UNP - Union Pacific Corporation (UNP) Presents at 2023 Stephens Annual Investment Conference (Transcript)

2023-11-14 23:06:03 ET

Union Pacific Corporation (UNP)

2023 Stephens Annual Investment Conference

November 14, 2023 09:00 AM ET

Company Participants

Jim Vena - Chief Executive Officer

Jennifer Hamann - Chief Financial Officer

Eric Gehringer - Executive Vice President of Operations

Conference Call Participants

Justin Long - Stephens

Presentation

Justin Long

This is Justin Long from Stephens. I want to start by welcoming everyone to the 2023 Nashville conference. We're really excited for the lineup of companies we have attending over the next few days. Thanks for being here and supporting this event. Just as a quick reminder, the presentations will be a fireside chat format.

I'll be moderating the questions, but I will open it up for questions in the room. So if you have any questions, feel free to raise your hand. For the webcast, I'll try to repeat those questions so people online can hear as well. But I couldn't think of a better way to kick things off than with Union Pacific. We're honored to have you attending this event again this year.

Representing the Company sitting at my right here is Jim Vena, CEO; Jennifer Hamann, CFO; Eric Gehringer, EVP of Operations; and Brad Stock with Investor Relations. So with that, thanks again for being here, Jim. I'm going to pass the mic to you and let you start with some opening comments before we get into questions.

Jim Vena

Great. So this is on?

Question-and-Answer Session

Q - Justin Long

That should be on. You might have to hold it a little closer, but it's on.

Jim Vena

So I could just whisper because it's so close. Well, good morning, everyone. Jennifer always reminds me I have to read this. So let me read this before we get into it. We remind everyone that we will be making some forward-looking statements.

These statements are subject to risks and uncertainties. So please refer to the UP website and SEC filings for additional information about our risk factors. I thought before we went into the question and answer, I would just sort of take you through the railroad, what our goals are and what our strategy is to get there. And then after that, open it up to the floor. Eric Gehringer, which just that you hit its name perfect, you said it.

Everybody makes a mistake. They call him Gehringer. So it's nice to see -- I used to make the mistake until I finally asked him, I said, "So, tell me exactly how you say your name," and he said, "Gehringer." I said, "okay, got it."

I was surprised you had not started to call me Vena. So they equal it up, but it's good. And of course, Jennifer, who knows her way around the Company with the amount of time she's been with us. And now I'm a new employee. This is three months.

I started on 14th in August, but I did have a couple of years before. And if I can just take you through the railroad, what we're trying to do -- not trying to do, what we're going to do is, first of all, it starts with being a safe railroad. And we have the type of railroad and the type of people that there is no reason for us to be the safe -- not to be the safest railroad in North America. Now we're good. And the whole industry has done a great job.

If you look at what we've been able to accomplish in the last 10 years, you can grab it over 10 years, you can grab it over 20 years. But I think we all have a responsibility to change that trend line and be much better both at -- on the injury side and the way people go home after they come to work and on the accident side.

It affects us with the communities that we operate through, it affects us for our customers and the products that we handle. And we handle a broad range of products. It's not just something simple. We handle products that are safest operated on the railroad, but we need to do a lot of work to get there. And that's my primary goal, and it's a foundation of who we are and what we need to do.

The second piece is service. And -- so the three pillars just to summarize them are safety, service and operational excellence. And what's service? People go sometimes have a lot of discussion about what service is. We have a broad range of services we provide.

We have some customers that expect us to be in the high 90s because they're a parcel company, and they -- that's what they expect us to deliver and we deliver that for them day in and day out.

There's other customers that are bulk customers that have a different type of service they require. We have to move a certain amount of product either to a ship, an inland terminal, to a producer. So -- and we have -- especially when it's their cars, they worry about how fast we turn them and how consistent we are. We have manifest business that expects us to be able to move it as quick and consistent as possible, but not at the same speed as we would have to with the premium business. So what's service?

It's real simple. It's one line. We are going to -- service is what we sold the customer. What we told the customer we're going to be able to deliver. I get a little frustrated sometimes when there's only one metric out there that the railroads use, and that's TPC, and that talks about TPC for intermodal and TPC for the manifest business.

But an actual fact, all TPC is, is our train plan and car plan of how we operate. So stay tuned. I think we're going to be able to put some numbers out that make more sense to show exactly what we're doing and what we sold to the customer because it can't be just one number or two numbers for the whole thing.

But speaking about that, then it's operational excellence. And operational -- if you need to take that, go ahead. If it's operation, I'm just joking. If it's -- what's operational excellence? Operational excellence means that you are the best margin, best operating ratio in North America.

That's what it's all about. Now I don't start by driving -- putting a number up on the board and saying that we're going to be X. The way I start is, is the fundamentals underneath in how we operate are real important. And why it's important is they will drive -- that margin or operating ratio will drive itself or precipitate out to the number that you want or you think that's capable. And we think, and I know, okay, that at Union Pacific, the type of railroad we have, and I'm going to take you through this franchise of ours, hopefully, you have one of the little handouts we prepared.

And when we -- I take you through it, you'll understand that we have products that are spread out through the entire network that we move. We have length of haul because we operate in 23 states and the type of customer base that we have. And we also have a railroad that can be -- operate at 70 miles an hour, which makes us fast, and we've invested and we'll continue to invest to make sure that the plant is efficient. So if anybody has been watching us for the last three months, you've seen -- we put out a lot of numbers, but key numbers, the way I look at it is car velocity.

Car velocity is -- I think the last number that we have out is around 216. I have said that we could get to 220. And I don't see us any reason not getting there. And that's a really good number without the noise that you get on train speed. I find it a little interesting when people use train speed.

It would be like saying that we're going to watch the Formula 1 race and we'll just count the time that they're actually out there operating, but we will take the time that they're in the pits, the time that they're at the start line, how long it took them to do the first lap, and we won't worry about the last lap. So somebody wants to use that measure go ahead. I like to use the measure that gives us the entire view of the movement for the customer and what the success is. So people want to use the train speed, go ahead. And it's a relative number.

So that's what's important on operational. We're efficient in the yards. Our dwell is better. We're efficient over the road. We move the railcars at the right speed, okay?

I'm not going to spend a whole bunch of money to go out there and spend to get to 240 or 250 or 260 because that's not what the business level requires. But we're very efficient if we're in that 220 range. And we are going to be affected by weather. Weather will affect us and will slow down and what's important and what our customers expect is that we recover quick. We can't have a recovery period that takes months, we should be able to figure out a way to do that in weeks.

So operationally, very efficient. Operationally very efficient means we are able to move more cars on the same amount of trains. We switch the same number of cars -- switch more cars with the same number of people. We are more efficient. We put technology in.

We spend the money that we have to. We do those three things. we are going to be the best margin railroad in North America. No, I know that. I'm ready for it.

It will take us some time because revenue is important to us. And with the -- revenue is important and so are the expenses, and we had some very expensive inflationary pressures in the last 1.5 years, and we have to get through that.

So it won't be a quick where we can wake up in January or the second quarter of next year and say, listen, we've taken care of all that. So -- but we have a clear eye on how we're going to do that. We'll make sure we get past the inflationary pressures that we have, both by revenue and by reduction on the cost side. And when we do that, I've really given the goal of where we're going to be when we're done.

And real quick taking you through this piece of paper. You can see the metrics on the right side that talk about what we find to be key metrics and all they are, I get up at 6:00 in the morning, every morning, I was up at 6:00 this morning. And listen, I could tell you what the numbers are today, but Jennifer would get mad at me if I gave you what the -- what -- so she says, you need to look at the numbers that we handed out that are public. But those are key numbers and that's what you want to see is in that range, dwell time going down, freight car velocity going up, locomotive productivity getting better. And that's just one of the assets we look at.

We look at our intermodal fleet how fast it's turning. And this past week, we had over 500 miles a day with some of our intermodal fleet, and that's what you want, okay? We're going up to numbers that we haven't seen before. I know, Jennifer, I gave one number out. But -- and you can see the volume there. But let me take you around the railroad and why I'm excited and why I came back to work and instead of join myself, but doing a little mountaineering and going to K2 or spend the time in Scottsdale, Arizona this time of the year, which is pretty nice is, what's the opportunity?

The opportunity is, is I think we got if not the best, very close to the best franchise in North America. We have LA and the coastal, along the western part of the U.S., the ports that are there for us, and we need to optimize. We need to work together as partners with LA Long Beach, with Portland, with Seattle, and we need to be able to optimize what was possible for this railroad. And I think we need to do that, and there's business that is going to other ports that we think that if we worked hard together, and over the next two or three years, we change people's mind and we can get them to come to those ports.

We're as fast as anybody. And that's why that speed is 70 miles an hour. If you want to go from -- I could pick a different part of the network. But if you want to go west from Omaha, we got double track, we got triple track. We do run at 70 miles an hour.

There's only one other railroad that has a 70-mile an hour limit on their freight trains, okay? And they're not publicly traded, but the rest of them are not. So that gives us an advantage, gives us an advantage to move the products at the speed that the customers have and what we sold them. And you can see the franchise. We love our franchise down along in Texas.

And also, we have six access points into Mexico. And I think as the markets change, and as nearshoring happens, we think that we've got access into Mexico as good as anybody. And we also own 26% of the FXE railroad. We've had that for a number of years, and we need to leverage that better. We need to look with the FXE as if we're one railroad.

And I've spent a number of hours and days with the FXE over the last few months and make sure that we're working together on how we do power through our operations, how we look at customers, how we can leverage the network that they have and the network we have.

So we're working hard, plus the six access points into the U.S. make a big difference. And listen, I could keep on going. I'll be honest, I could go for 45 minutes and tell you about this railroad. But why don't I just stop right there, Justin, because I know you probably have a few questions.

And Jennifer, you wanted to add a few points?

Jennifer Hamann

I'll just like to give everybody a quick update on carloads because I know that's obviously a key question that everyone has in their mind is, what are we seeing in the business? So you -- quarter-to-date our volumes are up 1% as you can see on the bottom right-hand side. And what -- so a little bit different than what you would have seen in prior quarters is not only is industrial up, but you also see premium up 2%. So we had a very strong October. One of our strongest months in many, over 165,000 seven-day carloads.

That was attributable, I'd say, to two main things. One is the grain harvest starting, decent harvest in our served territory and had a pretty good push to start that. And also intermodal with some of the disruptions on the West Coast ports in Canada, we were the benefactors of some of that business coming down into our ports and our ability because the network, as Jim just described, is running very well, we were able to take advantage of that opportunity and move that freight. Now it has stepped back some in November. You've seen a little bit of a shift in some of the export demand.

And so we are seeing gain take a little bit of a step back. You also are seeing a little bit of the impact of the auto strike. Now those plants are back up and running, but it takes a little bit to get that back and going. And so that's having an impact as well. So right now, our seven-day carloads in November are running, call it, 156,000 to 157,000.

So down, call it, 7,000 or 8,000 from where we were in October. But the good news is the team is moving every available carload that's out there. Kenny and his team are out there actively working on business development pursuits. And so we think we've got a really good setup as we're going to finish out here the year. But with carloads probably tailing off as it does somewhat seasonally, but also with a few headwinds on that intermodal side as well as grain stepping back a bit.

Justin Long

Well, thanks, Jim. Thanks, Jennifer. And maybe to put a bow on some of your quarter-to-date commentary. First of all, there were some moving pieces you talked about in October and November. But when you netted out, how would you say trends are playing out relative to expectations from a volume perspective?

And then from an OR perspective, I think the goal was to improve sequentially as we move into the fourth quarter. Curious if you're still confident you can do that.

Jennifer Hamann

Yes. And the last part of your question, Justin, we do still feel confident in the sequential improvement in our margins. We feel good about that based in part on the revenue as well as certainly the expense and the productivity efforts that Eric and his team have been driving forward, which you see very much reflected in the operating metrics. In terms of expectations on carloads, we didn't give any fourth quarter expectations. We still overall don't believe that we're going to see our carloadings match what industrial production is doing.

But when we look at where we're at so far quarter-to-date, basically halfway through the quarter, up 1%, that would be great for us because it would be the first quarter of growth that we've had in some time, we've not grown so far in 2023.

Justin Long

Okay. Great. And maybe one for Jim. So, on the earnings call, you talked about delayering and making decisions lower in the organization. There was an announcement that I saw earlier this month on that front.

So can you just expand a little bit more on what that means in terms of headcount at UP and just the organizational structure as well?

Jim Vena

Well, let's just talk about what it means. I think it's 5% of our total management employees. So that's what the impact is but that wasn't the goal. And this is really important to understand is because I think it's the way we want to operate and the culture that we want to have. And what I found when I came back, there was a few -- since the last time I was here, there was a few layers put back into the Company.

And the worst thing you can do as a company is have a culture with multiple steps. We had nine layers to go from myself down to the people making -- doing the work in the operating department. There's no way that you need that many people. And also, it's not efficient. And also, there's always blockages that happen on messaging and what you have to do.

So we had to fix that, and that's what I did. I started with that. I was surprised that it was that big of a number, but it was, and we took care of it. We took care of our employees because our employees are real important. Every employee that was impacted was offered because we're hiring in some unionized positions as locomotive engineers and conductors and -- on the track.

We offered every person a job to stay with UP, and that was really important to me. I don't want to send people home when they have loved ones and they had a job yesterday, and I tell them that they're gone. So they had the opportunity. Some of them decided to leave. But at the end of the day, that's the way we thought this through.

Now why would you do this? It's about decision-making. It's about making sure you're structured properly, it's changing the culture. And that's what we're doing, and that's what we did that for. So we'll continue to look at other opportunities.

So that wasn't a one and done. We are now going to use attrition to continue that and make adjustments in the Company in how we manage it. And also, Eric, is tasked with being more efficient with how we operate and move all the railcars that we move in our core business, and we're all challenged to see how we can do that better. Now I'm helping them a little bit. You might say that I'm helping them a little bit too much.

But Eric is responsible for it. And so you'll see us as we move ahead, that will be an effect. Now we have some headwinds. Somebody decided before I came up to sign a contract that not only gave the unions a substantial wage increase, which, I'll live with the contracts, I'm good. I can't go back, and also some scheduling on 11 and 4, and also time off, extra time off that was additional to all the time off that they already had, but for sick leave, when you put those all in, those are headwinds that we have to overcome.

I think we can overcome them, but you don't overcome them overnight. You do that by using technology and how you operate and make yourself more efficient so that we can overcome that. So that's the challenge we have.

Justin Long

And maybe I'll ask one to Eric as well. And then Jim, you can chime in on this. But Eric, I think on the earnings call, you've talked about the productivity opportunity in two buckets. One was kind of leveraging volume growth. The other would be what I would define as self-help opportunities, things you can do internally.

When you look at the productivity opportunity going forward, what percentage relates to bucket number one versus bucket number two? And I guess my follow-up question for Jim on that is, you said revenue was important earlier. Do we need revenue growth and volume growth to become the best margin in North America? Or can that be achieved in the absence of that?

Eric Gehringer

Sure. So when we start talking about volume and thinking about how we leverage that, I'm not going to guide you to an exact percentage, but what I will tell you though is that's why we focus, for example, on train length. As we go out and put our transportation plan together, we're most focused on saying how do you take advantage of the assets that you have already? So you see us bring on a new customer. We look to bring to that volume on to an existing manifest train or tack it onto the back of an intermodal train.

There's multiple parts to that, but train length is a very big driver of that.

On the day-to-day operations, we've kind of hit it here, but I'll just reinforce. You see the numbers on the top of your sheet. But those come not because we went out and said, "Hey, we're going to suddenly change our transportation in a significant way." Those come because you really are sweating the assets and you're really trying to figure out with every day and every decision that's made, how do you do that better today than you did yesterday. When you see the locomotive productivity that we've been able to drive in the last four months, including at this point, being the lowest active high horsepower fleet we've had for two years, we did that because we looked at every single locomotive and every single terminal and asked questions like, if it hasn't moved in eight hours, why can't it move in seven hours? Why can't it move in six hours and pushing that?

So that's the work of the operating team day in and day out with the support of many other departments in the Company.

Jim Vena

And the only thing I'd add, Eric, is that was part of the delayering exercise driving the decision-making down to the front line as low as possible in the Company. When I wake up in the morning, I'll be honest, I think I'm one of the -- I'm a pretty good railroader. I was going to say the best, but let me just say, I'm a pretty good railroader. And you can only claim that if you've delivered things, right? I'm not somebody that just wants to say it.

I think pretty comfortably, I was -- we were pretty good operationally last time I was at UP, and we were pretty good when I was at CN. But you can't make every decision.

You can't be there to make the best decision. So, you frame exactly what the authority is, you let people have that authority, you let them make it at the right level. The young man who today works at El Paso has a way better idea of what the impacts are. And if he understands the goal is, is to be -- to provide the service we sold to customer but also make sure you're as efficient as possible. When he's going to the border, seeing what traffic has come to the border for the day, he has a way better idea to be able to say, how do I use those crews in a better manner?

Do I do I do this? Do I set up better for the customer so that I get ahead of them? And then tomorrow, I might not have to go. Do I -- how do I call the crews? When do I go to the border to pull the cars over?

What all those attachments are? And if I have a locomotive that's extra, I'm going to get rid of it and send it on so that we can use it better. That's the cultural change that we want to drive. And the people in the field, we took it away from them. We took it because it's too easy.

And I wanted to make mistakes. I don't know if this is -- for some people, it sounds crazy, but you only learn by pushing the envelope to the point to the max and then saying, "Uh oh, I made a mistake." And I wanted to feel comfortable that they make the mistake. Now don't kid yourself. I'm not the nicest guy going, okay? Don't make that same flip and mistake again, okay? You better learn from that and move ahead. But if we do that, we win.

On the second part of the question, Justin, is I know that we can grow this business. If you go around our network, there is so many things that we can do to leverage this. Now we have to understand that not only can we win when we're competitive against other railroads. If we're the best, and we have the best margin, I think it gives us a better opportunity to win and those things don't come up every 30 days. So you have to always be ready to do that.

But we can also remove people that are operating out in the highway and have customers. And we can grow with our customers, and we can leverage our network that we have and the kind of products that we move and in Mexico. So all those things, I think, will allow us, but we need to get service to the point where the customers are comfortable. And just right now, I could go and tell every customer that, look at us, we have been for 30 days, like the best metrics you've ever seen, the best this, best that. 30 days to a customer is not long enough.

We need to work this for a while and go through the ups and downs, go through the winters, go through when we slow down a little bit, but show them that we can recover and if we do that, then they will trust us more and more people will come on the railroad. So we will grow the business. To answer your question though directly, I don't care what level of railcars we have coming in the revenue. That helps us. But relative to everybody else, I don't care where we are on total revenue coming in.

We're going to be the best margin railroad in North America.

Justin Long

Okay. Great.

Jim Vena

I know you hold me to that. So [indiscernible] but you might want to be nice, Justin. And when we get there, you might want to give me a call and say, " Vena, "Jeez, you told me you could do it, so we did it." Because I don't get a lot of calls, any of you want to call me. I don't get a lot of calls from people saying, well done. The only time I get a call is, is Vena, you didn't deliver what you said.

What the heck are you doing? Okay.

Justin Long

When you see an Arkansas area code pop up on your phone you know who it is. All right. I'm going to open it up to the audience for some questions. And again, I'll repeat the question for those on the webcast. So Ted?

Unidentified Analyst

Jim, a year ago, your predecessor sat here and gave a very articulate explanation of sick days in collective bargaining. Never left this room. The industry collectively allowed itself to be painted as a villain out of a Charles Dickens. Why hasn't the industry or the AAR, this is a collective industry issue, but I look at you in Union Pacific as a leader. Why is the railroad industry just taking beatings and not speaking up and articulating what it has going and especially on the sick days?

Justin Long

I'll summarize that by rails versus regulators. Jim, what are your thoughts?

Unidentified Analyst

I wouldn't say regulators. It's the inability to do self-help on your image whether it's regulators, the press, Wall Street, it was...

Jim Vena

Right. Well, listen, I was sitting on the sidelines. And I will not come here and second guess people what they were doing. But take a look at what I've been doing since I showed up at Union Pacific. I've spent a lot of time communicating with and spending time with -- all the STB members.

And I've spent time with all the regulators, the FRA, I've spent time with Amtrak and I spent a lot of time. I've been doing three things since I started at Union Pacific. One is work, second one is eat and the third thing is sleep. So for three months, that's what I've been doing. That's it, okay?

And I had a call with one of the CEOs of the other railroad this morning. I'm working to do that. And I agree with your point. I think we -- moving forward with the challenges that were put forward to the railroad industry, we need to be clear in our message. We need to put the message out and we need to tell people.

Listen, there's some people that have not worked the jobs, Ted. I've worked the jobs, okay, as a locomotive engineer and as a conductor, I've worked the jobs, okay, throwing ties out of a gondola car in an engineering department, I've actually pounded spikes by hand, okay? Not very good at that. It takes a little bit to get good at it, to get over that rail and not pound the rail instead of the ground.

So bottom line, they were great jobs. They already had time off. They always could take time off if they were sick. It wasn't like we wanted them to come to work with sick. But we did.

We got ourselves into a position where we weren't clear in our messaging on how we were portrayed, and they're good-paying jobs, okay? There's people out there operating on those jobs that are making high, okay, well over $100,000, closer to $200,000 a year. So they're good-paying jobs. And I don't hold that against them. Their scheduling is tough.

We need to make sure that we can do everything we can to provide them a job that allows them to have a balance with family and work. But at the end of the day, I'm not here to make excuses that they're bad jobs. I think they're great jobs. And I remember doing it. I remember operating a train and then having to go to university the next morning while I was in college, and I could do it.

So I can't see why anybody else could do that. So listen, I appreciate the question. I think we need to do a better job of how we communicate. And if you look at my messaging, and I'm going to repeat that again, I've been real clear. When we come out with something, I put out a note from Jim and I want the public and I want the regulators and I want the employees to read it that says, "This is why we're doing things and open up the floor for a better communication." So good question.

Hopefully I answered that.

Justin Long

Any other questions from the audience? All right. If you do have one, raise your hand. I'll come back to you in a minute, [Ted]. I do want to talk about inflation just because that's something that, Jim, you've referenced a good bit in the last three months as you've taken over.

And maybe, Jennifer, you can chime in on any initial thoughts on inflation as we move into next year and how that would compare to what you're seeing in 2023? And is there an opportunity to kind of play catch-up on price as well to recapture some of these pressures you've been faced with?

Jennifer Hamann

Yes. So on the price side, Justin, we have said that we obviously are dedicated to pricing that's going to exceed our inflation dollars. But to this point, it is still -- although we're achieving that goal on a dollar-to-dollar basis, it has been dilutive to our margins because of fact that inflation has been so high. So we've got some catch-up to do. And because of the fact that about 50% of our contracts are multiyear, it's going to take us a few years to work through those contracts and to really be able to play full catch-up, which is why we also, at the same time, need to continue to work on productivity and continue to go out there and try to grow the business.

So that's where we're at from a price standpoint.

In terms of inflation in total, this year, 2023, we're going to be probably 4%, 4.5% from an inflation standpoint, similar to 2022. Still putting the plan together for next year, but we do know that this is the last year of the bargain for wages and that wage increase is going to be 4% for the first half of the year and 4.5% starting in July. So I don't necessarily see a big step back in terms of what that inflation profile is going to look like in 2024.

Justin Long

Okay. So probably pretty similar in terms of inflation. On the pricing front, to just follow up on that point, do you think there is an opportunity to push price a little bit more as we move into next year and see an acceleration in some of those increases, especially, Jim, if you deliver on some of the things you've talked about from a service perspective?

Jim Vena

Yes, listen, the team's clear-eyed focused that we provide good service. We provide service that nobody else can. So at the end of the day, we're going to push price. And we're going to push price to recover. And I'm hoping to push price over the next couple of years that more than recovers the inflationary pressure that we have.

That's -- I'm not into cutting the prices that move ahead and win business. We can do that by providing great service, so we'll continue to do that. So price ahead so we have a catch-up because of the timing of contracts. And -- but that's where our focus is, and that's where the entire marketing and sales team is focused.

Jennifer Hamann

We do have a couple headwinds that will continue into 2024 too though, Justin, that I know you're aware of. So at least through the first quarter with some of our coal contracts that are indexed to natural gas. And then on the intermodal side, that's probably going to pressure us, it depends on what happens, obviously, in the truck market, but probably at least through the first half of next year.

Jim Vena

So Justin, we -- there's always a challenge on the railroad business. It's either challenged with inflation, challenged with -- there was a shortage trying to find employees to come on. You have to work through those. So long as the fundamentals are right and you leverage the business that you have. So at this point, we have this issue of high inflation that happened over a short period of time.

We always have some inflation, but not quite to the level that we have. So we're going to attack it from the two ends, from price and from operational efficiency. And I'm clear eyed about where it will deliver us. And we need to continue to bring more business on by having services like that bulk and premium.

When we announced it coming from the Mexican border up into Chicago and also with CN into Canada, we did that because we have that capability, and we are now the fastest service, and we see the difference that's happening with customers, and that's how you win, okay?

I've got a lot of friends in this industry, and I'm sure that somebody from the other railroad will come in and say that they're pretty fast. Well, they're not quite as fast as UP. So welcome to a little competition.

Justin Long

All right. I think there were a few more questions. Let's go back here first, and then, [Ted], we'll come back to you.

Unidentified Analyst

You've been very direct about margins and expectations for [indiscernible] in the industry in the last couple of decades [indiscernible].

Justin Long

And just for those on the webcast, the question was there's a lot of focus historically on margins, but can you talk about the revenue opportunity going forward and the framework there?

Jim Vena

Yes. And two of you should jump in after, but let me frame it this way. I think you framed the question, and I agree with it. The business is out there for us to bring on to the railroad. I don't -- I can't see -- I can't even see, to be honest, what's going to happen in the next -- in the second quarter of next year.

I'm not sure whether we're going to have a slowdown of the U.S. economy or not. So I really can't. So I can't give you that number and feel comfortable.

But I'll tell you how personally, the way I look at it is we need to leverage service. We need to be excellent at service so that our customers and other customers that look at the railroad industry say, "We want to be on the railroad." That's where our growth is going to be and the business is out there. It's substantial business.

So where would I be happy? I think I'd be happy that we grew faster than what the industrial economy gives us. And that's a goal to start off with. That would not be my long-term goal, but let's get there first.

We need to grow the business on the railroads. We need to move more in, and we are 70% more efficient than a truck on the road. So I think the more we go down that to look at greenhouse gas emissions, a railroad is much more efficient. That's the best thing that we can do for the environment is move more trucks and more containers and trailers onto the railroad and away from trucks. So your question is good.

And I apologize for not giving you a five-year view. If Jennifer wasn't here and we were a private company, I would give it to you, but I can't, okay?

Justin Long

Before I go to the next question, I do want to ask about that. There've been a lot of questions that I've received from investors about maybe UP developing a longer-term outlook and disclosing that to The Street. Is that something that you've considered? And if so, any thoughts around the timing of that?

Jim Vena

Jennifer?

Jennifer Hamann

Yes. So we are talking about maybe doing an Investor Day sometime in, call it, the back half of 2024. Want to obviously see what's -- as Jim mentioned, a lot of economic uncertainty right now. So want to see how some of that shakes out a little bit. But also with the team coming together and really revitalizing itself around Jim's strategy, want to give the team a little bit of time to think about that and think about what that growth profile looks like.

Because we know that, that's the key question on investors' minds, and we want to be thoughtful and diligent about how we can answer it.

I think we've done a lot over the last many years to prove we can be productive in price. We need to be able to prove that we have the growth as well. We know that that's an objective that we have.

Justin Long

Let's go, Dave, you in the back, and then we can come back to [Ted].

Unidentified Analyst

In terms of development services, you talked about the opportunity and figure out the share [indiscernible].

Justin Long

And the question was about the volume opportunity from the Falcon service.

Jim Vena

Okay. So when we talk about a service, we never look at it purely as being a premium service. We want boxcars to be part of that mix. So anything that we can do to be able to move in a seamless manner, and we do this in other parts of our railroad already, we don't make a big splash about it, but let me take you through the logic of this bulk and premium service.

It is tied to the intermodal business. It's tied to the business that goes into manufacturing of automobiles. So we bring in the parts. So we looked at that and how fast and how consistent we have to be. But if 3/4 of the train is boxcar business, that's going north and south, whether it's beer business that's down in Mexico or whatever we need to fill out the trains and keep them all at the right size, we'll do that.

So we -- this is not just a look at what we're doing for intermodal business, but the entire business that we have that goes cross-border. And that's what we have to leverage.

And what we're showing with this is if you have a product that needs to be into Michigan at a certain time and date, and speed is important to you, we can offer that. And that's what it is, is we're offering speed, consistency and making sure that the product gets into the customer. And it's the service that we sold them. We told them we could do it in this many hours, and we'll have it to you in the third morning and that's what we're doing.

So I wish I could get into more detail than that, but I think gave you a pretty good idea of what -- how we're thinking about that.

Unidentified Analyst

[indiscernible]

Jim Vena

Well, we have talked to the FXE. The locations that they're looking at and where they want them would not be up against the border points. But any time you add a service that does not operate at the same speed, passenger service, usually, that impacts your railroad and capacity. So I think the railroads in Mexico, and we have a lot of experience of passenger service operating on our railroad, they have to be very careful that they understand what the impact is going to be and make sure that, that the railroad can still be optimized to run freight without too much interference from passenger service.

I think they're smart railroaders. Keith's a smart guy at CPKC. They'll figure that out. And the FXE has got a strong management team that will work with the government to find that basis of how you have to do that.

But bottom line is passenger service that gets in the way of freight, that when railroad is not set up to handle easy passes because that's the issue is that the passenger train comes up to you way faster because they're operating at a higher speed, that you need to have the capacity on the railroad without affecting your freight trains. But I think they can work through that. No problems at all. And we have a lot of lessons in the U.S. of how we've been operating with a passenger service and commuter service on our railroads. And they work.

Let me say this because sometimes a lot of people think it's negative. In and around Chicago, we have Metra running tens and hundreds of trains on our railroad and it works pretty good. We've been able to invest. They've invested and they was clear-eyed about what they have to do. And those metrics are real high, and we provide a great service for the commuters that go into the city of Chicago.

And that's a great example when the public invest properly on the railroads so that they can put it into the plant and infrastructure where you can operate freight trains and passenger service at the same time.

Justin Long

Okay. Great. [Ted], we'll go here.

Unidentified Analyst

Going back to the [indiscernible]. It's a great service, better than the vision of one of your competitor. But I don't know how to say this nicely.

Justin Long

Go ahead.

Unidentified Analyst

You're making service that for 10 years, you were making 70% of the time on the [indiscernible] Yard Center train. And you never wanted to go to that third morning. Now you're at the third morning and that's a great thing in response to the market. Are there other lanes where you can see that being careful, it's not putting you at the pinnacle of the market with your premium network and that there are new products out there that really could blow the doors off track?

Jim Vena

Well, you must be sitting in on some of my meetings with the marketing and salespeople. Yes, there is. And stay tuned, and we'll move ahead. We already have some great service. We move for some customers across where we're like in the 50 hours from L.A.

to Chicago. So I'll leave it at that. So we do that already, and we've got to continue to build on that and be consistent and be able to leverage this network that we have. That's what I'm excited about. It truly is the network.

Is it a little complicated to operate? Yes, I worked for 40 years at a different railroad that's very linear. And I know one of them will phone me after they hear I called it linear because they'll say, no, no, we have. But when you leave the West Coast, you run into the big cities every 500 or 800 miles and you just drop things off and pick them up and I got it, you have some branch lines. And if you look at our network, it's a little more complicated.

When you bring a containership into L.A., Long Beach, just take a look at it. It's going all over the place. So it's a different world, but also, that's our advantage is that we can push and have multiple big cities and multiple customer points on how we leverage that to move ahead. So I'm excited. Speed is real important.

Customers, what we've sold them is real important. That's the only way we bring more business off of the roads and other railroads were competing, okay?

Out of Mexico, I want to win. I'm not -- I didn't come back to be in second place. Second place is the first loser, okay? I don't even know who the heck that person is. I'm here to win.

That's why I came back to work, and that's what we're doing. The whole team is engaged that way and we'll move ahead.

Justin Long

Probably have time for one more question right here.

Unidentified Analyst

[indiscernible]

Jim Vena

Eric or Jennifer, jump in.

Jennifer Hamann

Yes. I mean on the volume side, obviously, they move from the West Coast to the East Coast because of the ILWU potential first strike. That's been worked through. So I think we have seen a little bit of that shift back. But I think the strategy that those shippers have employed at this point is they want to diversify.

And so I think that diversification strategy, which also includes the Panama Canal to some extent, is probably a situation that we're going to live with.

Our challenge and our opportunity is to encourage more freight to come through the West Coast ports. And that's by offering transload options, that's by offering more opportunities for revenue backhauls. And so those are the levers that we're working on as well as working with the ports to help streamline that operation and make it a better option for our customers.

Eric Gehringer

Yes, thank you. I mean we can even see it in the example that we're working through right now with the changes in the West Ports in Canada that provided the opportunity Jennifer mentioned. We've been able to handle that. That's a value proposition that we're reinforcing those same customers. Why don't you just come down to the United States, then be a long-term customer with us because we were there for you.

We gave you good service, and we can continue to do that.

Unidentified Analyst

Is some of that structural because they signed some [indiscernible]?

Eric Gehringer

It was largely a reaction to the disruption of the port workers in Canada that drove that volume down to us.

Unidentified Analyst

[indiscernible]

Eric Gehringer

Different agreements for different customers.

Jim Vena

But let me add one thing there if I have time.

Justin Long

Go for it, Jim.

Jim Vena

Okay. You win by having the supply chain better in different areas. And I was at CN when Prince Rupert opened up, and there was a lot of people that thought -- Have any of you been to Prince Rupert? Yes, it's a nice place, but it's not the biggest city, right? So at the end of the day, they've got -- CN's done a fabulous job of selling that as an easy access point into North America, and they move traffic into the U.S. from there.

Bottom line is, that's the challenge I have and the entire team has. We are going to partner with not only LA, Long Beach, but Seattle. We are going to partner with even Oakland, okay, and say, how do we win in that marketplace? The markets are big enough in all three of those stops that there's no reason for us to not offload more containers as we move ahead in those ports than others. Not very many ships come across and only do one port of call; they do multiple port of calls.

And I'd like it that they drop off a little bit different, more of it in the ports to where they come to us and not on some of the other ones. And we only do that by providing a seamless time it takes to offload, time it takes, how long the container sits on the ground at the port and how fast we can be to get it in land. And if we can do that, that's not a switch that we're just going to be able to turn on and say, thank you very much, we're done.

But we need to leverage that and that's how we grow the business at the West Coast ports. And we then get customers to think about before they decide to go through the Panama Canal that they'd rather come. Now they've had some difficult years sometimes with those West Coast ports, and we have to work through that and invest properly to make sure that we're ready for it, okay? So I wanted to add that.

Justin Long

Well, that's great. And unfortunately, we're out of time. So we'll wrap things there. But Jim, Eric, Jennifer, thank you so much for being here. Really appreciate it.

Jim Vena

Thank you very much. Appreciate it. Hope to see you all again soon.

For further details see:

Union Pacific Corporation (UNP) Presents at 2023 Stephens Annual Investment Conference (Transcript)