comment about sometimes rails do too much on price or need to be more long-term focused. Do you think that's something like UP has done a little bit? Or why would you add in that comment?

I think we have to be careful and it is a little nuance about the way we think. And I don't want people to get this wrong impression that we're going to use that as an excuse of what we come up with price. But there is certain markets if you want to grow the market, you need to have a longer-term view of what you want to deliver and you need to be able to understand how you can nurture it and grow it. A lot of the business that we have has been with us for a long time. Whether it's the lumber that comes from the North or the Northwest or the East or the South, right, is there. But there are some markets that we can build on to be able to grow it that you might -- the only way you do it is to get people to transition away from what they're thinking, Tom. It's as simple as that. I'm not talking this as a wholesale change. And it's like that with intermodal. It really is, is that we need to start thinking about how we run it. Now it's not. I'll give you an example. Remember, in 2019, when I came to UP, we were going by a place in California. And they were trying to -- after -- that was the very first time they went on the train ride with me, and they told me -- they were trying to get me to look out the window on the left-hand side of the railcar. The business car. And I wanted to -- I knew right away, I needed to look to the right. So when I look to the right, there was this thing that looked like a train, 2 locomotives, 4 railcars and an in the train unit, right? So I said to the -- at that point, the guy who is the EVP, I said, was that a train? And he says, yes. And I said, 4 cars, 2 locomotives and then end the train. I said, how many -- how long have we been trying to grow the business? Well, we've been trying to grow the business for years. And I said, that's as big as it gets. Then we're not that stupid. We walk away from that. It just doesn't make sense, handling the regular train, okay? So that's what I'm talking about.

And that's where the efficiency part really comes in too because that lets us enter markets that are tough for us to compete in otherwise.

And we see that opportunity with where we are, Tom, I'm excited about that. Too bad, I'm not 45 years old, that have another 30 years to work, okay, and see that Union Pacific.

So if we shift over to the merger, I know you don't have the application now. Obviously, you have done a huge amount of work on that. It seems like one of the key questions is how do you -- what steps can you take you choose to take to enhance competition, right? Because that's something different than what we've seen in the past. I mean I think -- different you say, well, it will provide tracker, we'll provide customer access I mean, I wouldn't think you're looking at cell line segments, but there are different things that you could do. But I don't know if that's like too narrow a way to look at it. How would you look at the ways that you can enhanced competition?

Well, Tom, it's a great question. It's one of the criteria that we have to deal with in the application and then later on when we give more information if required. So it's something that -- so what is enhanced. If you go look in the dictionary right now, enhanced means you improve a product, you give more service and depending on if it's an economic enhancement or a structural enhancement. It's pretty straightforward. And what we've talked about pretty clearly is an enhanced product. An enhanced product is that we will not be one customer that will have less service than they have today. So that's sort of a baseline. So anybody that's going from 2 to 1 because of this. And it's a very small amount because we don't have a lot of overlap. It's an end-to-end and people smile, but out of the 30,000 miles of railroad that we have, it's only a few hundred miles where we overlap with Norfolk Southern, okay? It's very small. And even in the terminals and everything else, okay? So at the end of the day, and what we're giving the rest is that product that they have today is going to be faster. Everybody wants to talk intermodal, which is real important to us. But intermodal, we're competing against trucks and other railroads, but mostly trucks. That's where the benefit is. And we think that it's underserved for a large piece of the country. both sides of the Mississippi on what can actually move using our intermodal product that we're not doing today because it's going by highway. We're enhancing in the city of Chicago, where you don't have these cross hauls going from railroad to railroad. We will go direct. There's today, on a weekday, there's close to 1,000 movements by truck to go from one railroad to the other. And if you're with the new Union Pacific, those things will be handed off rail to rail not by truck. So I can keep on going. Let me give you a couple more examples. If you're -- the majority of our business is still okay, manifest. It's still take cars, box cars, flat cars, gondolas, all that. And any time you have to go across the Mississippi to hand off, we'll build blocks in Houston for Philadelphia, we'll build blocks for Atlanta. We'll build blocks for other places where you don't touch that railcar again. So the enhancement is you take 24 to 48 hours. We have the best well in the industry, and we're well over 20 hours on our dwell through a hump yard. And not through dwell. Some people include their trains going by. I wish -- I don't do that. Like I don't count the train that went by, stopped, change crews as part of my dwell. The dwell is actually when we have to handle a car. And at the end of the day, that's enhanced. So I could keep on going. Jennifer, anything you wanted to add?

No. I mean I think it's just -- when you think about how we're going to set some of this up, and obviously, we're going to give a lot more details in the merger application. So I want to have a few teasers to hold on to. But one of the things that we're doing, and we talked about this when we made the merger application is something similar to what we have in the I-5 corridor but we're going to expand that beyond just the customers that are impacted by the merger. So we're enhancing competition even for customers who aren't impacted by the merger. And I think that's going to be a huge win.

Kenny, anything you want to add on that?

No, when you see the merger application and the beauty of it is it is breaking out different markets sort of like what you mentioned, not just intermodal, but on the carload side, on the unit trading side. as far up to Boston and the watershed market. So you'll get a little bit more clarity.

And we're keeping gateways open.

Absolutely.

We're not into it. If somebody wants to ship with with the old Norfolk Southern and they want to come West and they want to go to Berkshire on the West side. Northern Santa Fe, but I'm good with that. Go ahead. We'll make the money off of the Norfolk Southern and because at the end of the day, I think railroads in general, have thought about this a little too selfishly. I have no problem. You should always look for the best model to be able to increase the amount of business you have and not always say I want the longest length of haul. I want to go from the southwest to Chicago before I go east if we can cut that off and go differently, we're willing to do that. So New Orleans is going to be an important gateway for us and CSX has got a strong franchise that goes straight across to the East quicker in some areas, and unless they don't want to partner with us, we want to partner with them. I've told them that already, and we want to continue to do that. So that's -- we think that the enhancement piece is the easiest piece of this -- and I'm not sure about trackage rights. Trackage rights the wood, but people talk about trackage rights last time I looked, we don't have a lot of overlap, right? I guess if I -- I guess maybe I should ask for trackage rights to Toronto in Canada because there's only 2 railroads there, give them a third option. I don't think they'd give it to me too easily. So it just doesn't make a particle of sense to me, okay? And if you want to build in, Tom, we're building into 3 places right now. We're waiting for the STB to give us the decision to build in, in Phoenix. We're building into 2 customers in Texas that the customers we discussed and we see an opportunity to spend our capital to be able to build in so that we gave them optionality in what they originate. Every railroad has that capability to do that. So why would they look for trackage rights, that's the cheap and easy way to do that. We're in the business world here. We're not Santa Claus to give away trackage rights. I'm just trying to get into the Christmas season or the holiday season.

Clearly. Jennifer, when you talk about the I-5 model, I guess I would think you're doing something where they're the connecting points or the modest, very small amount of overlap. But the -- is that direction how you think about it? Did you apply that where the 2 railroads interchange? Or where would the I-5 model like [indiscernible]?

The 4 gateways that we have down the middle of the country, those would be the interchange points.

So that would be -- and then can you add a little bit more like when you see the I-5 model, what does that mean? People who don't know necessarily?

Okay. I'm sorry. So what that is, is basically it's a pricing mechanism that's available to the other railroads. This will be available to Berkshire Hathaway. It will be available to CSX that they can give through pricing to customers that are solely served on one end or the other. And it's a model that is in existence today. We've used it very successfully and growing that lumber business [indiscernible]

I was leading the lumber team at the time, and we've grown it over those years and it's responsive. That railroad won't have to contact us. or the other connecting party, and it will be competitive. That's the main thing.

And I think we're going to make it even better than the model that we have there.

So Tom, a couple of weeks, we'll have the detail in the merger.

Okay. But it sounds like that's an important piece?

It's one of them. You bet.

Okay. Do you think something like that causes your -- I mean you're talking about enhanced competition being faster service, 24 to 48 hours out, right? That's pretty clear. Is there a -- some customers get lower prices because when you're a shipper, you think about price and service is the 2 key levers, right? So is there a lower price piece to the enhanced competition?

Yes. I was thinking that if I went to a bank, I should tell them that if they merge, I'd like to add my fees drop. That doesn't happen. It's the service that you sell, it's what you do, and that's not the position that we're in. We adjust prices up and down. And we need to do depending on what the market and where we are and what the capability of the customer is short term and long term. So we do that already. We're not changing this. If we can what we know for sure is customers that are -- that need the cross and hand off to another railroad are going to see less cost on their -- what they're doing, not just the railcar not just less inventory, which is significant, but Kenny does a great job of describing all the things that we have to do, Kenny, or a customer has to do when they're dealing with 2 customers.

It's the ease of doing business scenario, and let's just get in the wait for a minute. If you're a customer, let's just say you're a carload customer coming out of the Gulf into Charlotte or Atlanta. And you've got to put in 2-way bills. You've got to ask for 2 rate requests, then you've got to go out there and try to monitor the 2 lanes. Some people use [indiscernible] some of these other places. Some people have large, what I'll call, back offices, full of FTE for each different railroad that's in place. When we talk to customers, there's a fleet department. And all they do is just manage maintenance and repair, and they've got an insurance policy because the last thing you want to do is shut down a plant. So you have an insurance policy, of extra cars. So we see tremendous value there. Back to your first question to this whole thing around prices and everything. A lower cost structure will help us get into markets like the water share market. That will help us go in. And when I say watershed, I'm talking the Mississippi, call it, 250 miles out of East or West. So that's the benefit there.

Right. Okay. So there was one of the executives from Norfolk did a presentation at Rail trends. Okay. So Mike McClellan.

Smart guy.

Very smart guy. We got a lot of respect for him. We know intermodal business, very very well. And so he made some interesting points. I think we've talked about like pre-con rail the intermodal market for Harrisburg to Atlanta just didn't develop because Conrail was not incentivized to have their containers move short haul and then go on to NS to Atlanta, and they lose control the containers, right? And then they do the acquisition and you like Harrisburg to Atlanta. I want to say that might be their largest intermodal market, right? So it's like that was a really interesting example of when you put 2 railroads together, it can create just new markets essentially. Do you think of any particular markets could be intermodal, could be carload, you say, hey, it's this so deep air that just doesn't work today, but it's a really big freight market, and I get really excited about it?

Yes. Let me start off, Jim. Just -- you look at everything in the Ohio Valley and the Detroit area and the Columbus, Toledo, the Louisville, we just offered up a new service product to go over from West Coast point origin in the Louisville, Kentucky, where it's great across truck to across tremendous, same thing. Chicago going the I'll call it Northeast, but I'm talking in that again, Ohio Valley, Detroit area. So there is value that's there for sure.

Okay. So that's kind of the destination market and where is the origin is West Coast serving those?

It could be West Coast, it could be Mexico that's coming in that north-south quarter that we use to date. My point, though, is that you have a lot of business that's originating different places that's actually getting trucked in and right in. And I'm not talking 20 or 30 miles. I'm talking some pretty good businesses.

Yes. Is that just a piece from Chicago? Or is it the whole move is going truck instead of intermodal?

A little bit of both. I'm referring to both them. I'm referring to more collaboration and once post-merger seeing a lot of that business going steel wheel.

Our partners that we have and customers that we have and some that we don't have. They understand that market, especially on the intermodal side as good as anybody. And of course, we need to partner with them to see exactly what that opportunity is, Tom. And that's real important for us. with the customers that we have and the general market of where it is. But we see that, and that's part of what we're selling is being able to -- you think about what we sell today. We sell the Western 23 states in the United States of America, and we tell people you're coming out of Mexico. If you want to go straight north and south to Chicago, you have some options, okay? But if you want to go to Salt Lake, if you want to go to Seattle, if you want to go to Denver, if you want to go and I can keep on going, Las Vegas, Phoenix, I love Phoenix this time of the year. This is a pretty nice year, but it's okay in Phoenix too. So at the end of the day, that's what we want to sell and what we'll be able to sell with a combined railroad is, where do you want to go? You want to go to Atlanta, you want to go to Philadelphia, you want to go here, you want to move from Philadelphia just across to Omaha, not very many people will. But if you're moving to Omaha, guess what? Right? There's something there for you. So that's what we're going to sell. And I think the opportunity is great.

Okay. Let's see, I'll give you 2 questions as we're coming down on time here. So I give you a chance to take a shot at both I think of the Houston market, and I don't know if, Kenny, if this is a good one for you, but it seems like Houston is probably underserved from an intermodal perspective. I would think Houston generates a lot of -- certainly a lot of chemical traffic plastics on the Union Pacific that may not have efficient destination to Eastern markets. So is that like a big opportunity? And then I guess for you, Jim, when we watch the Norfolk results, I would say your results were a bit stronger in 3Q than theirs. And you see some shift to traffic, some challenges they have. Does it concern you when there is evidence of some deterioration in their margin and their performance, while you're waiting this fairly long process to get control?

So Kenny, do you want to answer?

Yes, I'll start, and I'll say over the last few years, you've seen us put up products up against the Houston market. When I say product, Dallas to dock is one where we've got excess containers up in Dallas going back to the West Coast. But we've also added here over the last, call it, year or so, origins out of Houston to inland point, 5 or 6 inland points. So feel good about building those up. I don't know if you're talking about post merger, but yes, there is an operation.

Yes, post-merger.

Absolutely, to go more to the Southeast and get more of that product to the Southeast. That's intermodal and carloads.

Right. Okay.

You still want me to answer that second question?

Absolutely.

What was the second question?

Yes. So just that...

I'm trying to waste the last minute, so I don't have to answer it. Real simple, okay? Minute and 34. If I keep on delaying it will be a real short answer. Bottom line is this is -- I know what we've done, and we've done a great job of delivering because of the fundamentals. Remember what I've always said, if you dwell on OR, you make bad decisions about what your outcome needs to be for the business and service for our customers. If you look at OR as a result, which we do, which I always have. I never give all our numbers. I've been pretty clear that every railroad should be within 100 basis points of each other when it comes to somebody doesn't want to believe me, so what? I've only been railroading for 47 years, okay? Second point is Norfolk Southern needs to manage their business. I can't tell them what to do. But I do see opportunity and I would be remiss to not say that there is opportunity. They're working hard. I see it from outside looking in, but the combined railroad, I see the opportunity, and I think I've done a pretty good job of thinking where we can take it as a combined company. Got it done. We got 23 seconds left.

Okay. Great. With that, Jim, Jennifer, Kenny, thanks so much for joining us here. Appreciate all the great insights and great perspective. Thank you for joining us.

So listen, Tom thank you very much. Appreciate the questions, good questions and love seeing you again. Thank you very much and all the best of the holiday season to you. I don't see you beforehand.

Yes. Likewise same to you. Thank you, Jim.