The Southeastern U.S. Very recently, we announced a new Domestic Intermodal service between L.A. and the western side of Chicago. Leveraging our 70-mile-an-hour railroad, we're able to shave two days off our transit time, delivering a truck-competitive rail service to the marketplace. In addition to these new products, we continue to expand our network reach in high-growth markets. To that point, we have increased our transload capacity and now have around 25 sites across the U.S. This leverages the strength and efficiency of rail, coupled with the flexibility of final-mile trucking. Safe, reliable, efficient service, driving growth for our customers, this is how we win, and we have a Union Pacific team that is energized behind that strategy. So you see, Scott, I was nice. I just said the team was great.
By the way, Jennifer, I was paying attention. You only went off script once there.
I know, I know.
That was pretty good.
Good job.
By the way, it's great to see a full room. I see some people standing in the back and the sides. I do see some seats in the front row, so if you want, we have seats for you. So, again, I'll start with questions. If you have some, raise your hand. We'll get you involved. I always like to just start with all the companies, just from a macro standpoint. Volume starting the quarter down about 1%, RTMs down about 4%-5%. What's... help us explain that, you know, that mix between RTMs and carloads, and just in general, are volumes better than what you were planning for, worse than what you were planning for? What's, which end markets you feel are doing best or worse versus plan?
Well, you know what? Let me start, and Kenny and Jennifer jump in. But, so you always have to be, you have to understand what fits into the different metrics, and that's real, real important. Otherwise, you can get lost, 'cause there are so many public touchpoints with how the railroad's operating. RTMs, of course, the revenue number is pretty easy, X. The tons makes a big difference, so if you have a downturn in a high-volume, high-tonnage product like coal, you're going to affect your RTM. So you have to be careful that you use the number of coal cars and volume that we have to fix that.
At the end of the day, I think we're where we expect to be in this quarter, and I think what you'll see is we'll be fairly close on a volume basis of where we expect that the quarter was gonna end up. Is there challenges in the marketplace? Absolutely. Now, what I also like is. And we don't give revenue guidance, and we don't put out the revenue number. Otherwise, we might as well not even have quarterly calls. Everybody would have everything upfront. So there's a reason for us to have these quarterly calls and get out. But the revenue side, I think we've done a good job, and we'll continue to build on what we were able to do in the first quarter.
So even though our volumes were, were stunted overall, but, we were able to grow our revenues, and I would expect us this quarter to be able to do something similar. Now, the challenges are, we have a lot of inflationary pressure that was built into the, into the railroads that we have to deal with. So you have to tackle that two-way, and that's what we're doing. We're doing it by, by pricing, and pricing to the level that we need to and for the product that we're providing, and our product is pretty good. So if you can provide a good product, you have some pricing power that has to happen.
And also, on the other side, on the below the line, we are looking at every opportunity to be more efficient in how we can be more productive, and that's the way I look at that whole RTM, GTM, carload. What's a win? Then I'll let Kenny talk about the specific sort of markets that we are... 'Cause they're not all down. Coal is down big time, but Kenny will take us through that. What's a win? It's about revenue, and if we can grow the revenue, which I think we did a good job in the first quarter, when we were 4% higher, and we can continue to do that, and then we can continue to grow volume in the right places with what the mar- what it gives us, and we can be more efficient, I like that.
That's the picture. That's what we want to deliver, and we'll continue to have some pressures on inflation, but I don't see anything that bothers me that we can't figure out with some time, where we get to the right place. And it is time. You don't wanna impact your markets by being, you know, irresponsible in how you price and irresponsible of how you look at the railroad and how you spend money. So I'm very comfortable, Scott, where we are. Kenny or Jennifer?
Kenny, you start on it now.
Well, before Kenny gives you some of the market detail, going back to your first part of your question, Scott, about, you know, what we expected coming in, I think Jim's right. On an aggregate basis, volume numbers are probably not that far off. I will say the mix is a little bit different, though. We continue to see strength in that International Intermodal segment, which we like that, but that is a little bit of a headwind to us on a mix standpoint, particularly when you see our Industrial segment down 1% so far, in the quarter. So that mix difference, I think, is important. But also, Jim's comments about our revenue, and it's really revenue ex fuel is how we're thinking about it.
You know, we want that to grow in excess of our volumes, 'cause that really relates to Kenny and the pricing his team's doing.
Yeah, you know, you come into the year, and we're not naive enough to try to forecast growth for coal. So coal will do whatever it's gonna do. We'll see what happens there. What Eric and I try to make sure we do, which we're doing as a management team, is just capturing all of the demand that's out there. That's the first thing. And then you walk through some of these other markets, like the industrial markets. You know, our petrochem business has been holding up. It's been strong. You know, we'll continue to see paper and forest products, what happens there with our SAR-...
And then on the, our Premium side, and Jennifer mentioned this, you know, that domestic intermodal has just been stubbornly stagnant, you know, over a year now, which is something that has to change at some point. But it has been a pleasant surprise we've been able to capture all of the demand on the international intermodal side. We've been very excited and positive on what we've done with wins and the market growth on finished vehicles. And then the last piece, you saw with the the slide, you know, when you have an economy like this, you can't moan and groan. You've gotta go out there and create new products to improve your lot in life, and that's what we're doing.
Great, so just a couple of follow-ups. I think to me, one of the positive surprises from Q1 were some of the yield trends. When I look at yield ex fuel, Jennifer, up 3.5% in Q1-
Mm.
right? And I'm guessing there was some positive mix-
There was
... within that. Your point about mix in Q2, should we assume some sort of deceleration relative to that 3.5%? Is that what you're trying to suggest?
I'm trying to suggest or just say-
Right
... our mix is gonna be negative in the second quarter.
Okay.
I don't think hugely negative, but we're gonna go from a positive mix to a negative mix.
Right.
That obviously flows through the yields.
Yeah. And okay, that's, that's helpful. I wanna think about underlying price for a little bit, 'cause I think it's, you know, for so many years, we've talked about rails as duopoly businesses with pricing power, and it was sort of a given, inflation plus pricing power. And, you know, we... you know, and all the rails continue to say it, right? Jennifer and Jim, I'd love to get all your, you know, perspective on this, right. You know, you now, Jennifer, you now talk about inflation, pricing dollars exceeding inflation dollars.
Mm.
But you've also said, price -cost maybe is not a tailwind to margin this year. I think that is one of the big keys for the rails broadly. When do we get back to price -cost as a tailwind to margin? And, you know, it's been this, we've had this unprecedented price -cost headwind. Is there... Do we have visibility to a, you know, a catch-up? Could it be a multi-year catch-up on price -cost? I love to get all your perspective on this, but.
You wanna start, or you want me to?
Go ahead.
So-
Go ahead.
You know, two things, Scott.
Scott told me I have to be nice to you two this morning. I don't know. I'm always nice to these two, but I'm okay. Go ahead.
So-
I'll tell you if you say something wrong.
I know. So a couple things, Scott. It does take us multi-years to price through our contract. We do have, call it 50% of our book of business is in multi-year deals, and so there is going to be some catch-up as we work through those deals to be able to actively price them. There are escalators on those, but then there are limits to some of those escalators that are prohibiting us from fully keeping up with the inflation we saw over the last couple years. So that's part of it. The other part of it is, what happens with inflation? You know, it's starting to come down, but we have another 4.5% wage increase that goes into effect July 1.
So, you know, if you look historically, we would say inflation was probably in the 1.5%-2% kind of range. The last couple years, we've been 5%+. So there is a bit of a headwind there that's gonna take us a bit. I'm not gonna give you a prediction of when we're going to, to turn that tide. We're gonna turn it as soon as possible. But part of it is what we can control in terms of our ability to go out and price in the market. And then part of it is, is that inflationary environment and what happens there. Again, coming back a bit, but, but not still back to what I'll call more historic levels.
Where we are and have an opportunity to renew contracts, we're being very aggressive. You know, we are taking risks. We are unapologetic as we talk to our customers about the inflationary pressures that they see. They have it going on in their markets, too. That, I was with a construction products customer here recently, and they are having the same inflationary pressures. They are taking prices in the marketplace, too. So, with a stronger service product that we have now today, there's no reason why our commercial team isn't going out and articulating those challenges and being as aggressive as possible.
So if I, Scott, if I can summarize it, one is every contract doesn't come up every year. So we have some contracts that give some flexibility, so that the people we partner with can react to market conditions. So those things, as they come up, we'll have to deal with that. But we are pricing, and we price to the value of what we deliver. And what we deliver is a valuable product that really, on a cost per unit basis for the people that ship with us, makes sense for them to be on the railroad. There's no other way that can give them that cost benefit, and if we can have the service level high. So if I, if...
When I, you know, the first time I was at UP in 2019, and I looked at the railroad, and if 2024 was 2019, I'd sit up here and say: Don't worry about it. We can outstrip costs faster than any inflationary pressure. So that would take care of the issue directly. But we don't have 1,500 locomotives we can park anymore. We've parked some more, but so now it's taken it to the next level. It's a lot of hard work, but we see that possibility, using technology, using our infrastructure, training and teaching people, and making sure we have the right processes. And if you look underneath the numbers that you don't see every day, we get way more cars, you know, double digit more cars switched per employee.
We get a lot of things that are way better already, so that'll help us. We do those two things, this might not be. You know, listen, last time I was—I took a sabbatical. That's the way I call it. When I left UP for a while, it was a sabbatical for a couple of years.
... and I went and found myself in Nepal and other places. But at the end of the day, I'm back to work, and I'm building on that. We have a great network. I think we have pricing power because of the level of service and the value we give our customers. If we were trying to price purely just because of inflation, I think that's, you're gonna lose that game. Eventually, people will go somewhere else. But the value we give our customers is high, and it's worth what they pay us, and we are gonna price against that, and I don't see anything slowing us down. So that's where we are right now. Very good place, the way I see it.
And so, it sounds like some of this is still... Even though it's been a few years, it's still—there's still some degree of a timing issue here. Are we, right, convinced that at some point, we start talking about price -cost as a margin tailwind? I know we're not saying when that inflection is, but, like, when—Jim, when you talk about getting to the operating ratios you want to get to, is there an assumption that, yes, we do get the price -cost tailwind rather than just price -cost dollars or whatever the language is these days?
Scott, I hate to answer with one word. Yes, you're correct.
Yeah.
That's exactly the way I see it. Let me again just expand on that a little bit. We have some pressure here over the short term, and when I joined UP, I was very clear that this was not going to be a short fix. You can't fix the inflationary headwinds that were put into the entire railroad system, from wages and from the products that we buy. So we need to deal with that, and you can't deal with that over six months or a year. So if it takes you a couple of years, at the same time, you work hard to be able to open markets with using our access into Mexico, having that high-speed train coming out that we've already put in out of Mexico, and nobody can beat us.
You know, in all seriousness, I was joking about the, the other railroad, CPKC, but in actual fact, we have the best network, and there's nobody that can beat us. So if speed and consistency is important, which it is for some people, we think that's a win. So we see that being able to grow, and we see the results of that. And then we think that we can win using leverage in our system coming into Chicago, and we're under 3 days coming into Chicago. So that's a long ways to go in well under 72 hours, and we think that's competitive to be able to move domestic containers and trailers and products. We don't have to just go intermodal in that lane. I have no problem putting somebody who wants to put some boxcars in there that.
Want to get into that market. So when you add all that up, that's how we win. Might take us a couple of years to get that. If we can, every quarter, be able to improve ourselves sequentially in our operating ratio, and I don't have a problem saying operating ratio instead of margin, okay? I have no idea why anybody would have a fricking problem and want to swap out a margin. Like, I don't know. I'm a math guy. Isn't it, margin, and don't you just do the inverse, one over X or something? Like, whatever. Okay, but bottom line is, I'm an operating ratio guy because I'm a simple guy. So we're gonna improve our operating ratio by doing the things underneath that people don't see every day.
And as we're able to price, and as we're able to bring the business in, that's a win-win, Scott. And I said, and I'll repeat it, I don't give a number. I know some people don't like it. They'd love me to be able to give them a number so they can put it in. Look at my record, okay? We're gonna have the best. We'll have some other quarters when we're not the best operating ratio, but we're gonna be the best. So, you know, I hope that somebody delivers 59.5 this quarter, because then we can figure out how to beat them next quarter. So at the end of the day, we're gonna be the best, and that's all there is to it, Scott. I love a challenge.
A couple of just quick follow-ups there. One more on this price -cost discussion. Kenny, how important is truck pricing in this equation? Is that a limiting factor right now for western rail, long length of haul, or not so much?
So I mentioned that the truck prices have just been stagnant too low for a year now. Early in the year, it was down, contracted rates, call it low double digits, and now it's improved to high digits, maybe, you know, mid-single digits, and so that's improving. Yes, it's important. Better truck rates or higher truck rates help us compete, not just in intermodal but also some of our boxcar business. So yeah, we would like that, but again, a stronger service product helps us compete in the marketplace. Earlier this week, we were going through some wins where, because we have a lower cost structure, we're able to go in and win some business against truck, you know, on our carload side, that we probably wouldn't have been able to do had we not made the changes that we've made.
So if you can't get it in the market, you get it in some of the products that we've mentioned, and Jim has talked about, that we've expanded our footprint in Southern California. We've improved our service product out of Southern California. We've got products out of Mexico. So where the market isn't giving you help, like I mentioned, you create new products there.
Yeah, and Scott, as I know you know, we do have a couple mechanisms, both on the intermodal side and the coal side, that are impacting our overall pricing right now because of those market dynamics.
Okay, and then another follow-up. Jim, you said, "Hey, judge us on what we do. We want to improve margins just sequentially or operating ratio sequentially every quarter." I don't know if, Jim or Jennifer, you want to take this. Any thoughts or color on how we should think about sequential OR improvement from Q1 to Q2 versus whatever normal is. Should we be modeling normal seasonality on OR, any of the puts and takes?
Well, Jennifer always gets excited when I say sequential. You know, she'd rather me talk about year-over-year. So there is some, there always is some pressure because of mix that can affect you quarter-to-quarter. I like to look at it truly year-to-year, and I'd love also to be sequentially better first-quarter to second-quarter. So I don't know what June is gonna be like. I don't know what the weather's gonna be like. I don't know what the, what impact we're gonna get on the cost side, but that's the way I look at it, is how can you improve it?
Mm.
And the best way to think about it is, Scott, is as we price better, as we. We do have some markets that are tough, some of them because of where the competition level is, like on the domestic trucking, but we also have some markets where we like them. We see on our originations that they're winning. Would I like interest rates to come down? Absolutely. That would have more people buying and selling homes, and that, you know, every home that's sold, it gets painted first by the people selling it because they want to try to sell it at a higher price.
And then I don't know about the rest of you, and I've had, like, 23 different homes in my life already, moving is when you walk in, somebody in the house doesn't like the paint that somebody else put up there, so you paint it again. So I like that kind of thing, and that impacts us on the products that we move across the board that consumers use. So I'm very comfortable. Scott, I know it's difficult. If I had your job, you'd love it if I came up here and said, "Our operating ratio is gonna be this, and our revenue's gonna be this, and you can put it in the model." Listen, I'm a prudent guy, okay? We'll take it one step at a time, but I like the direction in what we're doing to move ahead.
We've got the right focus on this.
Yeah, I mean, I would just say, you're right. On a historic basis, you generally do see Q1 to Q2 improvement. It's the seasonality. It's the growth in volumes. You know, we did have a really good first quarter OR. We actually improved that sequentially, which is very unusual, going from the fourth quarter to the first quarter. So I think you need to keep that in mind as well as I feel like we... I don't just feel like, I believe, we've had a little worse weather in the second quarter than we actually did in the first quarter, which is very unusual. We had a pretty mild winter, had a couple weeks that were nasty, but we've had a lot of rain in Texas, where we actually got 6-7 inches of rain, I'm told, this morning in Omaha.
The rain is having some impact to our service. But, you know, to Jim's point earlier, we're recovering very quickly, which is great, but there are some costs in there.
Maybe just to follow up on that, Jim, your perspective, how is the railroad running right now? You said earlier, hey, we don't have 1,500 or whatever locomotives to park. What are the sort of big initiatives that you're working on and just in terms of productivity, service, you know, broadly?
Well, listen, I'm spending my time on this job a little differently. I have some really strong people, like, excellent leaders. Eric Gehringer, you all need to get to know him a little bit better. I think he's a heck of an operating person, okay? I think he's working at about 75% 'cause I'm never happy, and I do tell him that if I had to mark him, he'd be about 65. So there's things to do across the board, and we look at it. This is. I know I've only been there for nine months, but this is my month in operations, and we're looking at ways that we can get better across the board, and we never stop.
Like, this picture here in front of you, I don't know if you guys have it, and you can see it-
We do.
I don't like it. There's not enough ballast under those ties, but that's okay. I'll deal with that later after we get off, find out why we didn't have enough ballast on there. So you never stop when you're a railroader. You look at it. It's good that it's got one locomotive. They did that on purpose for me, okay? It's good that they're all double stack. They did that for me to make sure that we'd never show a train that wasn't double, fully double stacked. So we always work to optimize the network. But so, but I've been spending my time. I went and just rode a train from Eagle Pass on the U.S. side of the border, down to Mexico on the head end of an FXE train with the CEO of FXE, and we rode it for, you know, 150 miles.
And for me, it was we need to improve that border. We need to make it more fluid. That way, we can compete better. So for me, I've spent time doing that kind of stuff, and I think it was a little weird that we had two CEOs on the front of one of those Armour Yellow locomotives going for 150 miles in Mexico. Got to meet the crews, got to see the rail yards, got to see how their railroad is set up, and you get a better feel for it. So I spent time doing that because their relationship is real important for us, and operationally, it's across the board. How fast we turn locomotives, how fast we turn the intermodal cars. We've been able to improve the velocity on our intermodal.
The high-speed trains that we operate, we get over 700 miles a day on our intermodal fleet, which is the best in the industry, and we do that on purpose. Now, am I happy, Scott? I think we could do 780, and I don't make these numbers up. You know, it's what I went through some regression analysis, and I look at it and what's possible, and that's the way we look at it. So I'm excited. I think there's a lot more... The next piece is always tougher, right?... So that's the, that's where we find ourselves is, is we fine-tune to see how we can get better.
So that car velocity metric has sort of maybe plateaued, if that's the right word, in that low 200-mile-per-day range. Where is that where we're gonna stay? Where, where should that go?
Well, the mix is, again, it sounds like we're making excuses. I don't look at it. We have to have a public number, so we put out this car velocity, and we put that number out. So I think right now we're in the 200-210 range is a good place with the railroad that we have. I look underneath. This morning, we put in all in on our intermodal fleet over 500 miles yesterday. That's an improvement from 440 last year. That's a big deal. Now, if you end up with more manifest traffic as a mix, then it affects that number, so you slow down a little bit in the overall number. But in every one of our categories, we're better, so that's the way I like to see that.
I think there'll be times this year when we get it up to 220, 225, and there's other times of the year when we're running it in the 200-210. The best way to do this, if you ask me the question, "Are you happy with the 205, 206 that you're doing now?" The answer is no. Is it about right for the railroad? Yes. In a standard deviation that's pretty tight, okay? So that's the way I look at it, and if you see us around 205, you can say, "Listen, they're pretty efficient. They're turning the locomotives. They're turning everything pretty quick and, and making sure that they drop some of the costs off the bottom line.
We've seen when you came back, Jim, we started to see, you know, not significant, but some reductions in headcount levels. You've had some positive labor productivity or volume versus headcount. If I just look at the monthly data that we get, right, headcount is ticked up a little bit, two out of the last three months. Are we sort of at a place where we should be steady on headcount from here? Are there some opportunities to take some more out? Do we want to be growing headcounts, preparing for the next-
Yeah
... for the volume upturn?
Well, I'd love to be growing headcount because our business goes up, and the business goes up, and, you know, it'll never be one for one. We'll put as much of the traffic as we can on the trains that we're operating today, so, you know, business goes up, and a percentage of that, you increase. But on the productivity side, we're not stopping. We're implementing technology in how we move locomotives and how we switch in the rail yards, how we do our. We're spending money to be able to have machines that automatically easily go put ties out on the ground. If they... Remember, if we spend $3.4 billion a year, and you average it with last year's $3.7 billion in our capital, we spend $10 million a day on capital.
So $10 million a day, if we can figure out a way to do that and do the same work with a little bit less. So for me, the best way to think about headcount is we're being prudent. I think we're carrying a few extra people than we really need because we don't know the full impact of when we put the scheduled service in the 11 and 4 schedule and how much of that we can mitigate. So we're being careful that we're not going to affect the railroad and our service levels. But as we work through this, if it's as good as we think we can get, then yes, we're gonna be for the same relative business, we'll have a lower headcount.
I think we're the only railroad that is actually sort of improving the productivity number year-over-year, and I think we'll continue to see that for the next while. It won't be the wild swings that we had and the reductions when I showed up at Union Pacific first in 2019, but I think slowly but surely we'll continue to do that, where we have, for the amount of workload we have, a few less people. But we're gonna carry a few for the next six months to a year to make sure that as we implement all these things. You know, we signed a sick leave benefit before I showed up, and Jamie Boychuk and I had quite the discussion this morning 'cause he was working.
So I said to him, "What the heck did you sign that up for?" But that's okay. That's a separate private discussion. I guess it wasn't private anymore. I just told everybody. But at the end of the day, who the heck would... We knew it, that there's something that goes with NFL playoffs and sickness on the railroad. I don't know what that—I'm telling you, I'm calling the NFL office and telling them, "Would you mind making it Tuesday, Wednesday, your playoff games, instead of Saturday, Sunday? Maybe that'll help us." They... But on the weekends, you get sick if there's an NFL football game. So at the end of the day, we have to deal with those things and be able to figure out how we're gonna fix that.
Sadly, there's gonna be a little less paid sick time in New York, I think, after Sunday.
Okay. You think that'll happen?
No, they’re.
Yeah, they're gone.
I apologize. We're working on bringing in some, a few more chairs.
But the Edmonton Oilers won last night. I don't know if... I'm sure all of you guys stayed up to watch hockey last night. Would anybody put their hand up to see how many? I, I love it, okay? Love it. Heck of a hockey game. Aaron? I was a little nervous there in the third period when they came back 3-2, but nice to see them go on. It's been a drought for a long time as an Edmonton Oilers fan, let me tell you. Go ahead, sorry.
No, I took us in that direction. Kenny, and one of the natural sort of questions we think about, we get a lot, is just rails just, they haven't grown volume in years, sustained volume, right? Your volumes are lower than they were 5 years ago, 10 years ago, 15 years ago. What changes that? How do we sustain volume growth?
So first of all, and I, I've said this twice now, you know, product development is key, and you've seen us really double down on that, whether it's, you know, investing in a Twin Cities terminal, investing in the Inland Empire Terminal, making our Z trains faster to go from, you know, west to east to Chicago and, and Dallas. Whether it's putting on new products to go east with our eastern carriers on, the Norfolk Southern and CSX. Coming out of Mexico to have a Southeast product, where we're able to use our rail asset to, get into the Southeast, and then that north-south corridor that we talked about earlier to get to Chicago for traffic that's going to, you know, Michigan, Illinois, and Ohio. So those are areas... I mean, that- that's all what I would call both Mexico and over the road.
We can capture, and we can grow that business. Then you've got a couple other markets where we have a very offensive posture, and you look at the renewables, that's out there. It's in our green products market, but we've been very encouraged about landing new customers and landing new origin sites, and in some cases, we get double moves on it, where we can move it into Nevada or a state near the West Coast, and then move it back into California. Petrochem, our petrochem business, most people think of it only as plastics only, but I tell you what, for every plastics car that's moving out there, there are all these other inputs that are going into it, whether it's, you know, input to make the plastics and/or some of the other inputs that are going in between the Gulf.
There are some markets that are out there, and then the last thing is just, with a stronger service product, we can have those discussions with customers, regardless of the markets, about what we're doing and looking at their truck business and then supplementing more rail. I'm excited. I like the fact that we've got a strong service product that's out there, and we've got a lower cost structure, and we're, you know, doing everything we can.
Okay, and by the way, if there are questions, raise your hand. Jennifer, you made a comment about coal and intermodal. There's some natural things in our contracts that sort of we should just be aware of from, like, a pricing standpoint. So gas prices have rebounded. How quickly does that sort of flow through in terms of coal RPU?
We would look to see a little bit better performance potentially. Obviously, the bigger lever for us on the coal side is if we could see a change in the actual demand. So a good, hot summer burn would be very helpful for us.
Kenny, with gas prices, you know, I hesitate to call it spiking at $2.60, but, you know, we were in a pretty bad place-
Yeah
... a few months ago. Is that changing the demand environment for coal?
It is. I mean, we're seeing a little bit of uptick.
Right.
We can see that in the number of sets.
Right.
We're going out aggressively talking to our customers. We want them to bring them on early. I mean, we're going customer by customer, saying, "Hey, can you bring on these sets early?" 'Cause that natural gas price dynamic is changing.
And then in terms of the intermodal -
Mm-hmm
... dynamics-
Yeah
... there's some new contracts in place, right? At a high level, are we happy with how these contracts are working, how they're structured?
Yeah. Yeah, absolutely, I am.
Mm-hmm.
I like the fact-
Right
... that when you're in a down market or a challenged market-
Right
... like this, you allow your customers to go out there and compete. We saw some lows, like I mentioned a little bit earlier, some double-digit lows. We're not gonna go that low. You're not gonna see us just chase it down. But at some point, after a year, the market will change, and that contract structure will help us and favor us, and it will allow our customers to go out there and win more business. But it'll also allow us to get a little bit more margin expansion and a little bit more price.
Yeah, and I think that's the dynamic-
Mm-hmm
... that's important to remember, is we've not had these, these structures in place in an upmarket yet.
Mm-hmm.
And so I think that's where you will really see some of that benefit, as well as the fact that when we won some of the new incremental domestic intermodal business, that was in a down market, and so I really don't feel like we saw the full benefit-
Mm-hmm
... of those contract wins in our volumes either. So we're very much looking forward to that.
Okay, we got about 5 minutes left. I wanna do some bigger picture stuff, maybe some regulatory stuff, too. Jim, you mentioned paid sick leave agreements. I can't believe it, but we're sort of 6 months or so away, probably, from starting the next round of labor negotiations. Any big priorities or changes that you'd be looking for? I know last time around we talked about ground-based conductors. Is that something you think we start to talk about again?
No, I'm not, I'm not into ground-based conductors. There's no win, doesn't make you more efficient, so that's off the table. We're not into that. This is what I would like... And every round in the negotiations is contentious, and part of it be, and the reason it's contentious is these contracts and agreements we have are complicated. They're not written on a few pages. They're written in books that have been put together over a hundred years, okay? So at the end of it, and what we would like at Union Pacific is we would... We pay well, and we wanna continue to pay well. We don't have an issue with what we're paying locomotive engineers, conductors, carmen, people that repair the track, okay?
In everything that we do, and it's, we're well-paid, and if I listed the amount of benefits that we have for our employees, it's high. There's a lot of benefits from pensions to, to healthcare and everything else. We're more than competitive, and that's why we have no problem hiring. We really don't. We got behind the curve, I remember back in 2022, and I- but I think everybody was having a hard time. But today, I'll tell you that if we put out a notice that we wanna hire, so how, how do you move ahead? You have to always look at what technology and what's happening in the technology, and make sure that you're not limited by collective agreement in what you want.
You can't ever go into a round of negotiation and expect to change the world, and if you wanna change something big, you're gonna have to pay for it. There is no way, and I've been through it. I was a person, when I was at CN, that was at the table and negotiated the first... We called it Beltpack, now remote control, where the locomotive engineer came off the seat, and we gave the employees remote. And we paid for that, and we gave people a substantial wage increase to be able to do that work. But at the end of the day, the company became more efficient, and now it's across North America.
So that's the way I look at it, is we have a few things that we wanna get done this round that we think will help us be able to provide the service and a little more flexibility with our employees, and that's real important for us. So that's what we're looking for. We're not trying to change the world this round of negotiation. They always take time, and there's always a lot of rhetoric that goes out, and that is positioning to try to get a better deal. That's what it is... And the unions did a great job. I was sitting on the sidelines last time, and I watched the way the unions did their job, and I give them a lot of credit.
They sold it that we were mean, ugly railroaders, which, if we told you how much we pay people and what they, their benefit packages are, I think a lot of you would probably, reasonable people would say, "Woo! Sign me up. I think I could do that job." Okay? So this round of negotiation, I'm looking forward to it. I really am. It'll take us a while to get there, but ... More than likely, unless as a group we come together on what a win is and what we want, Union Pacific's gonna negotiate on their own.
We are not going to negotiate with the group because I wanna make sure that the few things that we need to be able to move ahead are there, and at the end of the day, we negotiate that with what we're paying and what kind of wage increase we wanna move ahead. So I'm hoping that as a group, we can come together, but if not, Union Pacific is going to negotiate on their own. In Canada, we've always negotiated on our own. When I was at CN, I was at the table, and those were always fun. They were some of the best times in the world. Isn't there anything more interesting? You got a midnight deadline, they could strike on you, and you're trying to get a deal. Is that fun or what? I loved it.
Just quickly, Jennifer, how should we think about the financial outlay with this CARB locomotive regulation? Are we successful or can we be successful in getting rid of this?
You know, there's a number of groups, the railroads obviously being one-
Hmm
... but there's several different industries that have aligned with us, that are trying to educate folks that a ruling like what they have proposed is counterproductive and could actually produce the opposite of what they want, which is more business moving by rail because we are so much greener than trucks. If they put limits, I think that could be, you know, very negative for the California people. So we're hoping that reason can prevail there.
Yeah. And then maybe my last question, buyback's been a big part of the earnings algorithm for a long time.
Mm-hmm.
Right? Paused last few quarters, I think we're restarting it in Q2.
Yeah.
Should we think about this as going back to what it's always been in terms of a contributor to earnings growth, or is it sort of we're starting it, but it's gonna be more modest than maybe what we've done in the past?
Yeah, I mean, two things to think about there.
Right.
So first of all, when you think about how it's contributed in the past, we have been leveraging our balance sheet. Since 2018, we were walking the balance sheet up, increasing our debt to EBITDA levels. We're largely at those levels today, and in fact, we paid down $1.3 billion of debt in the first quarter. So really, the majority of our share repurchases is gonna be coming from the cash that we generate as a company, and as we create some capacity on the balance sheet, we'll use it as well. So I think you need to think about the drivers of what we're using to purchase those shares with a bit differently going forward.
We know that, we know that at the end of the day, if the more free cash we can drive opens up and allows us to do what we see as a win. What do we see as a win?
Mm-hmm.
Is increasing our earnings per share so that the people who own this company can get better value and increased value in their shareholder, in the price. We do that with share buybacks, but we need to drive as much cash to the bottom line after paying dividends and everything else, that we can buy back some shares. That's very important for us. Very important for us that we can increase the revenue that allows that to happen, to bring that, bring that, and watch our costs coming down. I like our story. We'll use share buybacks, very important to be able to decrease the number of shares in it. That helps us with the growth. We increase revenue, we increase, we decrease our costs, and, you know, the win for our shareholders, and that's why we're here.
We're here to represent, and our owners and how we win. So that's the way I look at it, black and white. I don't ever lose sight of that. I don't ever get up in the morning and say, "Geez, what can I do for myself?" It's, "What can I do to make this company better, to be able to move ahead?
All right, we gotta wrap there.