Greetings. Welcome to the Union Pacific Climate Action Plan Investor Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star Zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. Lance Fritz, Chairman, President, and Chief Executive Officer for Union Pacific. Thank you, Mr. Fritz. You may now begin.
Good morning, Rob, and thank you. Welcome to Union Pacific's conference call to discuss the release of our initial Climate Action Plan. With me today in Omaha are Jennifer Hamann, Chief Financial Officer, Beth Whited, Chief Human Resources Officer, and Kenny Rocker, Executive Vice President of Marketing and Sales. With an outdoor factory spanning 32,000 mi across 23 states, Union Pacific knows firsthand about the effects of climate change. As weather events grow more frequent and severe, we directly experience the service disruptions they cause that impact our customers, employees, and supply chains. UP's purpose is to connect communities and businesses to each other and to the world. Fundamental to that goal is the health, safety, and viability of those communities. This morning, we are releasing our initial Climate Action Plan, which lays out the thoughtful and deliberate steps we're taking to reduce our environmental impact.
At the heart of our Climate Action Plan is more detail around how we expect to achieve our science-based greenhouse gas emissions reduction target. In addition, we're increasing our disclosure transparency with a commitment to adopt the TCFD and SASB frameworks. This plan will evolve as we further develop the work streams and as technology advancements make additional opportunities available. There's no simple solution to climate change. Today, we're encouraged to be sharing our initial plan with you, the first of an evergreen process to achieving the ultimate goal of net zero carbon emissions. Turning to slide two. At our Investor Day in May and with our 2020 Building America report, we reiterated our commitment to sustainability by introducing a comprehensive approach to ESG issues that we call Building a Sustainable Future 2030.
That comprehensive approach has four concentrations: investing in our workforce, driving sustainable solutions, championing environmental stewardship, and strengthening our communities. It's designed to address the evolving needs of all stakeholders over the next decade. This approach to environmental, social, and governance issues is becoming part of our DNA. The Climate Action Plan that we're rolling out today supports our comprehensive approach to sustainability. Before we dive into the Climate Action Plan, let's take a quick look at the other parts of our 2030 sustainability strategy. To discuss the workforce elements, I'll turn it over to Beth.
Thanks, Lance. Starting on slide three. At Union Pacific, our greatest asset is our people, who are critical to our future success. We want to attract and retain the best people in the business. Creating a diverse and inclusive environment where our employees can be their best, both personally and professionally, only enhances our future opportunities. Recognizing we have work to do, our goal is to achieve 11% female representation and 40% representation by people of color by 2030. To hold ourselves accountable, we will provide quarterly updates on our progress towards these diversity representation goals. This past year, we released our 2018, 2019, and 2020 EEO-1 reports to provide enhanced disclosures to our stakeholders, and we'll continue to release this report annually. Another component of this strategy is the continued investment in workforce development.
In 2020, we launched a partnership with the University of Nebraska at Omaha that allows our employees to earn a degree with no out-of-pocket expenses. This program has been a tremendous success, with almost 500 employees enrolling in classes to better themselves. We also are taking new steps with our diversity and inclusion efforts. Over the past two years, we've created and delivered new training courses helping our employees recognize and navigate bias, providing them with tools to understand and take action. We also are hosting a variety of listen and learn sessions designed to promote open dialogue and learning among our employees. This is just the beginning. We have a pipeline of projects and initiatives aimed at cultivating the workforce and culture that we need to succeed in the future.
Now I'll turn it over to Kenny to discuss how we're helping our customers drive sustainability.
Thanks, Beth, and good morning. Turning to slide four. Year-to-date, our customers have eliminated roughly 19 million metric tons of greenhouse gas emissions by choosing rail versus truck. That's equivalent to removing 4.1 million vehicles per year from our highways or growing 314 million trees for 10 years. UP can literally be the easy button for our customers to quickly reduce their carbon footprint by up to 75% for every shipment they convert from truck to rail. Union Pacific is dedicated to operating a safe, efficient, reliable, and environmentally responsible rail network while also delivering the best customer experience. This creates economic strength, facilitates growth of our business, both profitably and responsibly, and allows us to invest in our future.
Our capital investments further support the opportunity to move more freight, while at the same time create economic opportunity through employment and supply chain activity. In fact, the operations and investments of the major freight railroads add nearly $220 billion each year in economic output. As a 159-year-old company, we understand the long-term impact of our investments, so every dollar we spend to increase network capacity supports sustainable economic growth for generations to come. Union Pacific is also supporting a more sustainable future by transporting environmentally responsible products such as renewable fuels and the parts to build wind turbines. Working closely with customers like Phillips 66, Valero, AGP, and Gavilon, as well as others across the ag and petrochemical markets, we will be a trusted business partner to further develop the renewable fuel market.
We understand the important role this emerging market can play in those impacted communities and are excited about the growth opportunities ahead of us. Now, I'll turn it over to Jennifer to talk about how we're strengthening our communities.
Thank you, Kenny. Starting on slide five, Union Pacific is dedicated to serving and investing in communities, improving the quality of life where our employees live and work. four years ago, we redefined and refocused our philanthropic giving on the premise that a successful community must be safe, have a strong workforce pipeline, and have vibrant community spaces. In 2020, we provided roughly $27 million, serving nearly 3,000 organizations, with a significant portion providing direct assistance to those impacted by the pandemic. When you add up community giving from 2017- 2020, we have impacted 40 million people, with almost half coming from underserved communities. Beyond dollars, it's also time spent in the community giving back. One area where we spend considerable effort is in safety education as we work to increase rail safety awareness and emergency response preparedness.
In 2020, we donated 23,000 hours of safety training to enhance community sustainability. Turning to slide six, the fourth component of our strategy is why we're here today, to discuss how our initial Climate Action Plan will drive Union Pacific's leadership in championing environmental stewardship. Our Climate Action Plan supports our broader strategy of serve, grow, win together that we unveiled at our Investor Day in May. As we walk through the plan, we will lay out how each of these core strategic values plays a role in our plans to reduce UP's carbon footprint. First, let me turn it back to Beth to talk about the goals that we've set.
Thanks, Jennifer. Turning to slide seven, in February, we announced our target to reduce absolute Scope 1 and Scope 2 greenhouse gas emissions 26% by 2030 from a 2018 base year. The target boundary includes biogenic emissions and removals from bioenergy feedstocks and has been validated by the Science Based Targets initiative, or SBTi. Our SBTi-approved target is in line with what climate scientists say is needed to meet the Paris Agreement goals, limiting global warming to well below 2 degrees above pre-industrial levels. We also are aware of the recent findings of the Intergovernmental Panel on Climate Change regarding more urgent actions necessary to address climate change. We will revalidate our target at 2025 or sooner so that we are on the right path and are aligned with the most current science.
This goal also incorporates our longer-term objective to grow business volumes and convert more traffic from truck to rail. By having an absolute goal, we must offset the additional greenhouse gas emissions created by that business growth. Let's turn to slide eight to discuss the serve component of our strategy, serving our customers in a more fuel-efficient manner. The first step to achieving that goal is improving operational efficiency and lowering fuel consumption by modernizing our locomotive fleet and implementing energy management technology. Locomotive operations represent our greatest source of greenhouse gas emissions, so this is where we are devoting the majority of our time, attention, and capital. Our implementation of PSR supports the progress we've already made in this area.
Fuel consumption improvement isn't a new focus for Union Pacific, as we've been at this for years, starting with training our crews about fuel conservation techniques and installing start-stop technology on our locomotives. Implementing PSR, however, has allowed us to take that focus to the next level. We've improved our fuel consumption rate each of the past two years, and in the third quarter of this year, we achieved a record low quarterly fuel consumption rate. Our PSR principle of increasing train length drives locomotive productivity improvement, which results in fewer locomotives needed to handle the freight. We're also making investments to modernize our fleet to improve reliability and fuel efficiency. Since 2010, we have purchased 1,300 new locomotives, or roughly 20% of our fleet, while at the same time retiring around 2,500 older, less fuel-efficient units.
Through our modernization programs, we modernized approximately 100 units in 2021, with plans for another 120 or so units by the end of 2022. Each modernization results in an approximate 53% reduction in emissions and an additional 5% reduction in fuel consumption per unit. Technology plays a significant part as well as investments in energy management systems, or EMS, are driving improvement. EMS has been implemented in approximately 2/3 of our active road fleet with a target of full implementation by 2025. We estimate that EMS will reduce our absolute greenhouse gas emissions by 4% by 2025. Turning to growth, I'll let Kenny take over on slide nine.
Our strategic plan to grow the railroad also goes hand in hand with our sustainability goals. Rail is the most fuel-efficient way to move freight over land, positioning us to provide lower carbon solutions to our customers and helping them reach their emissions reduction targets.
With rail being the most environmentally responsible transportation solution, Union Pacific can capture emerging markets and explore circular supply chains with our safe and reliable service products. We are aligning ourselves with customers in exciting new markets like electric vehicles, renewable diesel fuel, and recyclable products. Furthermore, we are poised to take advantage of the opportunities presented by a low carbon economy. We are also engaged with our customers to understand their sustainability goals. Our carbon savings calculator allows customers to determine savings from rail versus truck. But what's more valuable to our customers are the year-end statements we send to them that quantifies their reduction in emissions by using Union Pacific. Rail offers an ability to provide answers and sustainable solutions to tough questions that no other mode of transportation can offer.
Now, turning to slide 10, Jennifer will talk to the win portion we look forward to with biofuels.
Our ability to first meet and then beat our 2030 SBTi target will likely come from a combination of current and future technology. Increasing our use of low carbon fuels, experimenting with alternative propulsion methods, and exploring nature-based solutions will all drive the decarbonization of our footprint. What's exciting is that we have a path today to win through the use of biofuels. In fact, biofuels represent the most advanced and promising avenue to date in helping us meet our science-based targets. Our goal is to increase the percentage of low carbon fuels consumed to 10% of our total diesel consumption by 2025 and push that number to 20% by 2030. This increased blend, combined with efforts to improve our operational efficiency, should enable us to meet our current science-based targets.
While biofuels sound like a pretty straightforward solution, there are still obstacles to overcome. In August, we announced that Progress Rail approved the use of up to 20% biodiesel blend in the vast majority of EMD locomotives. This was an increase from a 5% blend previously approved. EMD locomotives represent roughly 40% of our existing fleet, so the next step is getting similar approvals from our other locomotive OEM. Beyond the OEM agreements is supply. Today's production level of biodiesel is insufficient to meet the demand needs, which are growing almost daily. As you heard from Kenny, biofuels also present a win-win, as it's a key area of growth for our railroad. Our commercial team is actively cultivating this market to move the needed feedstock into the production facilities as well as the outbound products. UP is poised to be the leader in this booming market.
Beyond biofuels and current technology, we are leveraging our experience with low-emission switcher locomotive technology to develop specifications for a battery electric locomotive to deploy in yard operations. We believe this is the ideal place to start, given the built-in infrastructure, desire to improve air quality and noise reduction around yard, and the horsepower required for those movements. This is just the start. We understand to achieve the next step in the journey beyond 2030, alternative propulsion methods are key. With that, let me turn it back to Lance to wrap up the conversation.
Thank you, Jennifer. The final piece of our strategy, which is shown on slide 11, is to engage all of our stakeholders to develop and advance rail and climate-friendly policies. Addressing climate change can't be done in a vacuum. Through coordination with our rail peers in the AAR, as well as the broader business community, Union Pacific will help lead the movement towards a more sustainable future. We're also engaging our workforce in new and meaningful ways. We're the first railroad to establish an employee-led business resource group focused on environmental sustainability. We call it Planet Tracks, and although it just launched in early November, we already have almost 450 employees enrolled. That indicates the importance of sustainability to our employees, and we're excited to see all stakeholders move forward together toward a better future. Now let me bring this all together on slide 12.
The goals and actions laid out on this chart demonstrate our commitment to be an ESG leader. We've already discussed many of these items, so I'll focus on just a few of the new items. First, in terms of governance, we'll be conducting our first climate scenario analysis next year. You'll also note that we plan to hold the management team accountable for ESG progress by making it part of our key performance indicators on our executive compensation scorecard. In addition to the diversity and inclusion initiatives that Beth highlighted, we also have a goal to increase our spending with diverse vendors by 25% on an annual basis. The team is making great strides in this area this year. I'm also very pleased to announce that Union Pacific is committing to the target of net zero by 2050.
Obviously, we have to walk before we run, so the 26% reduction by 2030 is our first priority. But we must start planning and investing in a net zero future today to ensure all our stakeholders understand the depth and breadth of our commitment. From reducing our carbon footprint to helping our customers do the same, to a more diverse workforce, all enhanced by strong corporate governance, Union Pacific will do its part to make the world a better place for this generation and future generations. As a 159-year-old company, we know a little bit about sustainability, so you can bet we are in this for the long haul. With that, I wanna open up the line for your questions to further discuss our ESG initiatives.
Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press Star One on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press Star Two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, so that we can accommodate as many analysts as possible, we would ask everyone to please limit themselves to one question. Thank you. Our first question is coming from the line of Jon Chappell with Evercore ISI. Please proceed with your question.
Thank you. Good morning, everybody. Beth and Jennifer, how much of the 26% reduction by 2030 relies on alternative fuels, whether it's the biofuels you laid out or hydrogen or ammonia or any other fuel propulsion? How much of the fleet then would need to be either brand new or updated, you know, to meet this target as well? I guess for Jennifer, how does that shape your views on capital deployment over the next five to seven years?
You asked several questions there, Jonathan, so I'll see if I can work them all in and then Beth can jump in here too. You know, we believe that if we hit the targets that we just laid out in terms of the biofuel blends, that we can reach our SBTi target. It is going to be incumbent on us reaching agreements with both OEMs in terms of having the blend to be able to do that. Right now, we just have the agreement with Progress Rail, so we absolutely need to be able to get an agreement with our other OEM because Progress accounts for or the agreement that we have with them accounts for about 40% of the fleet today. In terms of CapEx, you know, we believe we can do this with our current fleet.
The modernization programs are important for us, and we will continue to spend on those, and we really like both the reliability and the fuel savings that we get from those programs. I would say in terms of CapEx over, you know, the guidance period that we have out there, 2022-2024, the less than 15%, that's all encompassed in that current thinking. I don't know, Beth, if there's anything you wanna add to that.
Yeah, no, the only thing that I would, you know, kind of maybe reemphasize is that, there's multiple levers. There's the lever around the biodiesel and the renewable diesel, which is probably the biggest lever for us in this 2021- 2030 sort of time period. If we can get good traction with the battery electric in the backside, say in that 2025 to 2030 period, that can also be helpful. The technology just needs to be developed. Much of our plan through 2030 is really focused on the renewable fuels.
Great. Thank you, Beth. Thanks, Jennifer.
Our next question is from the line of Brian Ossenbeck with J.P. Morgan. Please proceed with your question.
Hey, good morning. Thanks for taking the question. So wanted to ask a bit about just the fuel economy and what you're targeting, you know, embedded in this plan with the 4% reduction annually in GHG emissions through 2025. You have the modernizations that are continuing. You have EMS that's continuing to be rolled out across the network as well. How should we think of that when it comes to just the core rate and what you expect to gain from those initiatives here over the next couple of years?
Yeah, Brian, this is Lance. I think historically, we've talked about trying to get kind of low single-digit percentage point improvements in core rate year-over-year. We've been able to do that the last couple of years. That's really on the back of our transportation plan and efficiently using our locomotives, and there's still more opportunity for that, particularly as we grow. That's gonna be really, really important for us to be able to offset growth and do our absolute 26% reduction. I think that's what we should expect, you know, 1%, 2%, 3% a year core rate improvement year-over-year.
Okay, great. Thanks, Lance.
Yep.
The next question is from the line of Tom Wadewitz with UBS. Please proceed with your question.
Good morning. Wanted to see, I don't know if Kenny, if you have some thoughts on this or Lance, where do you think customers are at in this journey and focus on ESG? Like, just kind of thoughts of, you know, percent of the customers that can factor in ESG to the modal decisions and how that might evolve. I don't know if you know, can translate that to how it might affect volumes, kind of how much volume lift you could get from that. I know it's kind of tough, high-level things, you know, maybe tough to frame and maybe high level. Wanted to see if you could offer some thoughts on where your customers are at. Thank you.
Yeah, Tom, thanks for that. I'll tell you, our larger customers for sure, and in the formal RFPs that we're seeing, we're seeing more of a ESG component now in there, and we're being asked to talk about how we approach greenhouse gas emissions and how we're gonna lower the footprint. I'd also tell you that, in scenarios where we do see, you know, rail versus a different mode, call it truck, in those jump-off scenarios, rail is, I would say, the favorite mode of transportation.
Yeah. Kenny, Tom, this is Lance. You don't have to go back that far, Kenny, you know, five, seven years ago, where it was an asterisk in the conversation. Now today, to a degree, it ranges from a really critical part of the decision criteria to table stakes to at least an interest.
Absolutely.
It's pretty rare. It's a pretty rare customer that we're talking to that doesn't care at this point.
You think like half the customers maybe factor it into their decision on rail versus truck, or how would you ballpark it?
In the RFPs, I'd say more than that. A little bit more than half, for sure.
Yeah, I think, Tom, when Kenny's talking RFPs, think larger, more sophisticated customers.
Certainly more than half.
Yeah.
We've got a pretty long tail in that 10,000+ customer base.
Right. It skews more towards the larger customers are focused on the ESG, I guess.
In a formal sense, yes. They're asking us to quantify it. We're laying out quite a bit of data for them. If you look at the medium to smaller sized customers, they certainly care about it, and we're certainly talking to them when we get an opportunity about the savings that rail has over truck.
Right. Okay. Thank you.
Yep.
Our next question is from the line of David Vernon with Bernstein. Please proceed with your question.
Hey, good morning, guys. I wanted to just clarify. Jennifer, you'd mentioned biofuels was kind of the key here. Have you guys made a case to kind of rule out hydrogen or alternative fuel locomotives in line of road service? That's sort of the implication of kind of what you said around the capital plan.
Well, no. I mean, I think you've got to think also what Beth said. You know, it's talking about what's available to us today versus what's future technology and how we're gonna reach our targets. We do think alternate propulsion technologies is going to be something that's gonna play a role for us, whether that's in the 2030 timeframe or not, though, I think it's maybe a little bit TBD. Battery electric, as Beth mentioned, is really the first thing that we're looking at in terms of using it around our switch fleet. Hydrogen may well be an opportunity, and we're gonna partner with the industry, with AAR, with the OEMs, and really nothing is off the table. It's just kind of near term versus long term is how I think you should think about it.
All right. Thanks for clarifying that. Kenny, I guess, as you think about competing with highway vehicles that are kind of moving towards more alternative propulsion technologies, how should we think about that the relative rates of change and where the highway system may end up relative to rail as we move to a lower carbon future?
Yeah. You got a couple things associated with that. We talk about, you know, efficient and reliable service. We don't differentiate how we think about the truck-centric lanes that we compete against. Our velocity is much higher, where we're competing in some of those lanes, call it Southern California to the Southeast or to Chicago. The more we can get that car velocity up, the better we can compete as these alternative modes come online.
Okay. Thanks, guys.
Yep. Thank you, David.
Our next question is from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, thanks. Just wanna stay on the loco side. When do you think you're gonna start buying or testing some of the electric locos? How many are in the plan? What do you think this means for purchases of new diesel locos?
That's a great question, Scott. We are in active discussions right now with both OEMs, so that we can take a couple of meaningful yards and pilot battery electric locomotives in them. That's our first step and I think that first step happens whenever we can have fleets of that kind of size available to us. Right now, we can't buy these off the shelf or they would be being deployed kind of as we speak. I think that's, you know, think about that in a one to three year kind of timeframe. Then as that proves out, we'll start marching through our railroad focus first on the terminals for electrification. That also gives the OEMs the opportunity to develop technology to make over the road more viable.
Right now, battery electric over the road just is not viable. We need strong enhancements and further development in battery technology to make them more energy dense, to really make that make sense. Ultimately, that could be a hybrid between an alternative fuel like hydrogen and battery electric. As Jennifer pointed out, that's a ways off. Our plan will be evergreen, and it's meant to be evergreen, so that as new technology is available to us, we'll incorporate it into the plan and start mapping out what opportunity that is.
Yeah, in terms of the new diesel buys, as you know, we still have a significant portion of our fleet stored, and so that's going to be our first priority is bringing that fleet out of storage. That will be a great new story for everyone because that tells you that we're growing the business. We'll continue to do the modernizations as we can to improve the fuel efficiency.
Mm-hmm. Okay, thanks. If I could just clarify one thing, just going back to Tom's questions about the customer. How much of this is intermodal and how much of this is non-intermodal in terms of the growth opportunity?
We certainly see it in both. I mean, there's not one area that we see that's gonna be favored here. Certainly, if you look at some of our Petrochem customers, it's front and center, and they certainly have it top of mind for them. No, there isn't one market that we would see grow more than the other. We're inserting the value of rail in all of these discussions with customers.
Yeah. I think it's probably fair to say, Kenny, that customers who are more consumer-facing are probably further down the path and feel a greater energy towards climate action planning. That doesn't mean others don't. It just means that they have an extra catalyst that those kinds of customers are both carload and IMC.
Yep.
Thank you, guys.
Our next question is coming from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, hey, thanks. Good morning, guys. I actually wanted to ask about some of your hiring initiatives, so some diversity hiring initiatives that you outlined in the slides I think are interesting. In the context of what we're seeing right now in terms of very tight labor market and certainly, you know, maybe more women leaving the workforce over the course of the last 18-24 months than men. Can you talk about sort of your ability to ramp towards that? I know it's a long-term target, but what we're seeing here is some pretty meaningful pressure on availability of skilled labor. So can you talk about how you think about that and if there are any assumptions that you're making around the potential, you know, cost inflation on a per employee basis as you're thinking about these diversity efforts, that'd be great.
I'll start and then maybe Jennifer Hamann wants to add in on the inflation piece. Thanks for the question. We're actually really excited about the work that we're doing to try to draw women into the rail industry. In our office jobs, we've always had some success, although we're not as balanced as we'd like to be. When we think about our craft professionals, we're woefully underrepresented with women, and it's a huge target for us as we're out hiring right now like, you know, everybody else. We've done a number of things to try to address that. We've really taken a stiff look at ourselves to say, "Hey, are we welcoming and inclusive? Are there restrooms for you when you show up?
Are there other women there, so you feel like you have a cohort? Are we making sure that there aren't any unintentional biases present in any of our hiring practices or the testing that we do or the physical abilities test?" We've been very comprehensive in just working through all of our own stuff to make sure that we aren't keeping women from applying. We've gone to new places. We've developed scholarship programs at some technical schools for specifically targeted at women. We're doing some second chance hiring in association with women being released from detention facilities and having an opportunity to do a program maybe there and then come to work for us. Nothing's really off the table, but we're very focused on it.
When it comes to people of color, we've had a lot of success improving our numbers there already, through our hiring initiatives. I think we're gonna have great luck representing the communities that we live and work in from a diversity aspect of race and gender both, but women are where we're really having to put our shoulder into it. It's just been harder. The jobs aren't as obviously appealing, and we've had to really be thoughtful and creative and going after staff.
Yeah, Chris, in terms of the cost inflation, you know, we've talked about, again, in our guidance period, the 2022-2024, that we're expecting 2.25% inflation overall for the period. That's probably gonna be skewed a little bit higher at the first part, and we'll talk about that more in January. But that's inclusive of all of our cost pressures, labor, materials, et cetera.
Okay. Thanks very much for the color. I appreciate it.
Yep. Thank you, Chris.
Thank you.
The next question is coming from the line of Justin Long with Stephens. Please proceed with your question.
Thanks, and good morning. Can you help us understand what this plan could mean for the progression of your fuel surcharge programs? Just from an economic perspective, how it could impact the gap between rail pricing and truck pricing going forward?
You wanna shoot at the fuel surcharge, and then maybe Kenny and I'll-
Sure
Think about that pricing.
I think maybe what you're getting at there, Justin, is that biofuels are a little bit more expensive today than, you know, regular diesel fuel pricing. Where we're using it the most today are in states where there actually are some financial incentives for the use of the biodiesel. We actually expect and when Lance talked earlier about lobbying and different things, you know, that's something where we think there should be equity across fuel types and to see if there's other opportunities for states to participate in that, since it's something obviously that we think it's important to be encouraged from a usage standpoint. From a fuel surcharge, as I think you're familiar, most of our charges are pegged to on-highway diesel.
That is something we're looking at to see if there's some other industry that we should perhaps be benching ourselves against that may be more reflective going forward of the fuel that we're using. We're not there today, but that is something that we're going to take under consideration.
Justin, could you elaborate on the second part of your question regarding pricing?
Sure. You know, just thinking historically, you know, if you look at rail contractual pricing, it's been at a pretty nice discount versus truck. You know, whether that gap is 15% or 25%, I'm not sure what you're seeing in your network today, but just curious if you think this narrows the gap or expands the gap going forward.
Yeah, Kenny, I would think anything we do to have a truck-like service and better service experience for customers, and the more that we do the jobs of customers efficiently and effectively, the greater value we represent, the greater pricing opportunity we have.
Yeah, I mean, the commercial team is always pricing to the market. Yes, we do benefit from a lower cost structure because more markets look more attractive. The more we can be competitive there, the more it'll open up new markets for us.
Okay, great. I appreciate the time.
Yep. Thank you, Justin.
The next question is coming from the line of Walter Spracklin with RBC Capital. Please proceed with your question.
Thanks very much. Good morning, everyone, and thanks for taking my question. I wanna just switch it over to the investor perspective on ESG matters, and obviously, it's very important from that perspective and congratulations and very commendable, this report and I think it really does a great job of flagging and highlighting your efforts in that perspective. Historically, rail has been a bit guilty by association with coal, and that's where I get a little bit of pushback from fund managers that have ESG as a primary focus.
Do we get past this by just reports and initiatives like these of education, you know, educating the investor and about the advantages of rail itself, not what rail hauls? Or is there? Just looking for any of your insights as to what you've been speaking to investors when you come up with this pushback and are we getting any progress in separating the two of the positives of what rail and Union Pacific is offering here as a mode of transportation versus, you know, the guilty by association aspect of hauling thermal coal?
Yeah, Walter. When we run into that question directly, we immediately help the investor understand that we are a regulated industry and have an obligation to ship anything that's tendered to us, that's legal. Ultimately, we really don't have an option but to ship coal if the nation is going to use coal as a fuel to generate electricity. There's no other truly efficient means to get the volume from mine to production facility. Our job is to do that efficiently and reliably so that the nation can have its electricity supply. Having said that, you know, that's only a fraction of what we do. It's an important piece of our business, but it's only a fraction of our business.
We support the economy in so many ways, inclusive of supporting the green economy. Kenny mentioned we also ship wind turbine parts, blades, nacelles. We ship recycled goods. We are part of the circular economy for kraft paper, for glass, for steel, for aluminum. You wrap it all together, and as a regulated entity, we have to ship what's tendered to us. In that context, we do it more carbon efficient than anybody else.
Do you find that argument is making inroads? Are we getting that through to ethical fund managers in particular, where they're not excluding rail or excluding rail less than they have previously?
You know, Walter, I think people do fundamentally understand it, as Lance says. I think ultimately they make their decisions in terms of what their screening, you know, criteria are. But when you do step back and look at it and kind of weigh the pros and cons, we think the pros of rail and what we have to offer far outweighs the con, if you will, of hauling coal. You know, but ultimately they need to make that decision. I would say the reception overall that we get from our investor base when we talk to them about the opportunities that we offer in terms of transportation solutions, they're very, very bullish on that long term.
Okay. I appreciate that. Thank you very much.
Yep. Thank you, Walter.
Thank you. Our final question today is coming from the line of Ken Hoexter with Bank of America. Please proceed with your question.
Great, good morning. Thanks for hosting the call, Lance. Just Lance or Jen, I guess back on the battery locomotives, I just wanna revisit. Are you testing any today? It seems like your peer has been working with one of the manufacturers testing for a while. Just wanna understand what progress you've made or testing you're at today. Any thoughts beyond the yards of running the electric in a consist in a temporary format to work with the diesel to generate improved efficiency on some of the runs? Thanks.
Sure. Ken, I'll start and then turn it over to Jennifer. For years, we've run, not tested, run in revenue service in mostly local and yard operation, hybrid locomotives, battery hybrid locomotives. We do not have any battery electric locomotive tests underway right now, but candidly, we don't think we need one. What we need is to get some production units in hand so that we can convert some of our yard operations and terminals to conduct an overall test as to whether or not our theory about using battery electric locomotive in low horsepower high utility environments is the right way to go. We think it is.
Right. To the extent of being able to then take it over the road, I think that really gets into that longer term conversation about current advances, you know, needing to be made from where we're at today to be able to really sustain that. It's my understanding that in some of those current tests, it's really kind of more of a fuel savings mechanism than truly a freight hauler, in terms of the propulsion technology. That's, you know, ultimately where we need to get to. We don't need it to be hybrid service. We need it to be able to haul the freight.
Well, the cool thing, Ken, about our industry is that it's no secret. Each railroad tends to deploy test-pilot technologies that ultimately benefit the entire industry. We are aware of and understand and ultimately will benefit from all of the tests, ours inclusive, that are going on around the industry.
Great. Appreciate the thoughts. Thanks, guys.
Yeah.
Thanks, Ken.
Absolutely, Ken.
Thank you. At this time, I would like to turn the floor back over to Mr. Lance Fritz for closing comments.
Well, thank you, Rob, and thank you all for joining us on this call. We look forward to talking with you again in January to discuss our fourth quarter and full year results. Until then, I wish everyone good health. Take care. We'll see you later.
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