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spk14: Thank you for accessing Union Pacific Corporation's 2021 Third Quarter Earnings Conference Call, held at 8.45 a.m. Eastern Time on October 21, 2021, in Omaha, Nebraska. This presentation and the accompanying materials include statements that contain estimates, projections, or expectations regarding the company's financial results and operations and future economic conditions. These statements are forward-looking statements. as defined by the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The materials accompanying this presentation include more detailed information regarding forward-looking information and these risks and uncertainties. In addition, please refer to the company's website and SEC filings for additional information about our risk factors. Thanks.
spk02: Greetings. Welcome to Union Pacific's third quarter 2021 conference call. At this time, all participants will be 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, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Lance Fritz, Chairman, President, and CEO for Union Pacific. Mr. Fritz, you may begin.
spk21: Thank you, Rob, and good morning, everybody. Welcome to Union Pacific's third quarter earnings conference call. With me today in Omaha are Kenny Rocker, Executive Vice President of Marketing and Sales, Eric Geringer, Executive Vice President of Operations, and Jennifer Heyman, our Chief Financial Officer. During the quarter, the Union Pacific team dealt with multiple network disruptions that required us to rebuild bridges, reroute trains, and connect more closely with other links in the supply chain to support and to serve our customers. While we still have work ahead, our employees' dedication is a critical success factor in navigating all of those challenges. Turning to our third quarter results. This morning, Union Pacific is reporting 2021 third quarter net income of $1.7 billion, or $2.57 per share. This compares to $1.4 billion, or $2.01 per share, in the third quarter of 2020. Despite the network and global supply chain challenges, our quarterly operating ratio of 56.3% improved 240 basis points versus last year and represents a third quarter record. We also set third quarter records in operating income, net income, and earnings per share. The team did an excellent job of managing the business to produce strong results. A comparison to 2019, a period with higher volumes, further highlights our performance and demonstrates our focus on driving productivity and network efficiency to overcome external factors. We also continue to make progress on our goal to reduce our carbon footprint. The team achieved strong productivity to produce an all-time quarterly record low fuel consumption rate. This represented a 1% improvement versus 2020 and helped our customers eliminate 5.7 million metric tons of greenhouse gas emissions in the quarter by using Union Pacific versus truck. Momentum is building, and before the end of the year, we plan to detail our emissions reduction plan with the release of our initial climate action plan. So let's start the morning with Kenny for an update on the business environment.
spk06: Thank you, Lance, and good morning. Before I talk about our market performance, I want to thank our operating team for their tireless efforts this past summer to recover the network from the devastating forest fires in California. Focusing back on our review of the business, our third quarter volume was flat compared to a year ago. Gains in our bulk and industrial segments were driven by market strength and our business development efforts. Those gains were offset by declines in our premium business groups as our served markets continue to be impacted by semiconductor chip shortages and global supply chain disruptions. However, freight revenue was up 12% driven by higher fuel surcharges, strong pricing gains, and a positive mix. Let's take a closer look at each of these business groups. Starting out with our bulk commodities, revenue for the quarter was up 14% compared to last year, driven by a 4% increase in volume. and a 9% increase in average revenue per car, reflecting strong core pricing gains and higher fuel surcharge revenue. Coal and renewable car loads grew 9% year-over-year and 17% from the second quarter. Our efforts to switch customers to index-based contracts are supporting domestic coal demand as a result of higher natural gas prices coupled with increased coal exports. Grain-and-grain products were down 1% compared to last year and down 9% from the second quarter due primarily to lower U.S. grain stocks. However, this was partially offset by our business development efforts and strong demand for biofuels. Fertilizer car loads were up 10% year-over-year due to strong agricultural demand and increased export potash shipments. And finally, food and refrigerated volume was flat. year-over-year and sequentially from the second quarter. Moving on to industrial. Industrial revenue improved 22% for the quarter, driven by a 14% increase in volume. Average revenue per car also improved 6%, driven by higher fuel surcharge, core pricing gains, and positive mix. Energy and specialized shipments were up 16% compared to last year and up 5% versus the second quarter. The gains were due to an increase in petroleum products as demand recovers from this time last year and new business wins from Mexico energy reform. Volume from forest products grew 15% year-over-year, primarily driven by demand for brown paper used in corrugated boxes along with strong housing starts, driving lumber shipments. However, compared to the second quarter, volume was down 2% due to the impact of the lava fire in Northern California. Industrial chemicals and plastic shipments were up 6% year over year due to strengthening demand and business winds as production rates for plastics improved from 2020. Metals and minerals volume was up 21% compared to 2020 and up 3% versus the second quarter. primarily driven by our business development efforts along with strong steel demand as industrial markets recover, coupled with favorable comps for frac sand. Turning now to premium, revenue for the quarter was up 1% as the 9% decrease in volume was more than offset by higher average revenue per car. ARC increased by 11% from higher fuel surcharges and core pricing gains. Automotive volume was down 18% compared to last year and down 4% versus the second quarter. Semiconductor shortages had an adverse impact to both our finished vehicles and auto parts business segments. Intermodal volume decreased 6% year over year and 8% compared to the second quarter. International volume continued to face challenges from global supply chain disruptions. With regards to domestic, Strong demand and new business winds were also hampered by supply chain disruptions. Plus, e-commerce business saw tough comps versus last year. Now, looking ahead to the fourth quarter of 2021. Starting out with our bulk commodities, we're optimistic about grain business due to another strong harvest and grain export demand. Also, grain products will continue to benefit from growth of the biofuel market. Food and refrigerated volumes should be positive with increased consumer demand, post-pandemic restaurant reopenings, and truck penetration growth. Lastly, we expect colds to remain strong for the remainder of the year based on our current natural gas futures, inventory replenishment, as well as export demand. Looking at our industrial markets, we continue to be encouraged by the strength of the forecast for industrial production for the rest of 2021, which will positively impact many of our markets like metals and forests. The year-over-year comes where our energy markets are favorable. However, we expect narrow spreads will negatively impact crude by rail shipment. But on a positive note, we expect to mitigate the lower crude shipments which strengthen other petroleum and LPG products. And lastly, for premium, we anticipate continued challenges in automotive related to semiconductor shortages for the fourth quarter. In regards to intermodal, limited truck capacity, inventory restocking, and strength in retail sales will continue to drive intermodal demand in the fourth quarter. However, we expect international volumes to be constrained as ocean carriers have recently taken additional actions to speed up their container returns as challenges in labor, port capacity, warehouses, and dredge persist. And on the domestic side, opportunities will face continued supply chain challenges with limited haul-away capacity and slower chassis turn times. Overall, I'm encouraged by the opportunities in front of us for the rest of 2021. But more importantly, I want to recognize the commercial team as they continue to focus on providing solutions for our customers to win in the marketplace. As we head into 2022, our commercial team is driving growth through new business wins. Most notably, we're taking more trucks off the road in all three of our business groups. And with that, I'll turn it over to Eric to review our operational performance.
spk22: Thanks, Kenny, and good morning. I'd like to begin by thanking the entire operating department for their dedication and hard work to manage through the challenges we face during the quarter. From wildfires to mudslides and hurricanes, the team demonstrated perseverance to restore our network and deliver strong financial results. In addition, as Kenny just described, the demand picture has turned out differently than we expected at the beginning of the year. Working closely with marketing, the operating team has adjusted transportation plans and added resources into the network for surging demand in coal, metals, lumber, and grain. These actions demonstrate the agility and strength of our franchise. Taking a look at our key performance metrics for the quarter on slide 9, driven by wildfires and weather events during the quarter, our freight car velocity and trip plan compliance metrics deteriorated compared to 2020. Freight car velocity decreased due to increased terminal dwell and higher operating inventory levels, which led to lower trip plan compliance results. Our entire team has been fully engaged on restoring network fluidity and the recovery is progressing. We are seeing improvement in our metrics with reduced operating car inventory and improved freight car velocity. Our reported weekly metrics show the time required to recover the network from these events. While we made improvement from our freight car velocity weekly low of 184 in August, to 210 miles per day in the last two weeks of September, our goal remains to return freight car velocity towards 220 miles per day. Our intermodal trip plan compliance results improved an August low of 61% to gain 12 points in September to 73%. Our manifest and auto trip plan compliance results improved from 57% in August to 61% in September. We recognize improving trip plan compliance is critical to support our customers and our long-term growth strategy. We have maintained higher crew and locomotive resources in the short term to assist in reducing excess car inventories to drive increased fluidity. As operating car inventory declines, we will quickly adjust resources to current volume levels. Our cooperation and work with partners at the West Coast ports have reduced rail container dwell back to more normal levels. And with the Biden administration's efforts to expand operations at the ports to ease congestion, we stand ready to move more rail containers, provided that points further along the supply chain can handle increased volume. While there's still work to be done, the team is confident in our ability to restore service to the levels our customers expect and deserve. Turning to slide six, we continue to make good progress on our efficiency initiatives. However, disruptions during the quarter impacted these results as well. Locomotive productivity declined 8% compared to a year ago as we deployed additional resources to handle traffic reroutes. Our record third quarter workforce productivity was driven by efficiencies in our engineering, mechanical, and management workforces, and offset slightly by increases in train and engine workforce to address our network recovery. We continued our focus on increasing train links, achieving a 4% improvement since third quarter 2020 to approximately 9,360 feet. Now that the bridge has been restored, the team is again driving productivity through increasing train length as evidenced in our September train link growth to over 9,500 feet. Turning to slide 11, our ability to grow train length is also enabled by the completion of nine sightings to date in 2021 with an additional 26 under construction or in the final planning stages. These investments will enable a more reliable and efficient service product for future growth. We also produced a record quarterly fuel consumption rate, improving 1% compared to last year. Through productivity initiatives and technology improvements, we were able to offset most of the inefficiencies stemming from the wildfires. The operating department understands the importance we play in achieving our long-term greenhouse gas emission goals and have more work underway. Our approach is multi-pronged with the primary emphasis around our locomotive fleet, both looking at alternative energies as well as biofuels. As we drive productivity and manage the various network challenges in 2021, the health and safety of our workforce is paramount. Although our year-to-date employee safety results have not shown improvement in 2020, recent monthly trends provide positive momentum for the team to build upon. Again, our approach is across a number of fronts, including employee engagement, broader deployment of technology, as well as looking externally for best practices. Additionally, we reduced cost of real equipment incidents during the quarter. We are encouraged by the improvement, but know that we must maintain focus on promoting a safe working environment to reduce employee injuries so everyone goes home safe each day. Safe operations also have a direct impact on our service product, so this work will benefit all stakeholders. Wrapping up on slide 12. As we look to close out 2021, I have the utmost confidence that we will continue to improve safety, increase network fluidity, improve our service product, and drive productivity as we support business growth with our customers. With that, I will turn it over to Jennifer to review our financial performance.
spk00: Thanks, Eric, and good morning. As you heard from Lance, Union Pacific achieved strong third quarter financial results with earnings per share of $2.57 and an operating ratio of 56.3%. As noted in an 8K last month, we incurred additional expense this quarter related to wildfires and weather. The full impact of those events, including lost revenue, negatively impacted our operating ratio 50 basis points and earnings per share by 5 cents. Rising fuel prices throughout the quarter negatively impacted operating ratio by 140 basis points. However, the year-over-year impact of our fuel surcharge programs added 5 cents to EPS. Setting aside these exogenous issues, UP's core operational performance drove operating ratio improvement of 430 basis points and added 56 cents to EPS. Our performance demonstrates the resiliency and efficiency built into our franchise through PSR, even when operating in less than ideal conditions. Looking now at our third quarter income statement on slide 15, where we're showing a comparison to both third quarter 2020 as well as third quarter 2019. The comparison of 2021 to 2019 most clearly illustrates the efficiency we've achieved over the past two years as we generated 9% higher operating income on 4% less volume. For third quarter 2021, the operating revenue up 13% and operating expense only up 9%. We generated third quarter record operating income of $2.4 billion. Net income of $1.7 billion and earnings per share also were third quarter records. Looking more closely at third quarter revenue, slide 16 provides a breakdown of our freight revenue, both year-over-year and sequentially versus the second quarter. Freight revenue totaled $5.2 billion in the third quarter, up 12% compared to 2020 and 1% compared to the second quarter. Looking first at the year-over-year analysis, although volume was flat, the overall demand environment remained strong and supports pricing actions that yield dollars exceeding inflation. On a year-over-year basis, those gains were further supplemented by a positive business mix, driving 650 basis points in total improvement. Lower intermodal shipments combined with higher industrial shipments drove that positive mix. Fuel surcharges increased freight revenue 600 basis points compared to last year, as our fuel surcharge programs continue to chase rising fuel prices. Looking at freight revenue sequentially... Lower volume versus the second quarter decreased freight revenue 250 basis points, highlighted by the factors that Kenny highlighted. Continued core pricing gains and a more positive business mix increased freight revenue 175 basis points on a sequential basis, driven by that same combination of higher industrial car loads and lower intermodal shipments. Finally, rising fuel prices and the resulting uptick in sequential fuel surcharges increased freight revenue 125 basis points, Now let's move on to slide 17, which provides a summary of our third quarter operating expenses, which increased 9% in total versus 2020. The primary driver of the increase was fuel expense, up 81% as a result of a 74% increase in fuel prices. A small offset to the higher prices was a 1% improvement in our fuel consumption rate. Better efficiency was a product of both our business mix and productivity initiatives, which offset inefficiencies associated with wildfires in the quarter. Looking further at the other expense lines, compensation and benefits expense was up 3% versus 2020. Third quarter workforce levels were down 1% compared to last year, despite our train and engine workforce growing 3%. This increase reflects the additional crews needed to navigate the network impact from bridge outages and weather. Management, engineering, and mechanical workforces together decreased 3%. Wage inflation, along with higher recrue and overtime costs associated with our network issues, increased cost per employee 4%. While still a tad elevated, this level of per-employee compensation increase is more in line with future expectations. Purchase services and materials expense was flat as higher locomotive and freight car maintenance associated with the larger active fleet was offset by reduced contractor expense. And with automotive shipments forecasted to remain soft for at least the balance of the year, we now expect purchase services and material expense to only be up low single digits for full year versus 2021. Equipment and other rents was flat, consistent with volume. Other expense decreased 10% or $29 million this quarter, driven primarily by lower write-offs of in-progress capital projects in 2021. As we look ahead to the fourth quarter, Recall that last year we incurred a one-time $278 million non-cash impairment charge in this expense category. Looking now at our efficiency results on slide 18, operating challenges during the quarter again impacted our productivity, which totaled $45 million. In total for 2021, productivity is at $280 million, led by our train length improvements and locomotive productivity, offset by roughly $55 million of weather and incident-related headwinds. Our incremental margins in the quarter were a very strong 94%, driven by solid pricing gains, positive business mix, as well as continued efficiency. PSR clearly gives us the platform to add volumes to our network in an extremely efficient manner. Turning to slide 19, year-to-date cash from operations increased to $6.5 billion from $6 billion in 2020, a 9% increase. Our cash flow conversion rate was a strong 95%, and year-to-date free cash flow increased $728 million, or 38%, driven by higher net income and lighter year-to-date capital spend compared to last year. Supported by our strong cash generation and cash balances, we've returned $7.9 billion to shareholders year-to-date through dividends and share repurchases. Actions taken during the year include increasing our industry-leading dividend by 10% in May, and repurchasing 27.5 million shares, totaling $5.9 billion. We finished the third quarter with a comparable adjusted debt to EBITDA ratio of 2.8 times, which is on par with second quarter. We remain committed to returning great value to our owners and are demonstrating that again this year. Wrapping things up on slide 20, as you heard from Kenny, the overall economic environment remains positive and provides confidence for the future growth of our company. Bulk is driven by strong grain volumes, and coal continues to exceed expectations. Industrial volumes remain consistent and strong across many sectors, like forest products, metals, and plastics. So we are bullish on several fronts. But, as you are also well aware, headwinds in autos and intermodal persist. Global supply chain disruptions, semiconductor shortages, and the additional pressure with international intermodal volumes that Kenny just described continue to constrain our premium volumes. So balancing these variables, and with just over two months left in the year, we now expect volume to be up closer to 5% for full year 2021. We are also adjusting our productivity guidance for the year down to $350 million as the weather impact and related network challenges impede the progress we expect to make with our efficiency in 2021. To put that in context, however, at the end of this year, we will have generated almost $1.8 billion of productivity since our implementation of PSR in late 2018. So great work overall by the team. And more importantly, this lower cost structure and improved service product provides Union Pacific the foundation for future growth and strong incremental margins. Lower expectations for volume and productivity are headwinds to our 2021 operating goal. In addition, we've seen fuel prices continue to rise and pressure margins. In fact, over the last 30 days, barrel prices have increased around $10, with spot diesel prices up over 25 cents per gallon. Offsetting some of this margin pressure is a positive business mix and strong pricing environment. So all in, we now expect our full-year operating ratio improvement to be in the neighborhood of 175 basis points. While not quite to the high end of the guidance range we established back in January, We view that level of improvement as another great milestone on our journey to a 55.x operating ratio in 2022, especially in light of the unexpected headwinds we've had to overcome to get here. Wrapping it up, it was a tough quarter operationally, yet we made great strides to strengthen our franchise and achieve solid results. In fact, we stand poised to finish 2021 as Union Pacific's most profitable year ever. That achievement would not be possible without our tremendous employees, So we're on the front line every day, serving our customers safely and efficiently while producing these record results. My thanks go out to Team UP. So with that, I'll turn it back to Lance.
spk21: Thank you, Jennifer. One area of continued focus by the team, as you've heard us talk about this morning, is safety. While our safety metrics lag 2020, there are some positive signs, including strong September results that indicate we're taking the right actions to produce desired long-term results. The entire team understands that safety is foundational to everything we do at Union Pacific. Our service product has shown improvement over the past 60 days, but there's still work to be done. With increasing volumes related to the grain harvest and intermodal peak season approaching, we understand the importance of delivering for our customers. The opportunity to provide freight solutions to our customers is strong and gives us confidence that our long-term goals for growth remain intact. And as you heard from Kenny, Even with macroeconomic headwinds, we're winning with our customers. While supply chain disruptions will likely persist into next year, we see our third quarter and year-to-date results as proof of our team's ability to perform in the face of significant challenges. As headwinds turn to tailwinds, we're well-positioned to build off our success and deliver even more value to our stakeholders. So with that, let's open up the line for your questions.
spk02: Thank you. At this time, we'll be conducting the question and answer session. If you'd like to ask a question, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 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. And our first question comes from the line of Scott Group with Wolf Research. Please receive your question.
spk20: Hey, thanks. Morning, guys. So, Jennifer, you've been highlighting strong incremental margins year to date. I guess I'm wondering why that doesn't continue in the fourth quarter. I think the guidance implies a flattish OR despite some really good pricing, and I think 4Q had some one-time bonuses a year ago. So, maybe just some thoughts on why the incrementals aren't better in fourth quarter, and Does this in any way change the outlook on the 550R for 2022?
spk00: Well, let me start with that second part, Scott, because it in no way changes how we're looking at 2022. We absolutely believe we will still achieve those targets in 2022, consistent with what we talked about in our May analyst meetings. In terms of some of the pressures year-over-year, I mean, it really is a lot driven by fuel. You know, the cost per gallon, if I'm looking at it year-over-year, is going to be up anywhere from, call it, 75% to 80%. And that's just very tough to overcome, especially with flat volumes, because that's essentially, you know, how we're looking at things when you think about our volume guidance of the 5% for full year. So while we're still expecting to be efficient, we just, as we're continuing to restore some of the network fluidity, that's going to have some pressure. on that, and that's what's being reflected in the guidance that we provided there.
spk20: And just so I'm clear, that's a pressure to the operating ratio, but not necessarily earnings pressure?
spk00: Operating ratio pressure, yes, Scott. Thank you.
spk21: All right. Thank you. All right. Thanks, Scott.
spk02: Thank you. Our next question is from the line of Ken Hexter with Bank of America. Please proceed with your question.
spk09: Great. Thanks. Good morning. Maybe just a little bit of following up. But, Kenny, as you think about that deceleration of 5% growth from 7%, which I guess Jen said it's flat, seems like it's 1% growth in maybe a little acceleration in the fourth quarter. Maybe talk about puts and takes on that. And then more specifically, the Port of L.A. noted they're seeing some significant rail improvement. Can you talk about if you're able to move the freight forward? You know, how is the supply chain? You know, can you get the boxes inland, and is there anything improving inland at the warehouses or chassis shortages, especially as we are at peak or moving past peak? Are you seeing any improvement in the fluidity there? Thanks.
spk06: All right, that's a few questions, so we'll hit them all hard. And, Eric, if you'll help me out a little bit here. So, first of all, just walking down our business, if you look at it, we expect our coal business to have the same run rate that they have this quarter. You see where the future numbers are. We'll see where that takes us into the first part of 2022. On the grain side, you know, we'd be really happy if we can get to a flattish year-over-year look. We'll see how that plays out. Maybe we get there. If we don't get there, maybe we're a corner still off. Looking at our industrial business, boy, it's a lot of opportunities in front of us. I've been really excited about the fact that the commercial team there has been able to win business. We're seeing it show up on the petrol can side as the production rates are going up from earlier in the year. On the metal side, also a lot of strong winds, business development winds that we're seeing that's also showing up. So we're really creating a lot of good things to move in our way. On the forest side, same thing. Winds from truck, from paper winds from truck on the lumber side. We'll see how that plays out. That should really be a positive area for us. But then the wild card here is on the premium side. You look at autos, I tell you, I forecasted this thing wrong here a couple quarters. I believe that we're certainly in the trough. I don't see it really improving in the quarter. We'll see what happens in the next year, maybe some gradual improvement. And then on the international intermodal side, Eric and his team have done a great job of really reacting and engaging the terminals at the port. I'm really proud of the fact that we've got a product that we've created in the Inland Empire to actually capture some of that business that might spill over. You know about the product that we've created up in the Twin Cities, and we've got our grain facility coming on at G4 to make it just more attractive for customers to really come in and Move on the international side and on the domestic side, I expect the same run rate that we're seeing today, and we're expecting a tougher comp on our e-commerce businesses. We'll have more of a normal Christmas.
spk22: Ken, regarding the ports themselves and thinking about our system fluidity, first it's important that we applaud the same efforts that you did with the effort on both of the ports to move to a 24-by-7 operation system. As you think about our fluidity and how we support the middle part and the entire supply chain, you're really thinking about four specific things. The first one is car dwell. We're back in our 23 to 25-hour historical average, which is 24% better than our peak in July. So we have cars. They're available. From a velocity perspective, how fluid are we from getting point A to point B? We're at 488 miles per day yesterday. which is the best we've been in nine months. So we have the fluidity to move from A to B. Where you still see the constraints is in our box dwell. We see currently a 40% increase in that dwell versus earlier this year. And then also on the chassis street time, which is just a measure of how long is the chassis from the time it leaves to the time it comes back to us. And that's up 20%. So what's critically important, as we've identified before, we can take the volume, we can handle the volume efficiently, We need the back end of the supply chain with warehouse capacity, warehouse labor, dray capacity, and dray labor to be there to answer that call. We're not doing that and putting that entirely on the back end, though. We've taken actions even in the last six months. You've heard me talk before about, you know, we've opened G3. We've gone deeper. We've got 5,000 cars now strategically placed. We've extended hours and selected ramps, most notably G3. our recent extension to 24 hours in ICTF in LA. We've also expanded hours for roadability, which is a matter of expanding hours for the inspection and maintenance of chassis. We're being partners with our customers to ensure that anything they can do to continue to improve supply chain fluidity, we're supporting.
spk09: Great. Thanks, Kenny and Eric. Appreciate it.
spk02: Thank you. Our next question is from the line of Walter Strachan with RBC. Please receive your question.
spk19: Thanks very much. I guess this question is for Lance, and it's a little bit conceptual, and it's regarding the supply chain issues and whether they're structural or temporary. Effectively, if this is temporary and we work through the next quarter or two, we don't need to worry about anything, but It seems a little bit more structural. You add in the, well, wildfires can be kind of a one-off. They do recur and can aggravate the supply chain situation. My question is, if they are structural, Lance, do you look at anything that you can do that outside of what you're doing for your company and the things that you can control? There are a lot of aspects with the supply chain you can't, and you're starting to see your competitors... dip into other aspects of non-rail operations. Is this something that, given if indeed it is structural and you want to have more handle and ability to bring other operations in line with your rail operation, could you start looking at acquisitions that are outside of your core rail assets?
spk21: That's a great question, Walter. Let's start with structural or temporary acquisitions. I'm still of the belief that most of what we see is temporary, but that doesn't mean the fundamental basis for your question isn't still appropriate, right? So if we just focus in on the international intermodal supply chain, let's use that as a marker. From a temporary perspective, clearly COVID and the impacts on labor from many different directions related to the COVID pandemic and reaction to the pandemic over the last 18 months has impacted the labor ability to fill jobs either on the back end, warehouse, dray, over in the origin, shutting down factories, ports, And I don't think that lasts forever, right? That certainly strikes me as something that we, the U.S. and the world, are going to get our arms around, either through mass vaccination, therapeutics, combination of both. So I think ultimately the way the supply chain is disrupted right now doesn't last. That doesn't mean that we shouldn't continue to keep our eyes open on opportunities to to basically be better for customers. Step one in that has a lot to do with transparency and visibility in the existing supply chain across partners. We're working very hard in that space with each of the supply chain partners that we have, whether it's a technology platform that we can all use to see everybody's KPIs and current status, or something more. And to your point, from an inorganic growth opportunity perspective, there are probably opportunities in there, and we have talked about that being a juice, an augment to our fundamental growth of the railroad and bringing more cars onto the railroad. So I think there are opportunities there, Walter, and we've got our eyes wide open and are looking for them as we continue to work on the overall supply chain. Thank you.
spk19: Great. Really helpful perspective. Thanks, Lance. Yep. Thank you.
spk02: Our next question comes from the line of Justin Long with Stevens. Pleased to see you with your question.
spk13: Thanks, and good morning. I guess building on that last question, with the CPKCS merger moving forward, I wanted to get your updated thoughts on how this could impact your business. Could you talk about the risks that this deal could pose to either your business or Ferromex's business, given your ownership stake there, and how you could potentially mitigate some of those risks?
spk21: Yeah, great question, Justin. Thank you. So we've been crystal clear all along that there are a number of concerns we have, in terms of maintaining and enhancing competition with this proposed merger. The primary one is making sure that our customers continue to have good commercial access with businesses in Mexico. Today, we appreciate and enjoy about two-thirds or more of all the cross-border rail traffic to and from Mexico. The reason that is, we have the best franchise to both act as an origination for business in Mexico, and act as a marketplace for businesses in Mexico. We just want to make sure that in the combination of the CP and the KCS, our customers aren't locked out from that access. So we are active in the process right now to make sure that that concern is known and that it gets addressed in some kind of remedy. I think there are bona fide risks to our business, to and from Mexico, to maybe the FXC's business, but I think we've got a pretty good beat on them. We understand them, and we're actively already working to address them.
spk13: Okay. Thanks. I appreciate the time. Yep. Thank you, Justin.
spk02: Our next question is from the line of Amit Mautra with Deutsche Bank. Pleasure to see you. Three questions.
spk17: Thanks. Good morning. I wanted to get your perspective on what inning you think we're in with respect to the pricing opportunity. I think that's an appropriate kind of question given we're in baseball playoff season. But I really ask that question because, you know, we saw a nice sequential uplift in intermodal and coal yields. But everything else, I would say, was a bit muted. I know there's mix within mix that can impact that. But, you know, maybe just as a summary, just talk about what inning you think we're in, where you think the biggest opportunities are to see yield improvement from where we are today. And then just intermodal and cold just took a big step up. Is that sustainable in 4Q and as you look in 2022? Thank you.
spk06: Did anyone want to take that? Yeah, thanks, Amit, for that question. First, I'll start off by saying that I feel much better about where we are today in terms of our ability to price the products in even earlier in this year. We're looking at the fourth quarter. We're going to start bid season here with a small amount of bids out there, call it 10% to 15%. On a lot of our intermodal business, clearly on a lot of our carload business, we're stepping into that. It's a strong environment for us. It's a favorable environment for us. We're going to price to the marketplace. We're seeing the tight truck capacity, not just on the intermodal side. We also see it on the carload side. So we'll have a lot more clarity on it. But I'll tell you right now. As I sit here today, it's a favorable environment for us to be pricing in.
spk17: So, Kenny, you're not going to fight on the inning question in terms of giving us a number?
spk06: Well, I'm a college football fan, first of all. But the bottom line is that, hey, look, this is better than I've seen it in a while. I haven't seen it this strong since the last part of 18. We feel good about the products that we have out there I've talked about. all the new products with Inland Empire and Twin Cities and the network that we have and what Eric is doing to improve the service that you're seeing. So it's a favorable environment for us, and we feel good about our ability to price into it.
spk17: Okay, fair enough. Thank you very much. Appreciate the time. Thank you, Amit.
spk02: Our next question is from the line of Chris Weatherby with Citigroup. Please proceed with your question.
spk03: Hey, thanks. Good morning, guys. Maybe I can ask the pricing question maybe a little bit differently or come at it from a bit of a different perspective. You just mentioned that this is probably as good as you've seen since the tail end of 2018. I guess that was really what I was interested in. Maybe you could put into perspective what we're seeing now from a pricing opportunity to maybe what we saw in 2018 or maybe going back to 2014 when we had these big uplifts in the pricing dynamic, particularly coming off at the back of a very strong truckload market. So do you think that what we're seeing now is sort of commensurate to what we saw back in those other periods? Could this potentially be a little bit better, just given what we're seeing from a supply chain perspective? Any perspective on that relative to history might be really helpful for us.
spk06: Yeah, you know, totally different reasons. I mean, 2018 was the supply chain challenges weren't as holed up as they are today. There are so many things that that come into play when you look at what's on the water, what's at the port, street dwell, and some of the chassis turns. This is a little bit different. In terms of the pricing opportunity, I'd say it's still there. I feel, again, pretty strong about the opportunities that we have. We get to test the waters here. Like I mentioned, here in the fourth quarter, we've got some large pieces of business that are coming on. So we'll see how it plays out, but we're pretty optimistic about what's in front of us.
spk03: Okay. That's helpful. I appreciate the time, guys. Thank you.
spk21: Yeah. Thank you, Chris.
spk02: The next question is from the line of Jason Seidel with Cowan. Please proceed with your question.
spk07: Thank you, operator, and good morning, everyone. I wanted to focus a little bit more on the supply chain disruptions, as you seem to be one of the main carriers impacted. Given your exposure to L.A. and Long Beach, could you tell us, I guess, what you think of the most recent plan by the administration to sort of get through this backlog? I think there's something like $22 billion worth of freight sitting off the shores. And then also, once we do get through that, do you think there could be a lull of freight for a short period of time? Thank you.
spk21: Boy, yeah, those are great questions, Jason. So the way we think about recovery of current supply chain, from my perspective, it really fundamentally boils down to putting people in jobs in order to increase the capacity for handling throughput. And that's both dray drivers, whether you're in the LA basin or out in the destination, markets and certainly in warehousing and distribution center labor. There might be an opportunity with port labor in terms of being able to maximize throughput through the port. And I know they're talking about that. And so I believe the Biden administration has identified basically increasing the throughput capability and the capacity capability and understands the need to to help put labor that's available into those jobs and make more labor available for the jobs. Now, in terms of once the current supply chain is fixed, there's some really good-looking markers that tell us the economy's in a pretty strong place, and maybe it'll stay there for a while. There's a lot of cash on deposit accounts that people are sitting on, and that is dry powder yet to be deployed in spending. As long as consumers continue to spend on things, that's really good for the goods economy, which, of course, is the part of the economy that we participate in. And there's also generally, you know, consumers are generally optimistic. They're fragile because of the impacts that the COVID pandemic have had on all of us. But they're generally pretty optimistic. And we just need to see I think the COVID pandemic get under control and get continued signs of normalcy. And I think consumers will spend that money. And the low inventory to sales ratio is going to drive a need for continued stocking. So I feel pretty good about it. Certainly, as we head into 2022, it looks like a strong environment.
spk07: Well, Lance, I appreciate the color and the believing my kids are trying to support the economy the best they can and spending money. Keep it up. Well, yeah, I wanted to just follow up. You talked about sort of labor shortages between dray warehouses and ports. I mean, if you had to rank them, what order would you put them in in terms of what's the biggest problem?
spk21: Yeah, Jason, by far, if we could snap our fingers, on the back end, we would love to see more dray and – and warehouse distribution capacity. That's the first thing that we would love to see. I think that would fundamentally change street time for chassis and boxes.
spk07: Fantastic. Appreciate the time, as always.
spk02: Thank you. Our next question is from the line of Sherrilyn Radborn with TD Securities. Please receive your question.
spk12: Thanks very much and good morning. Kenny, I think this is for you. At the beginning, you mentioned moving coral customers to index-based contracts, and I was just hoping you could elaborate a little bit more on how that creates a win-win for Union Pacific and customers.
spk06: Yeah, it really just keeps them in the market. It keeps them competitive, especially when you have natural gas prices as high as they are. It puts them in the money, and we have a really strong service product to support it. We feel good about where that is in the fourth quarter, probably feel good about where it is in the first quarter, and we need to reassess it on a quarterly basis.
spk12: Maybe just as a quick follow-up, does that imply that revenue per unit will follow global benchmark prices in some way? Is that how we should think about it?
spk06: I think that's a safe bet to think that way.
spk21: To a degree, right? Thank you. Sherry, lend to a degree, right? Because there's only a portion of the book of business that's priced that way. But that portion is definitely going to follow that.
spk12: Fair enough. Thank you.
spk21: Thank you.
spk02: Our next question comes from the line of Brandon Naglinski with Barclays. Pleasure to see you with your questions.
spk04: Hey, good morning, everyone, and thank you for taking my question. Kenny, you spoke about some business development efforts in your prepared remarks, I think, you know, on the ag side, industrial, maybe even Mexico energy. Can you speak more to that? And, I mean, I know you have a pandemic comp this year, but as you look into 2022 and beyond, you know, are these the types of things that are giving you confidence in that 3-plus percent volume outlook long-term?
spk06: Yeah, absolutely. I mean, we teed up at investor day. how we thought about the biofuel market. One of the things that I'm proud of that ball team for is that they developed that market. I mean, you look at the Midwest and some of these central states, we've got a unique opportunity where we originate that business. And then we have another unique opportunity in some cases where we might be able to move some of that product to the end market. So we're going out from a business development standpoint and just developing that business. As you look at our industrial side, same thing, too. You look at Mexico Energy Reform. The team has just done a fabulous job of just walking down that portfolio and growing that business. We have a clear line of sight to the players that can get in those markets, and we're helping them grow. On the premium side, wow, we've got nice whip coming in January 1st, and we're fired up about it. There are some other areas, again, that we have just gone out and created those markets. And so we're excited about it. We do feel, I'm bullish, we feel very strong going into next year.
spk21: Brandon, I want to brag on not just Kenny and the commercial team, but the cooperation between Kenny and the operating team and all the other internal support mechanisms that make that business development effort happen. You know, they're going after business in so many different ways, whether it's campaigns to fill out, shorter trains on the network or to attack a particular marketplace that looks like it's growing and we want to be a bigger part of it. Or where there's customers that have a real problem with their cost structure and we know bringing some of that business onto the rail will enhance their ability to compete in their marketplace. All of the above is generating business development. It's happening mostly in singles and doubles, but I'll take Lots of singles and doubles in a team that's oriented towards making that happen.
spk00: And you saw that show up in the industrial space this quarter. Amen. Talking about being able to really capitalize and jump in where we saw some hot markets. Kenny and the team did it, and then Eric and team moved it.
spk04: Yep. Right up, guys. Thank you. Thank you.
spk02: Our next question is from the line of Brian Ostenbeck with J.P. Morgan. Please proceed with your question.
spk10: Hey, good morning. Thanks for taking the question. I just wanted to ask Eric about the operations side and maybe about steps getting productivity and service consistency back on track and what still sounds like it's going to be a pretty volatile volume and potentially operating environment. So I think train lengths were down for the first time that we can really find on record, but they were improving in September. So maybe you can touch on that in terms of how you can maintain that momentum even if volumes decrease. are flat and then just if you can also touch on what else is in your control the c rate on fuel is that obviously moving in the right direction is there anything else specifically on the initiative side you're looking at on labor as well thank you sure it's a great question brian so let's start in the beginning there so to your point uh coming out of the recovery the actual events that started the recovery yeah the service performance our velocity
spk22: And then looking at them now, strong moves in the right direction. As you properly said, we're not to where we need to be. As I look at that over the fourth quarter, you know, our biggest opportunities are down in our southern and specifically the southeast region of our system. The team's absolutely focused on ensuring that we can continue to get those terminals operating at a historical dwell level or better. And that's the focus right now. As we increase velocity, you see a direct correlation to our improvement in service, and I expect that out of the team. Now, as far as the broader productivity, I mean, you hit on the fuel efficiency, and I really want to take a minute to really recognize the team on that and stress that because, you know, a third quarter best ever record and a 1% improvement against a quarter that was dramatically challenging in a lot of different ways, specifically in how many trains we had to reroute, that's a massive accomplishment. But as you look at fuel efficiency, much like the rest of our pipelines, there's strong initiatives in each one of those. So I think about we still have the opportunity to modernize another 100 locomotives next year as part of our plan. That's on top of the 100 we're modernizing this year. In those modernizations, we'll get locomotives that can be operating as DPU units, which provide fuel conservation as we can run more of those. As we think about EMS, I told you earlier in the year we're going to install 800 units. We're installing 800 units this year. We'll continue with that investment next year. So I could continue to go on and on. The point is The pipelines are full. It has been a challenging quarter. There is nothing that stands in front of us to get back on track in Q4.
spk21: Well, and Brian didn't ask it specifically, but you've got a path towards 10,000-foot average train length.
spk22: With our September performance at 9,500, we are absolutely on that path. And with the construction of our sidings that I mentioned, you know, nine being already completed, 26 in the pipeline, we absolutely have that path. And that's impacted by the modal supply chain issue.
spk00: Right.
spk10: Just to follow up real quick, I was going to ask on that. If the train length impact in the quarter really was from the bridge or would you see more volatility on that if the intermodal supply chain doesn't recover as expected or at least stabilize here a bit?
spk22: Yeah, so let's start with the bridge. So if you think about when the bridge went out, what that really did was it severed an artery where we were able to run trains longer than 8,300 feet. When we had to reroute the trains from Northern California over to Salt Lake and back up to Portland, we're restricted to that 8,300 feet for a number of different reasons. So the fall off in train length prior to September was absolutely related to the bridge outage. Now, to your point, As we see intermodal volumes grow, that's always a huge lever for us to grow train length, especially across our sunset corridor up to Chicago.
spk10: All right, great. Thank you for all the color. I appreciate it.
spk02: Next question is from the line of John Chappelle with Evercore ISI. Please proceed with your question.
spk18: Thank you. Good morning. Eric, sticking with you, maybe a bit of a quantitative follow-up to the last question and answers. The $150 million in reduced productivity expectations for this year is completely understandable given everything you've just laid out, whether it's macro or the bridge and the wildfires. Is that lost productivity, though, from the network as you think about a multi-year plan? or can you make that up at some point next year incrementally to what you were already budgeting for 22 productivity gains?
spk22: Yeah, John, that's an exceptionally good question, and I want to be very clear. That is not lost, and it's expected that we make that up in next year.
spk18: Okay, Grant, can it be within a six-month period, or is it kind of spread over the course of the year?
spk22: Now we're getting into those inning questions again. So, John, rest assured, the entire team understands we have to get that back. As you would imagine, as we think through the 2022 and what it's going to present, those plans are still under works, but it's all with an eye towards capturing back that $150 million.
spk18: Okay. Great. Thanks, Eric.
spk22: Thank you, John.
spk02: here with your question.
spk11: Yeah, good morning. I know you've had quite a few questions on capacity, but I guess wanted to kind of get your thoughts on 2022 and how capacity and volume, how we might think of that. I think there's a positive thesis out there on rails that says we've seen temporary weakness in volume, but you look to 2022 and there's a pretty good chance volume improves And I think that is probably linked to capacity coming online. Lance, do you think that's a reasonable view to have that, you know, UMP volume growth can accelerate nicely in 2022? And do you think you have good visibility to that capacity supporting that growth?
spk21: Yeah, Tom, thanks for the question. So, absolutely, it's a reasonable thesis to say we're going to grow in 2022. Our commitment that we made at the investor day is over the three-year period, we're going to grow better than industrial production. And we believe that we're going to be able to do that. There's a couple of things that I'll point to. We've got Night Swift coming on board. That'll be a growth engine. We've got the headwinds in the automotive industry and the overall supply chain mostly impacting the intermodal business. In my viewpoint, it's very unlikely that carries all the way through next year. There is capacity coming on for semiconductor manufacturing. The supply chain is going to have enough capacity to handle the throughput necessary. And so I think those get remedied, and that's a growth engine. And then Kenny's team, as we just outlined, in bulk industrial and in the premium side on business development, keep adding opportunity into the bucket. So it's absolutely a decent thesis to say we're growing and we're growing better than industrial production next year. Now, the other side of that is capacity. We've got plenty of capacity. Our fixed capacity, our railroad can definitely handle the growth as we go into next year. And we're poised to add the fungible resources, the employees necessary to to handle it, not on a one-for-one basis because we are generating productivity, but I see no issue with the thesis you just laid out.
spk11: Can you talk a little bit about the specific resources you're adding? Are you adding more people at the intermodal terminals? Are you adding more chassis? Are there areas you need to add more cars to support that in 2022?
spk21: You know, there are always rifle shots from a capital spending perspective, Tom, that we have to take care of. Eric identified some in terms of siting extensions. We've got some capacity spending that's going on in our new intermodal ramps, whether it's the Inland Empire up in the Twin Cities. But I consider those rifle shots. Those are very specific little pieces of the network that will have a very positive generating ROI to them. In terms of manpower... resources, employees. We've got needs here and there. And again, those tend to be pockets and they're driven by growth or they're driven by normal attrition. And we're right now in the process of hiring in a few areas around the network. We've got a training pipeline that's both representative of people we've hired and people we've called back from furlough. But I don't consider those numbers anything kind of worth commenting other than normal course of business. Okay, great. Thank you for the time. Thanks, Tom.
spk02: Our next question is from the line of David Vernon with Bernstein. Please proceed with your question.
spk08: Thanks, Operator, and good morning, guys. So, Lance and Kenny, I kind of want to present the bear cases of the arguments you're putting out there, right? I mean, we're in the tightest truck market we've been in sort of ever, right? This is a non-conference game for Alabama as opposed to a college football playoff game, if you will. And we're still seeing an emotional volume down 6%. So when I get asked that question, like how would you respond to the fact that in this really super tight market, where demand for intermodal should be off the charts, you're not growing. So what's going to change between now and the next two years that will help you grow?
spk21: Oh, absolutely. David, you just outlined the connection that our volume in intermodal is down because of tight dray market. We don't have enough dray capacity to support the overall supply chain on the intermodal product. That is going to be remedied, right? Supply and demand in our market economy gets remedied. Truck driver wages are going up. Dray wages are going up. It's all looking good. So I feel very good about... overcoming the bear case that you just outlined because they're intimately connected.
spk06: You know, first of all, I'm a Georgia fan, not Alabama.
spk08: I took a shot. I took a shot.
spk06: Hey, first of all, yeah, you know, we've got an investment here that's coming on in the first half of the year of chassis. We feel good about that. We've got ample containers. We're going to improve our competitiveness here in the first half of the year. We've got GPS that we're investing in. You know, I can't say enough about how much capacity opportunities are there in the Inland Empire, and we're working very closely with Eric's team on that, and we still have room to grow in the Twin Cities. So, yeah, there are some macroeconomic and supply chain challenges out there, But what you're hearing me say and what you're hearing Lance say is that, boy, as a team, we're really going after it and being very deliberate and specific about how to grow the business.
spk08: Okay. And just as a quick follow-up, is it right to think that the onboarding of that night business will be easier because it's coming with the dredge and the chassis and the stuff that night's going to bring along with it?
spk06: We don't see any issues bringing on that business.
spk21: Yeah. We are committed. We're well-planned. There's a detailed executing plan already in place, and we're really looking forward to having them on as a partner. They're running an outstanding business. They'll be a great partner to have. All right. Thanks a lot for your time, guys.
spk02: The next question is from the line of Ravi Shankar with Morgan Stanley. Please just use your question.
spk16: Thanks, everyone. If I can just kind of continue on the same theme. Kenny, you highlighted in your prepared remarks some of the challenges forecasting the auto business in the last few months. At the risk of asking you to judge somebody else's crystal ball, We have heard from some of the industry data providers that their outlook for auto production recovery through 2022 is really slow. So is there a risk that, A, auto production is definitely going to ramp next year, but the ramp is not nearly as much as people think? And, B, when the production does ramp, is there a risk that some of those finished products get put on trucks to try and expedite their path to dealers, or are you confident about maintaining share in the auto space?
spk06: Yeah, that's an interesting question. You know, it really depends on what you believe, and what you've heard us say is that we believe, you know, the run rates will continue into the fourth quarter, and then it'll be a slow, gradual ramp-up in the first half by late spring, summer, fall, If we can get to where the forecasted star is, that would be an excellent position for us. We expect to really have a strong product that is competitive with trucks, so we don't see where we would lose any of that business. We also would anticipate that some of the auto parts business would show up a little bit before the finished vehicle product.
spk16: Got it. That's helpful. Thank you. Thank you, Robbie.
spk02: Our next question is from the line of Jeff Kaufman with Vertical Research. Please proceed with your question.
spk05: Thank you very much, and congratulations on a tough quarter. Kenny, I'm going to stick with the football analogies here. You know, when I go out and I talk to shippers, they all tell me we'd love to use a lot more intermodal than we're able to right now. In fact, if we had our druthers, we'd put another 5% or 6% of our spend in intermodal. How many points are we leaving on the board due to these turnovers, so to speak, from the environment? And if you were able to get that dray capacity and run the network the way you'd like to, what do you think intermodal would look like now?
spk06: Yeah, that's also an interesting question. What I'll tell you, what we're doing is going out and inserting solutions where we can. So Eric and his team has done a really good job of keeping in contact with the terminals. From a technology side, we've inserted APIs that support from an investment perspective. We're going out and really owning our own destiny in terms of expansions. We're creating solutions for our customers clearly. Eric talked about what we've done in our G3 facility. We also opened up temporarily another facility down in the Houston area. Our loop subsidiary is going out and working with the BCOs, Expedite, Dredge. We're doing everything we can in our control to not just accept what the supply chain challenges are out there. We're trying to own it. And you've heard about the investments that we're making on the chassis and GPS side. So what you're hearing from me is we're doing everything we can to control our destiny to maximize what's out there.
spk21: Another way to answer Jeff's question, Jeff, if you recall, when we came into the year, we gave guidance that said 4% to 6% growth. And coming out of the second quarter, the lay of the land looked pretty strong, and we upped that to 7%. And now, because in part of the intermodal supply chain disruption, along with the continued issues on semiconductors for automotive, we've dropped that back to 5%. So right there, you see two percentage points of growth on the whole business that is connected to supply chains being screwed up.
spk05: Could I go a little further out on that, though? I guess what I'm reaching for here is I understand the current environment, but you're doing about, let's call it $4.5 billion in intermodal revenue. we've got a truck industry that's capacity constrained. We've got prices going through the roof. We've got a lot of people that want to use intermodal that just can't right now for a variety of reasons, or not as much as they want to right now. If these factors were to mitigate over the next two to three years, what do you think that intermodal business could look like? I mean, do your customers say, geez, we'd love to give you another 5% of our Our transportation budget on intermodal, if the network can handle it. I mean, what kind of conversations are you having with folks kind of beyond the short-term fix?
spk21: Hey, Jeff, this is Lance. Your thesis is spot on. Our customers tell us that they'd love to use more intermodal product, and that's a great place to be. We're not going to try to guess exactly what that looks like. We'll build next year's budget. We've got a long-range plan we'll continue to tweak and build on. But your thesis is spot on. There's tons of opportunity out there.
spk05: Okay. Thank you very much and congratulations. Yep. Thank you.
spk02: Our final question is from the line of Jordan Alger with Goldman Sachs. Please proceed with your question.
spk15: Yeah, hi. Just a quick question on coal. I know the domestic opportunity, you know, should be good for UP with gas prices, but I think, Kenny, you mentioned export, too. I didn't think that was as big or important part of your franchise. I'm just sort of curious how much of an opportunity export can be. Thanks.
spk06: Yeah, every carload matters, and we've been able to grow our export business. But to your point, it's a smaller part of our overall
spk21: portfolio but there is opportunity set there and in this environment absolutely we've seen a handful of wins that we're really excited about yeah and putting a little bow on that jordan you know the eastern railroads and their export business is substantial and big and And our export business doesn't really look anything like that.
spk15: Got it. Thank you.
spk21: Okay. Thank you.
spk02: Thank you. If there are no further questions at this time, I would like to turn the floor back over to Mr. Lance Fritz for closing comments.
spk21: Well, thank you, Rob. And thank you all for being engaged with us this morning and your questions. We really appreciate it. getting into those discussions. We look forward to talking with you again in January when we discuss our fourth quarter and full year results. And until then, I wish you all very good health. Thank you and take care.
spk02: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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