Union Pacific Aktie

All right. Great. Good afternoon, everybody. I'm Ken Hoexter, BofA's air freight and surface transportation and shipping analyst. We're happy to moderate today's session with Union Pacific at the New York Stock Exchange's London Conference at BofA's London headquarters here. From the company, we have CEO, Jim Vena, Chief Financial Officer, Jen Hamann; and also in attendance in the audience is Diana Prauner from Investor Relations. I'm going to moderate today's session. So with that, we have about 45 minutes. So let's just jump in. Jim and Jen, let me turn it over to you. I know you have a few slides to get started with us here, and then I'll jump in with some questions.

Well, listen, thank you very much, Ken. I'd love to just frame exactly where we are a little bit and then let's open it up for questions. So I'm not going to spend a lot of time, and I'm going to pass it over to Jennifer, who's here with me today.

I love having her with me. And of course, we're going to make some forward-looking statements. So please refer to the UP website and SEC filings for any additional. And why don't I -- you know what, usually I speak too much. So I'm going to pass it over to Jennifer right now and let her start with where we are.

I'll give a quick summary of where we're at quarter-to-date, year-to-date. And it's a great new story too because as we started out the year, we continue to be very strong in terms of both our operational performance, the service that we're providing to our customers, supporting what I would say is decent customer demand. Our volumes are up 2%.

With that, though, we're keeping our freight car velocities up. It's over 230 miles a day and our terminal dwell is staying under kind of that key mark of 20 hours. We've been consistently in that 19, kind of, an hour mark. And that's really a great paradigm for us to be continuing to prove to our customers where we're growing volumes and at the same time, improving our service product.

Digging into volumes a little bit more. As I mentioned, volume up 2% for the quarter. If you look at that across our 3 business teams, premium's up 3%. So strong growth in our domestic product, very positive built on by -- and supported by our service product. International Intermodal does continue to be off year-over-year. What you're seeing happen here in the second quarter, if you remember what happened second quarter of 2025, is when some of the tariff announcements first came out, and we kind of had a bathtub of that where pretty strong volumes in April, pretty sharp drop in May. And then the last part of June, as we move into July, we saw the volumes come back up again.

So we're entering into a period where we're going to have a little bit of a tougher comp, get through July, and then we should be a bit more normalized. Finished vehicles are also for us here quarter-to-date, about 2%, which is another positive in that premium column.

Industrial, up 3%. I consider industrial kind of a heart and soul of the UP franchise, continue to have strong business development efforts there. Industrial chems and plastics up 4%. Metals & Minerals were up 3% versus last year, continuing to see good demand in the South from a construction standpoint.

And then if you look at bulk down 1%, that's actually something that's switched on us here in the second quarter, where you've got coal down about 14% on a year-over-year basis. And it had been up double digits the last several quarters. Part of that is we are now lapping where we have won some business starting in the second quarter of 2025. Also, we're in that cooling season where a -- little bit of a shoulder season. We've had some plans down for maintenance and lower natural gas prices.

So let's put a little bit of pressure on the coal business, although as we were talking earlier, Ken, we are starting to see some more sets come into service. So we're going to look for that to pick up as we move into the peak cooling seasons of 2026. But then grain and grain products have been up solidly about 12% quarter-to-date. So nice diversity there in our product mix in the growth in our business that we really do like to see.

A couple of other things I'll say quick before I turn it over to Jim, is if you think about fuel, when we started the quarter, we were paying about $4 a gallon for diesel. That increased some in May. Now within the last couple of weeks, it started to come down a little bit, but right now, we're thinking we're probably going to average about $3.90 a gallon for the second quarter, maybe give or take a $0.05 there. But prices -- the spot prices have come down. So that's helpful and we'll see how that plays out into the rest of the year.

Of course, we're much more fuel efficient than trucks. So that's still a net positive for us. And then the last thing I'll mention before I turn it over to Jim is kind of a modeling item is we're expecting about $35 million in merger costs for the second quarter. That's a little bit higher than what we had been thinking of. But with all the work that we've been doing in terms of the STB filing and refiling and providing more information, that's putting a little pressure on some of those costs. Jim?

Great to pass it off to me with a negative, I thought you give me a positive at the end. This is a positive really -- there's a couple of positives that are really important for us to think about where we are at time and place today. Okay, the first one is the team led by Eric Gehringer, the team led by Kenny, our Chief Marketing Officer and the entire team at UP. They're focused in driving the railroad and not losing sight that every day, we have to have a safe railroad. We have to operate at the highest level, and we have to make sure that the service that we sold to our customers at a high level, and you can see that in the slide before.

So that's the foundation of who we are and we can't lose that. And even with the length of time we've been in this process already, the focus is right on. The rest of it, on Slide 4, if you take a look at it, huge milestone is when the STB accepted the merger application.

Yes, they've asked for more information. But at the end of the day, the 12-month procedural clock started, it's pretty clear that we've gone to the next step and we'll provide the information. We always knew that the STB was going to be asking for more information as we went through this process, and we told them that we'd be more than willing to give them the information.

There's no big secrets. We see exactly what the benefits are. So how are we going to give the information at this time. We think instead of waiting right till the end until July 27, we will probably do it in 2 batches, piece in early July. Some of the things as soon as we complete them, we'll give them that information. And then the next batch will be closer to the end of July. But hopefully, it's before our quarterly release that we do so we can have a discussion about what we have to give them. So overall, very comfortable with where we are and what we've done this point. And it's great that we see what -- how the process is going to go out.

Now let's talk about exactly some of the things that are in the application and for some of you that maybe have missed it. We're talking about removing over 2 million truckloads off of the road, huge benefit for America. We are absolutely sure that we deliver $3.5 billion of savings and those are savings because of touch points and how we operate the railroad. So those things are clear foundation that we have identified when we've gone through with the experts we've hired and what we've done to analyze what's possible and what's better for America. And we know we'll improve safety. Any time you remove touch points on cars where people have to touch something, you actually -- if you remove that, you end up with a safer network without doing very much other than that.

So we'll continue to invest for safety, both from a technology standpoint, on training and people, but really important that when you remove touch points, okay, you do end up with a safer railroad. So let's just real quick, Ken, and I know you probably have some questions, so I won't get into it complete in depth, but real high level.

And does our merger enhance growth competition? Absolutely. A seamless railroad that operates from -- through the country and one end of the country to the other on the extreme automatically makes that product better on service because you remove a touch point. And on top of that, it makes it seamless and faster. The customer gains and that they can actually save on the cost of equipment, cost of inventory, cost of doing business with multiple railroads, number of people in the back shop.

And listen, that is enhancement of competition. And the rest in the industry have to -- when they wake up, they'll have to decide how they're going to compete against that new service that is better for all the customers and shippers in the U.S.

And I hate to tell you, and that's why they're complaining so much is there's only one way to do that. If you can't match service and you can't match the number of what you're doing, the only thing you can do is drop price. And that's what they're worried about. Otherwise, they wouldn't be complaining. So at the end of the day, we think that with all the pages, over 7,000 pages that we put in, over 2,000 letters of support across the spectrum of customers, starting with customers, with customers that are actually single point customers for us that don't have an option at origin plus regulators I guess -- sorry, not regulators, politicians, I wish some of the regulators would give us a letter, but they didn't. So overall, very comfortable where we are. We love it, Ken. And for me, personally, it takes too long. But at the end of the day, we knew the process was going to be the process, and this is where we are. We're quite happy.

So I mean, you just answered the first question I had, right, which is kind of talk about the latest thoughts on the merger. I don't know if there's anything you want to round out in terms of the latest thoughts, but I'll go run it to the second, which is given your application got approved to begin the process, but then the process was put in abeyance by the STB as they wait for more info when you just talked about maybe the 2 batches, it seemed like they were going at the crux of your argument. Is it in the public interest? And does it increase the state of competition? You threw out a couple of things there. Is that -- what does that signal in terms of the STB coming out with those specific requests? What does that signal to you in terms of the process?

Well, Ken, anybody who's looked at how STB goes through the big decisions and we've had some decisions that have taken them a long time to make, and we've had some decisions that are better. And we have a chair there that said he's going to go through and make sure he looks at things factually, we're very comfortable. They want some information we give it to them. And are they listening to some of our competitors, sure. And should they, of course, from my side, I would say, it's always hard to look why would you listen to a competitor, but I understand the competitor could have a different viewpoint. But the process has started now and the process needs to go through.

And at the end of the day, then they have to decide whether there's anything that they need to add or look at any concessions or how we move ahead. So this needs to get done. Is this good under the rules of the STB on whether it's good for the public interest. I think it's good for the public interest when you remove a couple of million trucks off of the road. I think it's good for the public interest when you have people in Chicago and you can take out hundreds of trucks running to go from one railroad to the next.

I think it's good in the public interest to be able to make the movement of goods within the U.S. much more competitive against the world so that you can move seamlessly from the east, the lumber from the east to the west or from copper from the west to the east or steel from the east side of the Mississippi to West.

Is it good for the country to say that we're going to give options to people today that don't use railroad because in a 500- or 800-mile haul, they have to go from 1 railroad, hand it off to another one to go somewhere else. And Ken, I'm absolutely sure. I know you're from New York. It's pretty simple for people that aren't railroaders. I'm absolutely sure you took a connection flight. You went to Amsterdam first. You changed carriers and you came to London. Absolutely not.

You came direct -- it probably cost you less money and especially the money that you get paid because of the money that you saved all that time wasted at the airport. So that's what we're talking about. It's very simple, it is excellent for our customers. And competitive-wise -- and I know I'm going for a long time, but competitive-wise, we've seen already when we announced the merger, people started to look at how they could work together to be able to enhance the movement of their goods. And that's what they've done.

The problem with a non-merger, those things usually break apart. As soon as somebody starts having a problem with assets or people or what their network pressure is, they break off those deals and go away because they're not -- there's no penalty to them.

So listen, I'm very excited. I'm telling you, the more I see what we're doing and Jennifer and I and Diana are aligned, okay? Not -- and listen, Jennifer would tell me if I was wrong, and Diana would, for sure, okay, tell me, Diana, you're missing this, the story, we're not telling it right. This is much more compelling now than it even was when we started this merger.

Jen, Jim started off with something interesting. He started off with the fact of the $3.5 billion synergy. Maybe from what you've laid out, maybe you could readdress the target time frame? Has anything changed from your original agreement in terms of the synergies? Or how we should think about them? How do you think about the time frame in terms of getting back to your target, whether it's operating ratio target or ROI targets post merger? What's the kind of time frame on those?

Okay. We got several questions.

Absolutely. I am used to squeezing them all into one question.

You can give more time if you can space them out.

What he told us we have 4 questions but each with 15 parts. You want me to write it down?

You may need to remind me on a couple, but I'll see how I can do here. So the $3.5 billion, that's not a synergy target. That's what we believe is going to be annual savings to our customers, to the shipping public when you just look at the differential in price between truck and rail. So that's that 2 million trucks coming off the highway, moving to rail and it's a very simple calculation. And quite frankly, it's probably understated when you think about the emissions and the safety and all those things.

Truck prices [indiscernible].

Oh, yes, yes, exactly. And think about fuel surcharges where those have gone. So that's the $3.5 billion. So then you look at our synergy targets that we have. They have changed, I would say, a little bit over the time period from when we first announced the merger to making the revised application, but not a whole lot. I mean we have continued to refine the analysis and each time that we do that, we basically come back to the same place. So on the revenue side, you're talking about $1.8 billion net EBITDA synergies on the top line. So that's that -- again, that's the truckload conversions, that's also growth that we're seeing in the manifest auto world, some of the watershed traffic. So that's on the top line.

When you think about the cost piece, we're looking at about $1 billion of cost synergies, and that's really across the board. Certainly, it's being able to be more efficient with how we're doing our train handling, it's being more efficient from a purchasing standpoint. It's been more efficient from a back-office standpoint.

All of those things that bring costs into our network, we believe that we can go through and be more efficient. Technology will be a big enabler of that. So then you think about the capital that it will take us to unlock this. We said it's about $2 billion. About half of that is what I'll say, is infrastructure capital. So I think sidings, yard improvements, those types of things.

The other half will be the technology that we'll need to do to be able to integrate our networks. We also do think that there's going to be about -- I think it's $133 million of capital synergies that we'll be able to unlock through this. So those are all the net benefits that we expect to unlock from the transaction in terms of where we think it's going to take us to take the debt back down after we make the payment for the Norfolk Southern, we still think it's going to be in year 2, towards the end of year 2 is when we believe we'll be able to have gotten our leverage back into a place where we're back in the market repurchasing shares.

And so it's just shy of $12 billion of kind of annual free cash flow that we're going to be kicking off as we get through it. And we've talked about this, too, in terms of a 3-year implementation time period. So in the first 3 years, this is where we expect to get to by the end of year 3.

It's interesting because now we talked about the time frame. And Jim, you were talking in your opening comments about the time frame, I think we were talking on the slide about that. Given the abeyance, you still see this clock is starting based on the set. Do you want to expand on that a little bit because I thought that was a really interest income.

Well, this again -- there is a statute for the STB that was given to them by Congress, and it's pretty clear. It says that once you accept it's 12 months. That's what we would expect them to...

So just once the application, which has been accepted officially. So despite them saying we're putting in the bank to collect more information, your view is that 12-month clock has now started based on that 829.

That's correct. For them to gather all the evidence that you need to then take the time and there's a specific amount of time for them to get the decision and that's 90 days.

And it's after the 12 months. So that's a 15-month process, it can't be paused by this desire for abeyance on their part.

Well, listen, I don't know, I follow the law. So that's what the statute says and that's what we're going to do. Otherwise, Ken, then we don't have to follow the statute either that talks about public interest. If we have to do the things that are in the statute that we think that the STB wants then I would expect the STB to follow the statute when it comes to the length of time.

Jen, just on -- throughout the CapEx commitments, you did recently changed some of the CapEx commitments. I think some of them were adjusted downward right, a little bit, little tweaks. Was there anything that got changed? Was it sidings or just say, as you thought about the merger, what you're going to need.

I'll answer that. Bottom line is people get all excited about that, we don't look at capital on an annual basis. And you can tweak it up and down and you think if this is the way the business looks like, this is what we're going to do. It was a small tweak down, but don't take that into it. We're going to have the capability just like Union Pacific does today that if we have to invest more in our railroad, capital for our plant or capital for growth, we'll do that. And that's what we look at first. The end of the day, we will never ever stop investing in our railroad to keep it safe and operate at a high level.

That's not what we're going to do. We're investing in rebuild locomotives, modernization locomotives, and we'll continue to do that again. So that was just a tweak as you go through and look at exactly what the flow of the business that we see and I'm sure there's going to be a small change again as we get closer to the merger acceptance.

Yes. And a little bit of a change in the mix of business, more intermodal, a little bit less manifest so that changed in that.

So let's talk about some of the commentary out there from the marketplace, right? And I guess this is coming from the other railroads. So it's not necessarily -- I don't know if you think this impacts the process, right? We've heard your Western peers say the document is still unclear, undeveloped, merger deficiency remain. It reduces competition, one of the Canadians said he has a right to freeze it and submit a credible case, inadequate market share.

I mean so many of these commentaries kind of go at the crux of the concept of competition and increasing. What's your view in Toronto? What do you think the end game? Is this just trying to get more things out of this? Do you think it's delaying the process, but it sounds like you just said the process is now on a clock. So what's the takeaways from the contract?

Well, listen, I think history will tell you that it's pretty black and white that a competitor has a view that's internal for their benefit and not for the process or the company that's doing something that might impact them. So said better, easier, real simple. I'm a businessman. I'm a capitalist. And a competitor of mine was doing something stupid. I won't say a word. I would let them do that because I'm going to win in the marketplace and get more business or increase my price better. So the Canadians, no, ifs, ands, or buts and both railroads in the U.S. and one is much more vocal than the other. They look at this and what they're worried about is, is they're going holy cow, how do we compete against the railroad that's going to go across the country, and they're real worried about that.

And of course, without that, they throw out that 7,000 pages isn't enough. Well, I don't know, I just finished reading War and Peace again. I guess we need to add a whole bunch more pages. It doesn't make a particle of sense. And we were very clear with the STB. If you need more information, then ask us and we'll give it to you because we want them to go through.

We know this is a compelling case. So that's what I think about the competitors. The customers, we have some associations and other groups that are saying, listen, we're against this. And we think once they go through and truly understand what we're doing, the customers that pay the bill that actually pay the freight will see the benefit and how it improves their capability to compete.

People miss this that are not in the railroad business, you can have a single point of origin on Burlington Northern Santa Fe. But just because you have a single point of origin and if that product is soybeans, there's a single point of origin and others on Union Pacific, and we are competing against the world in moving that product, not just that single point and we actually want that single point to succeed and be able to move the traffic. So when people look at everything, and let's take this merger -- that's what I love about having 45 minutes, Ken. I'm going to fill a lot of it, is we will continue to have a strong competitor in the West.

We are competing against Berkshire owned BNSF. Last time I looked, they're $1 trillion company valuation with $400 billion in the bank. They can just about do whatever they want. And remember, they're a neighbor of ours in Omaha. So they have the capability to do a lot if they want to. But every day, the customer is going to see BNSF there and UP competing for the business at origin and destination.

In the East, we're going to have the UP and CSX. And I give Steve Angel, a lot of credit. I see some of the things he's doing. He's doing a wonderful job of preparing that company for what comes next. And make it as efficient as possible to compete. So that doesn't change.

That foundation is already there. And on top of that, because we're going to be faster, more seamless, how Burlington Northern Santa Fe has to play the game that's going to become better, how CSX has to become better or offer better price and for sure, the Canadians that both come basically down a few states in the middle are going to have to compete better.

I've always -- I got to have a little bit of fun. I love it that in Canada, it's okay for them to have 2 railroads to go across the entire country. And I can -- maybe you can remind me because you talk to them all the time. They haven't sent me a Christmas gift this year or a Christmas card or anything else. I don't know why. We used to give cards for each other, but I did send it to them. But bottom line is, are they talking about splitting in Winnipeg because they need more competition in Canada or they have a hard time managing it, I don't think so. Jennifer, anything you want to add or that was a mouthful.

I don't.

I think I want to go to Winnipeg and see the judge play. All right. So that's great wrapping up on the merger. I think that's a good run through the process, the time frame where you are your thoughts on kind of how the process is going. So let's jump to operations, right, how things are going. Jen, you mentioned volumes hitting at -- or I'll say volumes seem to be hitting at or near multiyear highs on a weekly basis, right? You're trending almost 170,000 carloads now on a regular basis, which I think not too long ago, you were down in the 150s, right? So you're now kind of running back at that premium full level. Talk about your view of -- on the market -- let's just start with the market backdrop -- broaden it a bit, right? How do you think the market is? Is this just a truck pricing is going through the roof, given capacity is coming out. That's the transition? Or when you started your opening comments, it was kind of really broad based on how do you think the backdrop is here?

Yes. I think that's an important point, Ken, is it is pretty broad-based, and that up 2% is with coal down 14%, which had been kind of one of the stabilizers in our volumes the last year or so. So I think that's a very positive commentary. It's also obviously supported by a very strong service product that we have and the strong business development efforts that Kenny and his team have put in not just to renew business with our customers, win new business with our customers, but also get them to put more facilities on our lines.

We continue to have more customers either to go through plant expansions or decide to put facilities on our lines that we can then serve or as Jim mentioned, we're not afraid to build into places either. So customers see that we're wanting their business and that we're willing to support their business, and that's a very strong positive. I think we'll see how we get through the summer months. But the fact that, that industrial business is up 3%, I take is a strong positive.

You've seen the ISM index improve some and some people are saying, well, is that just a short-term kind of restocking? Or is that actual demand? I think our sense is that you're starting to see some actual demand pickup there. And if we can see fuel prices come down and some of that pressure from an inflationary standpoint come out of the marketplace, I think that would be a further positive.

Yes. What about the -- also, I think, Jennifer, this is -- we have areas that are really growing in the U.S. that we serve in the western part, like whether it's in Texas and what's happening San Antonio towards the border, what's happening in Dallas, even in Houston and some of the products around there. Phoenix, there's still a lot of building going on in the Phoenix, lot of homes being built, multiple homes. So when we look at everything in the country, Denver, I can keep on going, Ken.

So for us, sometimes the high-level number tells you at this. And then when you look in the area that Union Pacific today serves, we see some real strength. And the good part is the number of products that we move. Son of a ***, we do coal, but we also -- people are aware and running shoes with the swoosh, we're probably moving them, right? If you're -- there's actually some Apple products that work -- that come on us. I got to be careful. Anybody who's a crook has just heard me say that. There's things that we move that are part of the general economy.

You brought up San Antonio, I just had to say. That's the only reaction I have to San Antonio.

Like you are such a New York [indiscernible]. Like if it's a New York team, that's it. That's all there is to it. I love it. Good for you. I said the judge [indiscernible] that was for a split in the railroad.

So service levels seem to be running at or near multiyear highs, right? You're blending this volumes and the service levels. What's the driving factor? What's the biggest bottleneck to then improving further?

Let me answer that?

It's really hard. And it's -- when you're running in the high 90s, which we are 97, 98, 99, we've hit 100, and that's measured against the service we sold to our customers. You don't want it to get higher. It's impossible to get to 101. That means we gave them the car the day before. That's not the win. You want to be able to do it against what we agreed. And what's been able to do that is to have a buffer on the railroad on how many -- what capacity we have.

And Ken, you've heard me say this before and Jennifer has already said it, we're running more business today than we did in 2019 when I came to Union Pacific, and we're running 24% less trains. And that capacity, we didn't take it out. So what we did was we were able to move it more efficiently on less trains.

And that just beats capacity for not just the number of people on engineering. You can give them better track time so that they can do more ties when they do capital programs, and we can keep on going through. All those things are real important. So you fundamentally have that and we've spent $1 billion in our terminals to make them more efficient, plus the way the culture is and how things get done, and we're able to expand and have that buffer in the rail yards so that we can recover when weather events.

Like I don't know if you guys know this, but we had a heck of a lot of rain and problems North of Texas in the Oklahoma area the last few days. And hopefully, you don't hear anything about it because that's the best thing. But at the end of the day, that's the way we look at it. Real important for us, but I'm happy with where we are.

So what's the most important? I think, Jen, you might have started with car miles per day. Is that the most important that you look at, Jim? Is it -- we used to -- we were taught to look at velocity and dwell, I guess those are public metrics that we go on. What do you look at as CEO as to say, yes, we're running both rounds.

Yes. Again, the reason I like car velocity is it gives you a measure of how fast you're moving railcars from when the customer releases the car or you place the car back at another customer or a receiver. Anything else is a subset that you can optimize, okay?

Somebody says train speed. Well, UP for a while there was not stopping trains to pick up railcars. They put a local on to go pick up 10 cars because they didn't want to impact their train speed. It didn't make a lot of sense to me. So we stopped for those 10 cars, right, because they can move them quicker and get them. So -- but every morning I get up, and I used to -- I go to bed at midnight and one of these days, it will change. But so far in my age, I still go to bed at midnight, get up to 06:00 in the morning.

And when I get up in the morning, I look at revenue first, okay? What did we do? Where's the trend line? And then if I need to break it down, it's really easy. One click and I got the breakdown of 58 commodities and where it's coming, what the last 7 were last month, quarter-to-date, all that. I love that. So revenue is really important to us. Then I go to car velocity, and I'm telling you, and it's what's top of my list, and they're pissing me off with how well we're using our locomotives because I think we should have more of them ready to go than in the fleet. So Eric knows I've been all over them on that.

So I look to make sure that we're headed at the right place. So it's a real easy scorecard. I don't know about everybody else on this call, but people want to tell you that when I give the UP, they told me they had scorecards that had green and orange and yellow and pink and watermelon and Guava and red and I said not quite that many. I exaggerate a little bit. But there was like 4 different colors. And I said, isn't it the way it should be? It's either green that you're delivering or red. That's what we do now. So it's real simple. Scorecard comes up. It's in color, simple guy like me from Omaha, I can read it real quick that way. And then it gives me some fun to be able to dig in first thing in the morning.

So I just learned you got 58 different commodities, and we only get 20. So sounds like you've got some learning to give us. I guess next one -- I'm going to blend 2 together here. So what kind of as customer sentiment seems to be picking up, I was going to get into Kenny and team in discussions for how that turns into a new rail business. But let's just blend that in with truck pricing now really breaking out of, kind of, historic bands on pricing, right? We're on a spot basis, right? We're taking out 2, 3 years of morass of excess capacity and seeing spot rates up at $2.20 per mile, right? So well above kind of the $1.65, we were at it for a decade.

So what does that mean for intermodal business? What does it mean for the railroads to win business? I think we went maybe a few years where the rails were losing business to truck. And now it seems like we've got a stretch going here of winning back. What's your thoughts on that?

Well, we don't like to get too excited over a short period of time, but I like the trend line. And I like what it does for us, both on a revenue side and volume side. And that's the way we look at it and opportunity and we need to work hard as an industry and I said Union Pacific to keep that business. And it doesn't matter if there's a change a little bit in how that number is. And the best way to do that, Ken, is have real high service.

If you could show customers that we can deliver, and it doesn't matter if it tightens up the spread. We'll take advantage of this as much as we can. And the nice part is we have the buffer of railroad to be able to do that. So we don't slow the place down too much, so I'm real happy where we are. That's the way I look at it. Jennifer?

Yes. I mean I think it's really going to be a chance for us to showcase the service product that we have, the capacity that we've added into our intermodal network. Since we won a couple of big contracts in 2022 and 2023 when the volumes are starting to go down, and we really haven't seen the benefit. I don't think fully of those contract wins. Now you see that business in intermodal.

[ Domestic ] intermodal.

Yes. Domestic.

Domestic intermodal. Okay. Truck companies with trucking legacy. All right. So that's great for intermodal on the domestic side, your latest thoughts on pricing here, right? So pricing, you've targeted price above inflation. We've heard lots of different things about how you position it in terms of on an absolute basis, on a dollar basis, how are things going now again, especially with truck pricing rising, your service levels or doing well? What's your thoughts on the pricing dynamic?

You have to price against where the market is. Like absolutely, our key goal is to increase price because inflation is happening to us, right? So you need to move ahead and bring more business in or do that. But at the end of the day, Ken, it's what does the market allow you to do? And the better we are at providing the customer a product that allows them to win in the marketplace, grow with us and make them more efficient so they save you have a different discussion on price. Kenny's job and his entire team is to know the market, price it properly. Now do I tell them? I'm joking, but I'm not joking.

But the amount of money that we're being paid on movement of some of those commodities that we have, we don't take very much, and we should be able to improve that as long as the service is at a high level. That's how we think. Sometimes you're going to have to drop price because this is a worldwide economy that we're fighting. This is not just America. The Canadians want to move more lumber into the U.S. The Brazilians want to move more soybeans into Mexico.

So it is complicated. And synthetic soda ash coming out of China is competing against soda ash exports that we have in Wyoming. So at the end of the day, it's complicated. But I think we've done a good job, and you can see that in our results to price in a real smart way so that we can beat with inflation is driving towards us.

I shouldn't -- the only thing I shouldn't take away is sometimes we have to drop price.

Listen, if anybody tells you that they're not, once in a while, okay, they want to walk away from a market then they're not doing their homework.

But back to the core, it is still to beat inflation, but inflation is now picking up a bit. We're up to 4%. Are we -- are we at that, I guess, historically 3.5%, 4.5%. Are we at that level, above that level?

No. We said coming into this year that we'd be able to yield price dollars on an absolute basis that exceed our inflation dollars, and we will.

Okay. And you will despite what's going on in the backdrop of inflation.

Yes. I mean fuel is not part of our inflation number because we have the surcharge, and that's separate.

That's just the timing pass-through of it when it goes through yes, and that's still a 2-month average?

It is, although when you look at the portfolio that we have that's in intermodal now, which is almost half of our business, those are on some more timely. So we probably don't have quite as much of a lag as we once stand.

Okay. I want to switch from domestic intermodal. You kind of talked about the wins and scaling of domestic -- international intermodal and that's about half the intermodal business, right?

We've not really ever sized that, I don't think.

Okay. You didn't get it in your case. Are we seeing -- so we're talking about international? Are we seeing an early peak season build at this point based on what you're hearing from the West Coast ports or...

No. No, we're not.

Nothing. So just still steady as she goes from your outlook.

And remember, there was a lot of movement of products because of the whole tariff discussion last year.

Last year?

Last year and then more discussion about after some of the court hearings and everything else. So when you go through everything, no, we don't see -- there's no pull ahead at this point.

Okay. All right. So Jen, I thought you gave a good rundown on kind of pull down grain up. What else was it? Auto, surprisingly kind of strong right now, intermodal up well ahead of, I think, our targets as well. Any impact on mix that you want to highlight based on this or highlight -- don't forget, I know you just talked about forest products, they're down, they're profitable. Is there anything you'd highlight in that mix?

No. I mean, coal is a little bit on the lower side of the mix calculation, international, intermodal. You've heard us say that that's our lowest average revenue per car business, and that's down. So those would both be positives that their volumes are down relative to mix. Grain and grain products is a positive. Industrial kind of overall, although you've got a little short haul rock in there, is generally positive. So as we're looking at mix for the quarter, it's probably going to be on the positive side of the ledger.

Okay. Talk about employees. Jim, you're at 28,600 down about 5% year-over-year, down 500 sequentially. You don't need to be too specific, but thoughts on where do you go from here? If the industry is stabilizing the backdrop, do you need to -- do we see efficiency gains? Is it steady as she goes from here? Have you done kind of what you need to do on the employee basis? Maybe just thoughts on scalability.

Well, one thing we have not done is we have not gone through a furlough or removal or dismissal of employees. We've taken the action through people using attrition and deciding whether we need to fill the jobs or not. And we think that's really important with where we are. A few years ago, I would have given you a different answer. We needed to accelerate that, but I like where we are right now, and we're going to continue to do that. And what we found is as more technology comes into the system, we're better off and we can make decisions in a different way that is going to be able to use less people.

And I'll give you an example is, it took us a long time to develop it, but the price that used to go out, everybody always thinks the trains, but we spend a lot of capital on renewal on our railroad, and we do millions of ties every year. But we just have to go out and put them on the ground piece by piece. It was my first job on the railroad was throwing them out of a gondola car and at least we mechanized it now, you could go use it. But now we've even taken the next step where we load them in a railcar and it spits them out exactly where you want them automatically.

So there isn't anybody handling them, and you can do it faster, better. That saves you on the number of people in the trains, the number of whether you have to run a train or not and whether you need to have people manage it. So we continue to see that benefit, use of technology to be able to do it better. I'll be honest, when I looked at it first time 5 years ago, I said son of a ***, I think this is a waste of capital. I wasn't sure the hardest thing was going to be, how do you load these ties into those slots to be able to get it, but I give our engineers credit.

We're a pretty interesting company. We have some pretty smart engineers. You know that we built the first chairlift in the world at Sun Valley, Idaho, Union Pacific. You did not know that. Just give me a little tidbit. So go take a look at it.

It was an engineer in Omaha. So UP was trying to get more people to ride the rails and they develop Sun Valley, Idaho and some engineer there said, boy, those rope poles and those things flattered at those getting people up to ski are crazy. So we actually developed a chair that moved on and it was the very first one. So we have people that are pretty smart that we hire.

Good backdrop, right. So I want to talk about the operating ratio a bit here. I know we're running towards the end of our time. So you did a sub-60 last year at 59.3. Do you have an incremental target in your head of as you go forward, I guess, stand alone before we talk about merger, is it 100, 150 that you like to see productivity gains per year.

Ken, I've known you for a number of years. You've asked me that question of 500x and the answer is always the same. I don't guide on operating ratio. When you guide on operating ratio, you gave the wrong signal of the people that are out there trying to make the decisions in the company to do the right thing.

Operating ratio is a result of everything you do on revenue, the price increase and the efficiency you have in the railroad. Do I -- our goal is to be the leader. I think we've done a pretty good job, I think the nearest -- the last was 300 or 400. 400, right? That's where we'd like to keep them. But at the end of the day, it's tough every day to keep that operating ratio. It goes up a little bit, it goes up a little bit, but I like it when it stabilizes and it's driven by what we're doing.

Well, now you know I'm going to follow that up with Jen. So your volumes are trending above target. He just said volumes. Your price is kind of above inflation. If we look at the last 5 years, 1Q to 2Q sequential improvement has been about 150 basis points. So you posted a 59.9% in the first quarter. Can we see relative outperformance? Or I guess it's not a specific numbers question, but it's like are there other things we should take into consideration, whether it's incentive comp or fuel or anything else that we should be aware of?

Fuel is the only thing I'd add to you. I mean, you know what fuel can do to our operating ratio, it certainly pushes it up and that's something that we're absolutely going to see an impact in the second quarter. But from a core operations standpoint, we are going to improve.

Yes. Okay. Fuel effects?

Fuel price.

All right. I'm going to wrap up one for each of you. Jen, generating a lot of free cash flow in the interim deal, right? So what are your thoughts of -- is it just using the cash to pay down debt? Is there anything you do with that while the deal seems to be getting extended. Jim gave a good reason why it's not going to get extended. But I would say, even versus his birthday target it's gone out a little bit, right?

Yes, it's gone on a little bit. But so yes, we're going to continue to prioritize paying down debt as it comes due, and then we're doing all we can to maximize the yield that we have on that excess cash in the interim.

Jim, at the end of your tenure, how do you measure success for UP, whether it ...

Did you just say at the end of my tenure?

Well, I'm going to give you hang on whether it's the next 3 to 5 years, it could be 5 years, 10 years, I'm not going to pinpoint you upon...

Do you ask every person that comes with grey hair?

I don't know when the mountain is backing you again. I don't when you need to go?

I'm ready to go. Go ahead. It's a good question.

How do you measure success when you look back?

You know what always what you need to do, basically, I could go on for an hour about a whole bunch of specifics. You have to leave the place better than you got it. And if you can do that and hand it off and it's your job, and it's my job to have the right leaders ready to go. It's my job to make sure that the Board has a couple of people internal ready to go so that we don't have to go.

I think it's a mistake on a company that's successful operationally, and we're in good shape that we need to go outside. So success for me will be the day I announce my retirement, unless they let me stay as the assistant CEO, okay? I just worry about operations and not do anything like this, but I don't think they will.

But so bottom line is the day I walk out of that place in Omaha is when we announce the person, everybody is going to say, son of a ***, this person is going to do better than Jim Vena and he's going to take it to the next step. That's the win. And I'm ready for it. I really am.

All right. Wonderful. So if I try and wrap up just kind of what we've kind of run through here. Merger on the timeline, right, just given that the STB has statutory deadlines of the 12 months and 90 days despite the advance. You're going to submit your responses in 2 tranches, maybe one in early July, maybe one by the deadline. I think it's probably 27th, right? And then you've got good mix so far, our volumes up 2% quarter-to-date trending ahead of our target about 200 basis points. Coal is down, but you've got good grain, good autos, pricing still target ahead of inflation. Margins looking good, just watch fuel. Anything else you'd want us to make sure we walk away from today in terms of how things are trending and service -- I'm sorry, is the service is really hitting really good levels.

And safety. We're continuing to improve our safety record as well.

So listen, you've been doing this for a long time. So the story is pretty good, right?

I mean again, I started with the volume sitting multiyear highs. When you get that and your service levels are doing well, the benefit of...

And you can see the benefit of single-line railroad, right? Because if not, I'll buy you personally a first-class ticket, but you're going through Kuala Lumpur to get back to New York.

I think you've made it crystal clear about the benefits of the TransCon and not only why it's good for you, but why it is good for [indiscernible].

Yes. I love it. Listen, Ken, nice seeing you again.

Thank you so much. Thank you.

Good afternoon, everyone. We'll get started with our keynote address. It's -- it really is with great pleasure that I'm going to introduce today our keynote speaker, Mr. Jim Vena. As all of you know, he's the Chief Executive Officer of Union Pacific Railroad. I'll do a quick intro. For those of you who are not familiar with Jim, he's been a railroader for more than four decades, lots of -- wealth of information and experience.

The vast majority of that was at Canadian National Railroad. He rose in the ranks, became COO there. Then he moved over to Union Pacific first as COO and then now as CEO. And I might have glossed over a few things in the meantime there, but...

I don't blame you. I don't blame you, Walter.

But 15 to 20 years I've known Jim. And I got to say he's not only a skilled railroader, but he's a phenomenal leader. He's -- and when we were looking and deliberating to try to find the keynote speaker for this event, we wanted to find someone that could speak to major forces of change.

And one that wouldn't just be railroad focused that could extend across multiple sectors. And I think we found that -- we also wanted somebody that wasn't going to be too theoretical or conceptual. We wanted someone that could give hands-on experience on affecting these changes. And entirely from a practical standpoint, I think we found it with Jim. I mean, he's lived and breathed some of the changes that we're going to talk about here. He could speak to them from experience, and I'm very, very delighted to have him on that.

Now what are the two courses of change that we're going to talk about here today. They are the notion of transformational change and consolidation. Those are two aspects that really have profound effects on a company, on the sector, and I think they're great topics for conversation here today.

No one better to speak about this than the leader who has been the key architect of precision scheduled railroading. For those of you in the railroad industry, you would have -- you'll be very familiar with that. But for those that aren't, it is a major -- it is swept over the railroad sector and over this past decade or two, and he's really been at the forefront of that.

The second thing is consolidation. Consolidation has been a major force of change within many sectors. And now Jim is leading the charge on perhaps one of the biggest -- the biggest railroad combination of all time within -- with Norfolk Southern.

So to drill into the dynamics of those two concepts, we're going to do the same format as we've been doing for this conference, and that's a fireside chat format. But before we dive into that, Jim, I think you have a few prepared comments to make.

You bet you. So -- before...

Start with this slide.

Before we started with the merger, this was like one paragraph. And now because of the merger, the lawyers got a hold of it. And basically, what it says is, I'm going to be making some forward-looking points, hopefully, nothing that's brand new, but Walter always seems to be able to get something out of me.

And if I do appreciate it, just go on our website, take a look at the what we've had or call Diana, who's here in the room with me and our team will fill you in if you want some more detail on what I say. So it's as simple as that. And hopefully, you all read it. So I thought we'd start with where we are as a company.

And that's really important for us in that we need to be at the right place. And if you take a look at fundamentally, we are -- I think this morning, we are something like $157 billion company. The reason we're $157 billion company is because we deliver on value to our shareholders with the revenue that we get. And that's really important for us to make sure that we understand that. And what is it that we are -- that we need to deliver we have to be safe.

We have to operate a safe railroad. We were the safest railroad in North America last year for employees coming to work and going home the same and not be injured. So that's a real good check mark. On the incident or accident side, we improved by double-digit improvement again year-over-year. We're not the best, and we want to be the best.

But guess what, our partner that we want to merge with was the best. You bring those two railroads together, you're able to learn and do things that actually win. Service in the railroad industry, anybody that follows it close will tell you that we give more information out than a lot of companies that were required to by statute. So we give train speed, we give different things.

All those have nothing to do with service. All those are numbers that give you a guide on how well maybe some operational metrics are what we call service is what we sold the customer, and that's really important. It's what we agreed to and what we're going to do. So we've ended up last year at the highest service level we've ever had both for intermodal and our merchandise business and our bulk business.

But on top of that, customers see it and we see customers looking at how we're being able to perform and rewarding us with some awards. Toyota just came out and we won 4 of the 5 awards they gave out for service and quality in the railroad industry. We won 4 of the 5. Now some people would be happy with that, but that's only 80%. So I said the Kenny and Eric get going, we need to, this year, get that last one. But at the end of the day, pretty happy with that.

And what's operational excellence. People talk about PSR, people talk about whatever. It's actually using the assets you have in a real smart way because we are asset intensive. We need to replace ties. We need to place rails. We need to make sure the locomotives run and the railcars and we want to use them as good as anybody. And our metrics will show you that we are consistently the last few years, the best at operational excellence.

Some people precipitated down to OR, which is margin -- us railroaders, I don't know why we try to screw that up. It's actually margin. So our OR is under 60, and that's a good place to be. We don't drive the railroad for that OR number, because what I don't want is the marketing people to worry about saying, I can't bring this business in because I might get the OR to go from 59.9 to 60, and we wouldn't be happy. I hate to tell you, if you could grow the business by $500 million, I'll take that 59.9 to 60. And then we'll work hard to figure out how to make it efficient. So that's who we are. This we didn't put the other rail peers on there. But for investors, you can see where we are.

In the first quarter, we beat our nearest competitor when it came to OR by over 400 basis points, which gives us a big gap, and it helps us in the way we price, it helps us the way we look at business, and it helps us on what we can bring in by being very efficient. And for our shareholders, highest return on invested capital. So pretty happy. If we can go to the next one, please. How are we doing this?

This one slide is just one snippet because it's what you do across the entire company operationally. But since 2019, when I joined UP, you know what you guys are all real serious. Why don't we have a little bit of fun. I wasn't coming back to work. I was real happy. I retired after 40 years of Canadian National, great company. Love the company still today. I spent a lot of time nights, days, I was an engineer on the ground, okay, a conductor switching boxcars, I was in the engineering department throwing ties out.

I never did like conductors too much because they worked us hard that time, but I got over it. It took me 20 years. At the end of the day, that's who I am. I grew up in the railroad from the ground up by accident. I never thought I was going to be a railroader.

So I'm retired, went to Mount Everest base camp a few times, north side, through Tibet, south side through Nepal, did [indiscernible] around it, went to Italy and France, went around the whole thing, down in South America, Grand Canyon down and up because people told me that you should never hike the Grand Canyon from the top to the bottom and back up in one day. So guess what Vena says. I think I can do it, 16 miles, over 5,000 feet of elevation gain. I did it in 7 hours, and I was at home by 6:00 having pasta and some beer, okay?

So love it. That's what I was doing, and I was enjoying myself. I came to Union Pacific in 2019 because of the challenge it is the biggest railroad in North America. We own more track miles owned than anybody else, 26,000 versus 21,000 and get the highest revenue. But at the end of the day, it was let's see what we could do with this at this railroad that's not optimized and what can we do to drive it to another place.

And this slide gives you a real good indication of that. We took a railroad. If you were operating the business that we're operating today, like we operated it back in 2019, we'd have 20 or percent more trains running we do today. So we did not take the system and take it down and remove assets and track.

What we did was, it's given us that buffer that we can grow and we can recover quicker. Now we've done that with train length. And today, we operate 24% less trains than we would have if we had the same model, and our speed is faster. Our customers are seeing less touch points in the cars, less time in the terminals and they get the destination quicker because our car velocity has gone from under -- in the 100s numbers to over 200.

And that moves the railcar from origin to destination. I can keep on going like I'd love to. Maybe when I retire I'll get on the speaking circuit, like a lot of these ex-CEOs talking about what they were doing back in 2014.

And and they were running a s***** railroad and they want to tell us now how the -- how to run this railroad, and we're running it better than they ever have. And I just say that out loud Walter?

Yes. You did. Yes.

I knew I'd get a little reaction from some of you. But it's amazing how people are experts after they retire. Jim Vena will not go on the speaking circuit. A day I retire okay? I'll leave with my two boxes out of my office. I will take the company playing home.

But at that point, you won't see me again. You want to come and see me. Come and see me in Scottsdale, Arizona in the winter time. The summer time come to Jasper, Alberta will go hiking, okay? Or in Sorrento, British Columbia on the lake there, that's just an absolutely gorgeous place. That's where I'll be with my grandkids, my kids, my family, my friends, you will not get me out here Walter to speak about the fricking railroads, okay?

Unless somebody says some bad things about me, then I'll come out of retirement for the day. So that's who we are. And I think it's a great picture of what we do. And we carry a buffer of locomotives and a buffer of people and a buffer of resources, because the recoverability makes a big difference in service. If it takes you a month to recover from a weather event, and guess what? That's bad for the customer and they look for options. Let's talk about the railroads for a minute.

Canadian National, we used to go through the yellowhead pass to get to Vancouver. Yellowhead pass the highest is just over 3,000 feet. It's not even 4,000 feet. Yes, we get some winter there. It's cold, we get some snow. But I'm telling you, this fricking UP when they built the railroad, who the heck put those mountains on the way to the West Coast of California.

We come out with like 6, 7 locomotives while CN can come out with 2 or 3, big difference in the railroad and big difference on it. Somebody decided that you put these mountains in a place where in our mainline coming out of the northern part of California, we get 500 to 800 inches of snow over the donor pass every winter. So it's sort of fun. I love it. But that's why I came back to work, and I like where we are, and I like what we're doing.

We probably want to hear a little bit about the merger. We thought this through very carefully. And in Canada, there's two railroads that go across the country. They go Canadian Pacific goes from St. John all the way to Vancouver and Canadian National goes from Halifax all the way to Vancouver and Prince Rupert.

They serve customers across the entire country. And I'm telling you, as an [indiscernible]. They do a good job on what they charge and as good as anybody to move the products. In the United States, there has not been a transcontinental railroad that will go from ocean East Coast to the West Coast. And I think we limit the capability of customers, shippers, suppliers to win in the marketplace because you're competing against more than just your local customer, you're competing against the world, whether it's in soybeans from Brazil coming into Mexico, whether it's steel from other places, whether it's copper, whether it's grain products, whether it's ethanol.

So at the end of the day, that's what we're building. The merger, when we put the first application in was, we thought, gave a good story and gave the metrics and everything that the STB, the regulator needed to go through. They gave us three key areas that we had to update when they didn't accept it, and they're also a couple of small ones. So in this application, we've answered those three questions. One was we've done a full asset view and full waybill view of the movement of traffic within the U.S. And that was before we did a sampling. And the reason we did the sampling and instead of the full was we just didn't have the information from all the railroads that would allow us to do the full waybill analysis.

But we received all the information and we've got it in there. It really didn't change the flows, the competitiveness. If I step back, we answered the questions pretty clear. And we were absolutely sure this was great for America. And here you are, you're listening to a person that was born in Italy.

People ask me the question sometimes are you Canadian, I love Canada. I love growing up in Canada. I wouldn't give -- I wouldn't change a thing that my parents came over with 2 suitcases and moved to Jasper, Alberta 37 years old, okay? I wouldn't change anything. I love the place. But I need an American railroad.

And my job is to lead an American railroad not to lead something else, okay? And my job is to make sure that we do the best for Union Pacific, its shareholders, its customers and what we can do in the nation in America to move it. We don't operate into Canada. We can affect what happens in Canada a little bit with the railroads, but that's it. So bottom line is, when we looked at the merger, we thought it was real good for the entire country. And that's why we put it forward. And I know Walter is going to have a whole bunch of questions.

The other two areas that people wanted to see was we have the small railroad, the number of railroads in the U.S. and even in Canada on. And it's a switching rail in St. Louis, that is operated as at the least cost because we don't want to make profit out of it, it's handling the interchange of traffic between the parties. So some of the railroads said that we needed to have more information, even though we said we don't want to ever own 50% of it, but that wasn't good enough.

So in this application, we bumped that up and said exactly what the process would be and how we'd get to the solution. And then the last one was the release of our document that gives you the red line at what point ourselves or Norfolk Southern could walk away from the deal. And that's normal when you're doing an $85 billion deal. You want to have some rules of the game. As simple as that. What does this do? It's a seamless operation. Think about it for a minute. I'm sure you've had some of the Canadian railroads up on stage, Walter.

And I bet you, not one of them came in here and said, "You know what, we're going to stop we think that the business is not quite as good, the railroads in Canada." We should stop in Winnipeg and sell the Eastern portion of our networks so that two other railroads could own them and will just interchange in Winnipeg. What you do is you limit the movement of goods. You don't do it at the same price. It's what we're going to offer faster service across the U.S. at less cost -- and the reason it's less cost is, and it's in our application, single-line railroad moves are substantially priced less than if you have multiple parties that need to make a profit on every piece of their movement.

And in fact, the reason we can do it cheaper and offer a different price is every time you set a railcar off to another railroad, someone has to switch that railcar. Somebody has to handle it before it gets to destination. And then the other railroad has to have the expense of picking up the railcar, switching it, putting it on a train and moving it. Those two steps are removed, and you can go seamlessly from Denver to Indiana. You can go from Michigan on the West Coast easier.

So that's what we're selling makes a whole bunch of sense, and those are the facts about where we are. At the end of it, how big are we going to be, because if I was a regulator, I would worry about it. Is it going to be that Union Pacific has 80% of the market. In actual fact, we're going to be less than 40% or around 40%. And on a gross ton basis, we're actually going to be the same size as Berkshire owned BNSF.

Is there going to be competition out there? CSX is still going to be there to compete against us. They are not -- and they're a strong, big railroad, well-run smart CEO over there, and he's doing everything he can to make them as efficient as possible to compete. In the West, we have Berkshire owned and Berkshire, let's get serious. This is not little BN. This is over $1 trillion company, Berkshire that owns assets in the oil and gas, owns an insurance everywhere else and has $400 billion in cash in the bank.

So they can do what they want to do. And if anybody thinks they're going to be an easy competitor, any customer that has Burlington Northern as our competitor today, we'll have it tomorrow. In the entire merger because it's bolt-on, there's only 5 customer locations that we have found that will go from 2 to 1. Maybe there's one more somewhere that we missed with one railcar that they ship a year and we'll fix that. So any customer that's going to go from 2 to 1 access, we'll open it up and put another railroad and have access to that customer.

Final point is on inter-switching reciprocal switching. In Canada, there's reciprocal switching. Anybody that's a certain distance from an interchange can get access to a customer. I'm all for that. I'm not afraid of doing that, and I've been very public about it, and I have been public for 10 years even before we talked about, okay, mergers, this merger.

Because I think if a customer has not provided the right level of service, then you should be able to have an option to go to somebody else. The only thing I ask is that the rules are simple that everybody understands what they are, and we don't pay a whole bunch of lawyers to fight about what the rules are. Lawyers hate that, right? They want the rules to be muddied up so that you spend all your time hiring these expensive law firms -- and listen, we did -- we have a few law firms right now that are helping us, and they're expensive.

I should have been a lawyer. It would have been -- no, I'm good. I love the railroad. The bottom line is that's who we are, that's what we're trying to do. We know the merger is good. And let me just say this, final point on the merger, and then we'll open it up for questions, Walter. I've taken a lot of time, I apologize.

But in business, stop and think about it for a minute. If you're a competitor in your market, in your business, was doing things that were illogical that were not good and their product was not going to be good. Would you complain. That have to be an idiot to complain. In fact, you should be sending them a card telling them how smart they are and how tough their competition is.

The reason we have the -- some of the other railroads complaining so hard is -- we're going to provide a level of service when you move products, okay, across the country at such a high level, because we get rid of touch points that they have to compete against that. So if you can't compete, and some of them are already trying to compete by having agreements with other railroads.

But those -- the problem with those in our history, they never stay for a long time because people get internal and look at themselves, and they have to do it on price. That's what they're worried about. They're going to have to drop their price in what they charge if they want to compete against the new Union Pacific.

While we do not have to because we get the advantage of the efficiency we get and not touch on railcars. I'm excited about this. I think it's -- personally, I think it's a slam dunk. I don't know why it's going to take the STB this long to get it approved. So with that, Walter, I'm good. I want Jennifer to come up here because she's probably better at this.

Yes. Yes, I mean you've touched on the two elements of change that we're looking to focus on, one being the transformational change of precision scheduled railroading brought into your industry. And really where I want to go is what is it? How does it work? And is there more -- are we going to see more either at UP in general, but in a combined entity as well, and then we can talk a bit about consolidation.

But perhaps you were one of the original architects of it, the late great Hunter Harrison, kind of created it, this notion of precision scheduled railroading. If you get in your own words, just describe what that is, how difficult it is to implement. It really is almost a cultural and full on operational change in an organization. How difficult was that to manage the first go and the second go around?

Well, listen, let's back up a little bit and maybe because we have some time to tell a little bit of history. You learn from great people and you learn from people in the business world, and I'm sure all of you have done that. You've met some people that you don't learn too much from, and you're glad that they're not working, you're not working for them. But there is some people that are real key. I was blessed having Paul Tellier as a CEO when he came in from government and did a spectacular job and made Canadian National into a publicly traded company before it was a Crown Corporation. And he did -- and his view of the world was you need to move fast.

You can't have too much bureaucracy, truly amazing from a guy that came from the government, but he did a spectacular job. Hunter Harrison comes on, and he was the first CEO I have ever worked for that could come out in the field and actually look at the operation to see how well you're doing.

He come out with a blank piece of paper and started asking you questions about how you were doing. And he really pushed you to think about what's possible, what can you actually do and how can you get better and that assets you needed to -- he had a few says, you have to sweat the assets and you don't build the church for Easter Sunday.

That point, I disagree with them on, okay? But at the end of the day, you learn. And that's how this whole efficiency of how you have to make sure you look inside the company and how you can do that. For the longest time, the railroads just didn't spend enough time to look at how they were operating. So he truly was -- he taught me a lot. And what -- and then I had -- I was blessed to have Claude [ Mongeau ] that was balanced in very strategic, very view of what -- and had a much more customer-centric view that you need to have.

Hunter would have cut to the last locomotive, while Claude was we need to look at what the customer is doing and how the relationship is. So I've taken all that. And when I went to Union Pacific and even at Canadian National, listen, we had some ORs at Canadian National that were in the 53s and change. That's a pretty good number. We've never been able to replicate that. I'm hoping to, but it's not like on the top of the list of things I want to do.

But at the end of it, what you need to do is it's first changing the culture of the people and what they look at and what they spend their time. This is First thing you need to teach the operating people is your #1 job is to make the railroad deliver on what the customer -- what we sold our customer and make sure that they get the product when what you promised.

Second is you need to spend all your time on how well the operation works and break it down piece by piece. And that end have the best measures so that you can see that and react quick if things aren't going the right way. When you put those things in place, you're able to drop your dwell time on how long it takes you to move a car through a terminal by 40%. You're able to move trains -- railcars faster by 25%. You're able to touch cars less so that you do that. And that's what it's about. But it's not just the operation. If everybody thinks it's just the trains, you need to have that culture through the engineering department on the miles of rail you have to inspect, the amount of ties you put in, how you can do it faster and better and you spend money on technology.

We've been able to spend money on technology that allow us to manage but also give us answers on the results. Nowadays, everybody talks about AI, and it's great. It really is. It gives you some information quick, especially generative and what you can get out of it. But at the end of the day, we've been trying to do that without the whole AI is look at the information that we get and come to a better solution.

And then you have to be top to bottom in the company aligned. You can't have a CEO that's a PR person or worried about how his cufflinks look or worried about what -- where he's going to go stay, where he's going to fly to, you need a CEO that puts his boots on the ground and goes out. I spend time on the ground. And I'm absolutely sure if you interviewed any of the frontline people at Union Pacific, they love it when I show up. No, they don't. The heat on them, make sure that the focus is on what we have to do. So I tried to give it on a high level, and hopefully, I answered that question.

Absolutely. And really, the next question, I often -- and you mentioned Paul Tellier, you mentioned Hunter Harrison. The Pig that Flew is a book that I recommend if anyone is interested in the Paul Tellier story, it's a really good synopsis of that. And then the Railroader is another good book that gives the authorized biography of Hunter Harrison. I thought it was a pretty interesting one.

But when PSR is "done" and you've got the efficiency that you want, my question is, are you there on Union Pacific right now? Because so often, I hear many managers say we're going to pivot to growth now and the growth doesn't seem to come in the way that we were kind of told. Where are you in that journey of PSR? And is there still more operating synergy and opportunity to have in -- at Union Pacific? Or are you going to wait it out until Norfolk Southern comes on and then open it all up again to operational improvement? Is there more left to go?

Walter, there's -- my view of the world of how to operate a railroad is you need to be very efficient, but you also have to grow your business. The best thing you can do is grow the business. Top line growth is and carload growth is the way it is. And we've done a good job at Union Pacific growing our business and at the same time as we want to get more efficient. I'm not into driving the efficiency to the point where it affects us on being able to grow our business. And we're starting to see that. Customers see on our domestic moves on autos, on auto parts, on aggregate, I can go through the whole list. You know what people sometimes think that they -- it's -- what we move is a railcar, but we actually move every week 30 billion pounds just at Union Pacific of products that are used every day by our customers.

Now I made that number big by multiplying out because we always like talking big. We're real routers, right? So we talk tons. But you multiply it out, and it's even bigger than that this week. We're running at about 168,000 railcars versus last year at 162,000. So nice growth. We're moving. Multiply the 163 times about 9 year 100 tons per car, multiplied times 2,000 tons. That's how you have the 30 billion. That's -- there's a lot of product we move. That's how we win is to grow that, Walter.

Let's move over to consolidation now. There's two aspects of consolidation, I think that brings significant merit to the railroad industry. And the first one is just the fact that you've shrunk your competitive base and 40 years in the industry, you can give us a sense of what it was like in the dark days and what consolidation did from the sector. And then we'll go into the more specific of Norfolk Southern. But in 1980, there were 39 Class I railroads.

Right now, there are 6, two in each region. Barriers to entry, obviously, are very high. Can you talk a bit about how consolidation affected your ability to do business, your ability to service the customer, deal with your competitors the whole gamut. And like I said before, I know in 2004, the railroad industry saw its renaissance. It wasn't like that before. And just talk a little bit about how consolidation played a role in that.

Well, listen, you just can't compete with customers if you're handing it off 8x to go across the U.S. like it used to, right? You handle it with Union Pacific and the C&W then the MoPac, then you go the North Western and then the Western and then the Southern and then you go deliver it. Every one of those steps cuts you 24 to 48 hours by the time you went across a truck is going to beat you in make 4 other trips. So the consolidation was important.

Is the consolidation control so much of the market that you say, listen, there's a problem with that. Railroads handle about 11% of the total freight traffic in the U.S. So you start there at 11%, and we actually have limited ourselves by not having an end-to-end movement from one part of the country to the other and the serving Walter as simple as that. I have -- I'm a collector of a few things: cars, vehicles. And also, I have a number of old railroad advertisement panels that they used to use before social media.

And I have one from World War II that talks about the 47 railroads that are all combined for the war effort. Canadian National is on there, the Central Vermont is on there, Union Pacific, C&W. So if I ever need a lesson on what happened there, I just go to that baby that's in my office and my home in Scottsdale and I take a look at it.

Yes. And now let's move now to Norfolk Southern -- we learn back in school that oftentimes acquisitions fail more often than they work. But it seems that in some sectors, they do tend to work very well. I used to cover the waste sector and certainly, the consolidation that there has been working very well. Railroads, it's worked very well.

What makes it and what concerns do you have when you look at an acquisition of a railroad with size of Norfolk Southern, never this size before. What do you worry about? And maybe you talk a little bit about system integration and so on when you touch on that answer?

Walter, I think I think we have been planning for how we will move ahead once the merger gets approved, it's not going to be easy. I'm not trying to say that it's easy, but we are very comfortable that we have the right process in place of how we would handle it. You deal with different cultures, people in the eastern part of the U.S. and at Norfolk Southern have a little bit different culture. -- like let's get serious. People from New Orleans are different than people from Omaha, right? Just culturally, weather-wise, everything else and the same thing from South Carolina to California.

So at the end of the day, we need to make sure that we do this in a very systematic step process, not be too hurried and do it in the right way. I have done it before, not at this scale, okay? I was the Senior Vice President when we brought on the EJ&E. I was in Western Canada when we brought in the BC Rail. So there is things that you need to do smart. The first step that we're going to take is guarantee a job for every unionized employee so that when they come to work, they know, anybody the very first day that we buy the company, we've guaranteed a job for life for every unionized employee.

We use attrition, okay? If we slow down and look at productivity, it runs about 7%. So it's pretty easy to sort of adjust things in the right way. So the very first thing we're going to do is not try to do the technical piece with the computer systems and everything else together. We can operate the railroad and get the operating plan in place and be able to provide a service for the customers. And we can do that pretty seamlessly by putting the two sort of operating plans together into one. Then we'll stop there, and we're going to have a customer advisory board and probably around 40 people or 45 people, we've analyzed that type of people that we want, and they're going to be shippers and movers of product with us so that we can do a check and balance to see if we're in the right place before we do that.

And we'll do their technical sort of net control, the base operating system into that railroad at the right time when we think we're ready. We did it at Union Pacific 2 Januaries ago, and that system is actually [indiscernible] you, we built it, and it is an upgrade on the key foundation program that operates our railroad. All the design, all the payments, everything, the car records all come from that.

And also, we have to do that because you could not go backwards, once you shut the other system down, you lose some time. And the worst thing you could do it takes you a long time to recover all those records if you lost them. And we were able to do that seamlessly. Nobody even heard about it. We did it over a weekend. We had a lot of people working on it, and we'll do the same thing with everything at Norfolk Southern.

I'm not saying it's going to be easy, but we are absolutely sure that we can do this and do this right so that we don't get the same and times have changed. People talk about -- it's amazing, okay? People talk about the 1990s, there was a problem with railroad mergers. In 1990, did any of you have cell phones. Did any of you be able to get information the way we get it today. Can you ask AI take a picture yourself and say, is this the ugliest haircut you've ever had, and it gives you an answer, okay?

So at the end of the day, times have changed, and we have better information, better information flow better ways to react. So I'm very comfortable that we'll be systematic, and we put it in place Walter in a great way.

Let's move on to the regulator decision and the topic of concessions. You've had the the $750 million number out there, how magical is that? Maybe if you could talk a little bit about what hands are in the air right now, what you would be willing and where do you see it logical to give up concessions and where you'd be a little more.

Well, this is truly a bolt-on bolt-on. So what it is, is we are combining in places where we meet today. So it's pretty hard to come up with any concessions. What would we give away, right? So at the end of that, we came up with the $750 million because we -- when we looked at it, originally when we put the application in and real early that we thought there would be some loss in business while we were waiting for the merger to have to get approved.

But when we've looked at it again, we really -- other than a little bit of overlap, we don't see a lot of area where we have to make some adjustments. The TRA, that terminal, we're going to give up some. That's not financial hit for us. So it's a real low number. It's nowhere near $750 million. That was where we started. And that's why when we put the application in and we've been pretty clear on it, that we think the concessions are 0.

Now will we sit down and talk to people, you're better off to be -- to have your neighbor, except that it's a good thing that we're doing. But what I'm not going to do. I'm not going to tell my neighbor, he can park on my driveway. Okay? I don't know if any of you in this room would do that, but we have two driveways and they want to come over to my driveway because I bought the house next door. That's not going to happen. Now if you want my driveway, I'll charge you monthly $500 a month to park your vehicle in my driveway, but you're not getting it for free. So Walter, let's get serious here. Let me add a lot of overlap. People would love it to get something for free. I'm not into giving anybody anything for free.

What do you -- just to wrap up here, how do you look at in the future when you go 10 years from now and Union Pacific has done its deal with Norfolk Southern -- how does it look? And -- has there been other deals? Do you think that this trail blaze is now a way to open the door to other deals so that we get more consolidation in the sector? .

I think five years down the road, American customer and shippers on the railroad are going to say son of a gun, why didn't they do that five years before? Because it worked, makes sense, we can compete better. On the railroad of the industry, absolutely when they figure -- they know it already that they say, holy cow, what are we going to do? Walter, let's get serious. CSX wanted to merge with us. It's out there. I would say it publicly.

So it isn't like they didn't see the value of a merger. So they would love to merge. The only problem they have is at this point, Berkshire has said, no, -- and so far, none of the Canadians have stepped up to see what they could do. Up to them, I'm not worried about what they do. I think there will be some more consolidation. I think we provide better service to customers.

I think the customers see a win, whether there's 6 railroads, 5 railroads or whatever that number is. It's a win-win. And I'll be happy. I'll be smoking my cigar, having a good Irish 27-year-old redbreast whiskey, watching my grandkids or great grandkids enjoying themselves. And I'll tell you, I won't even be thinking of all of you on the railroad. Okay. So thank you very much Walter.

No, thank you very much for your time, Jim. I appreciate it. Thank you.

Thank you.

All right, morning, everyone. We're going to get going with our next session. We are now at the transport portion of the conference, starting with Union Pacific. I'm really happy to have Jim Vena, CEO; and Jennifer Hamann, CFO, back at our conference. Thank you guys for being here. Jim and Jennifer have a quick couple of opening comments and some slides to show, and then we will get right into questions. So I'll pass it off to you. Thank you, Jim. Thank you, Jennifer.

Perfect. Listen, I'm looking forward to the questions. So let me see if I can get this done in 1 minute. Okay. So real quick, morning. We already ran into each other, Scott. So wonderful. Of course, Jennifer is here with me and if we really run into trouble, Diana's here with us, okay? They always get me to tell you that we're going to make some forward-looking statements. If you have any -- you need any more clarification of something that Jennifer says wrong then just make sure that you give us a call, okay? And if we go to Slide 3, and this is real important about the base of where we are, you can see our strong execution continues to deliver industry-leading across safety, service and operational excellence.

And we enter 2026 in a real strong and the first quarter is very similar to what we did in 2025. So real happy. We led in the industry in return on invested capital [ NOR ] and did the same thing in the first quarter. And in fact, our nearest competitor is about 400 basis points behind us. So that's a good place for us to be where we can provide service to our customers, provide our investors a view of what we can do and how we move ahead. So we're real happy with that. And we're delivering that at a real high service level. In fact, to the point where Kenny and his team no longer have to worry about the first question being how our service is they go out there and sell the business. And that's a good place to be as a company. A lot of hard work by a lot of people out in the field. And Jennifer, over to you.

I had you closer to 2 minutes than one, by the way.

I apologize. I'm telling you, I'm getting slow.

I'll make up time here. So just a quick business update for you. So right now, quarter-to-date, our volumes are up about 1%, and that is certainly supported by the strong service product that Jim referred to. But it also gives you a picture of the great diversity of the UP franchise. When you look at how we've broken out in terms of how business is shaping up for us today. So right now, up 1%, as I mentioned, but that's with bulk flat so that's a little bit different than the first quarter. You still have grain and grain products that are up, call it, 10%, 11%. But our coal volumes are actually down year-over-year here in the first quarter, down about 14%.

And that's really driven by a couple of things. Certainly, we've lapped on a year-over-year basis, the contract win that we had last year with LCRA, but then you see kind of the normal shoulder season, a little bit milder spring weather. You've had a few plant outages, the normal seasonal maintenance that's going on and then lower natural gas prices impacting us on the coal side right now. We expect that to come back some as we get into the summer months, but that's the dynamic we have here in the second quarter. Industrial, really the heart and soul of the UP franchise, up 4% that's a great service, that's great business development, about 6% growth in Industrial Chemicals and Plastics, low natural gas prices, stronger export demand. You also have metals and minerals up about 5%, strong construction business in the southern part of our network.

And then on the premium side, down 1%, that's a bit of a mixed bag. You've got international intermodal, which everyone knows the story there, the comparison year-over-year. We're actually hitting kind of the low point of that comparison. We're going to start seeing it get a little bit tougher here as we build through June and July, and then we'll look a little bit softer through the rest of 2026 in terms of that comparison. But then you've got continued strength on the domestic side. So as you heard Kenny talk about it, our first quarter earnings, 3 consecutive quarters of record domestic growth, having another very strong domestic quarter here in the second quarter and the finished vehicles are up.

So a little bit of strength on the finished vehicle side as well. Last thing I'll just mention is fuel. So need to talk about fuel a little bit. It continues to have an impact, you saw a strong rise in fuel prices going from March to April. April prices, we were paying around $4 a gallon. It's actually gone up some in May, closer to $4.25 a gallon. So that is a little bit of a headwind for us that we're facing, certainly.

Perfect. Why don't we go to the next slide? You're a little slow this morning Diana, okay? And didn't you guys love it. I was directing people to empty seats. There's a couple more over here. If you guys want to sit down, but otherwise, you can stand up. Bottom line is on the merger front, just a quick update is as we put the application in, it's going through the process. Now what did we do in the application. There are some key areas what the STB asked us to do when we put the original application in and they gave us the feedback and said that we needed to work out some, one was to take a look at the -- how the traffic moved and competitive review which we've done. In fact, before we were using the sampling of waybills and sampling the information. And this time, because we were able to receive all the information from the other railroads, we actually ran it as a complete using all waybill data.

And really, it didn't change very much. It was a little tweak on a few things. But overall, the sampling did a pretty good job of setting it up. So we answered that question. There was a question about the release in that 5.8 document, which talked about where, at what point we at Union Pacific had the right to walk away from the deal, if it truly became non additive to our business. And that's what this is all about is would it add to our business. Now of course, we didn't put the highest number in there, and we negotiated at the right place so that we can then start talking about options if we had to. So we've put that out there. And then there was some smaller things like the TRRA, which is a not-for-profit switching railroad in St. Louis that a number of us own and with the merger, we would have ended up owning over 50%.

It also has the liability and the problem that it has bridges that go across the Mississippi. So we actually -- they wanted us to answer a little clearer, and we were black and white about it. I thought we were black and white in the first, but there was a lot of feedback from other railroads that said that we weren't black enough -- black and white enough. So this time, we're pretty black and white. We're willing -- we will make sure that we will not get to 50% ownership.

So either turn back shares or turn them into nonvoting shares, whatever we need to do. But you guys will find this real interesting, and it sort of tells you about our competition. Our competition are the people, other railroads that rolled in that they weren't comfortable with that. So when we put it in, as soon as we received the feedback, we actually called the special meeting of the Board for the TRRA and asked all the railroads to come in so that we could talk about how we could dispose of our shares or the NS shares if we close -- when we close on the deal. I hate to tell you, nobody showed up even though they were supposed to. So at the end of the day, we've answered it in the application, but it goes to show you what we're up against trying to be reasonable to get to a place where the STB can actually look at the merger and look at the benefits.

The benefits haven't changed. And in fact, we're much more confident with the benefits now. It is good for America. It is going to allow us to offer our customers a seamless movement over the railroad from one end of the country to the other. And that is not a small thing. That enhances the capability of our customers to compete against the world and other countries and other companies, and it also enhances their capability to be able to move things in a seamless, faster manner across the United States of America. So for us, we see even better movement of products through. We haven't backed off. We think it was real important for us to tell our unionized employees that they have a job for life. And of course, listen, any time you're going through something like this, we expected at some unions, we're going to be positive about it.

And our largest union, Smart-TD actually came out real fast and said, "Let's make a deal that talks about maybe what the mechanism and how it works." But the guarantee of a job was there already. In fact, the way it works at our railroad, the Brotherhood of Locomotive Engineer and Trainmen, who are part of the Teamsters is one of the parties that has not come on board to support this. But in actual fact, their employees are already protected. If you're -- because I'm a locomotive engineer, I'll tell you how it works, if you're a locomotive engineer, you came from the conductors ranks, meaning that you were covered by smart-TD so if somebody -- if we had to sort of adjust headcount in any place with the BLET, they actually would flow back to be a conductor and would be covered under the Smart-TD so we don't really need a deal.

So the majority, over 80% of our employees are covered with deals that we have with the unions. So the last thing is competition and how we can enhance it. There's no ifs, ands or buts that we're going to have a better product against trucks in the long-haul market. And we also are going to have a better product in the shorter market that is underserved today. So we're very confident that we've shown and even more confident than when we put the first application in that we'll get this accepted, and we'll go to the next step, which is, let's go make our case and analyze it and see what happens next. So I think I tried to cover everything off, Scott, so we could talk about our first quarter and where we are, but it's all back to you.

All right. Fantastic. Thank you, Jim. Thank you, Jennifer. So I'll start on some merger questions, then we'll get into the business. So you talked -- you gave us a bunch there, Jim. So we are -- we'll get the decision from the Board next week if the application is complete. So just 2 questions. We've -- you've obviously talked about what enhancements you made to the application. Anything from some of the comments from the other rails, since you submitted that give you any pause for concern? And then I'm sure you love hypotheticals. But hypothetically, if once again, the merger is not complete, where do we go from there?

So why do we start with the comments that have gone in? We answered the comments pretty straightforward, and it truly is a game of lawyers now. Everybody has hired a whole bunch of lawyers and firms from across the country and a lot of them are here in New York, and they go through and they tell you what they feel. Fundamentally, we answered the questions that the STB asked us to. We didn't -- on purpose, we didn't try to add another 1,000 items in there or more detail on some of the things. And that's what people miss, if someone tells you that this is the area you need to look at because we didn't accept at the first time for these 3 plus they issue a number of small little things, then that's what we went and answered.

So at the end of the day, we're absolutely sure that the STB should take that we've answered those questions, we've given them the answers that they wanted. We've provided in the application, and we expect it next week to be accepted. Will the STB come and ask us for more information, absolutely. As we go through this process, I'm absolutely sure that the STB will say, Union Pacific, can you do this? Can you take a look at this for us? Can you give us this flow? Do we make sure that maybe they need to understand the piece of it? Remember, it's not the other railroads that are going to make the decision. They are our competitor. They are -- in most things in this world A third party would not listen to a competitor. I think a competitor is going to look internal to their view in what they want, not what's the benefit of what Union Pacific is doing.

And you can see that when I gave the example with the TRRA that they wanted us to answer the question and when we asked -- called the special meeting of the Board at the TRRA, Berkshire-owned Burlington Northern Santa Fe didn't show up. And I could go on the rest of the railroad. You guys know who owns it. And it's a not-for-profit railroad. So the STB, they're smart, okay? From everything I've seen with Patrick and Michelle and Karen and the new person that's close to joining. At the end of the day, they're going to look at the facts of what we're presenting. And we're pretty clear on what the facts are that it's a gain. So I'm telling you, I would be really surprised, okay? That the STB would -- at this point, when we've answered their questions. I don't know, it'd be like going up to a teacher that said, you need to answer question 1, 2 and 3 for me and you go answer question 1, 2 and 3 and then they come up with question #4. Nobody would be happy. Your parents would go in and yell and scream at the teacher.

All right. So you feel confident about the application being deemed complete. We were at our conference a year ago, sort of dancing around the idea of M&A, like we've been talking about this for a year. We haven't even gotten to the part of the process where we actually talk about the merits of the merger itself. So that starts in theory starting next week and that, give or take, is a year, right? So maybe let's spend a minute or 2 there. So at its simplest form, right, you need to demonstrate 2 things: that it's in the public interest, and that enhances competition. I think everything you've talked about with trucks and everything, I think you've made it laid out, others can disagree, but I think you've laid out a case for why it's in the public interest. I think you've laid out a case for why it enhances competition with truck, right? Where I think there's probably more debate is does this enhance rail-to-rail competition and so I guess 2 questions. One, how does it enhance rail-to-rail competition?

And two, do you have a sense from the Board, are they looking at competition? Or are they looking at competition, meaning are they looking globally at competition globally truck? Or are they going to look at just intermodal rail to rail? What do they care more about?

Let's start at a high level. Any agency in the United States of America, okay, federal or state, their primary goal should be how you move business forward, how do you provide better service to people, how to move better competition, how to do things that are better. Nobody would ever get an agency to slice and just say, let's just look at it from one front, okay? And in this, it would be remiss if the only thing the STB looked at was rail only. Really, nobody wants trucks off of the highway. Really, nobody wants to compete against the soybean producers in Brazil. Really, nobody wants to make sure that the competition is out there to move products in a much more seamless, faster method. Nobody in the U.S. should worry that the Canadians and good for them, okay? People will ask me, aren't you Canadian, I lead a U.S. company.

It doesn't matter whether I lived in Canada. I hate to tell you, when you take the responsibility and it's the stupidest question I ever get, aren't you Canadian? It's like don't you feel something about -- don't you feel something about? No, we're in competition. And the Canadian government is spending $5 billion to expand intermodal facilities, ports in Quebec and in the West Coast, in those products, the size of the expansion is not to move that product in Canada, it's to move it with jobs in Canada to come into the U.S. So should any agency look at the entire picture of what happens? Absolutely. And listen, some of the rules that were written go back to when the railroads were absolute, there was no highway -- interstate highway system. They go back so far that people talked about the power of the railroad. We are low double-digit movement of goods in the United States of America.

Even though every week at Union Pacific, we move 30 billion pounds. I tried to make that number big, so I multiplied it out, okay, to make it pounds. But we move 30 billion, but we're still a fraction of what is moved by truck. So I'm not trying to be political on that. It just makes sense. It would be remiss. Now on the rail-to-rail competition, what have you seen since we announced the merger, it's amazing, all these things that are going to -- that we're already in the chute, right, cooperation and everything else. It's amazing how many things were in the chute, just waiting for us to announce the merger before they put trains on that would run from Mexico to the East or from the West Coast to the East Coast a little more seamless. But what we're going to deliver that enhances what's the word enhance mean?

And I know there's people in this room that have written that I've read, they can't -- they seem to not understand what the word enhanced is, go in the dictionary, enhanced is to make it better. So what we're going to be able to offer is seamless at a less cost and less price for our customers. That enhances their capability to expand their markets. And why? You remove a touch point when we hand off the car to another railroad and that expense of picking up the railcar, that's expensive. That goes away. We're able to offer it. The rates you'll see it in our application, single-line rates are substantially less because of that. So our customers should be able to have better rates because we set our rates not by some dark board in a room, we set it with what the market and what the capability of the market that we can move and understand the market we're moving that product.

So we're going to enhance in speed, that's better. We're going to enhance in touch points, that's better. If you remove touch points, you actually become a safer railroad. The less you have to touch a railcar switching it with a human and everything else. At Union Pacific, we have -- last year, we were the safest railroad in regards to people coming home and -- coming to work and going home the same as they were before, but our accident ratio dropped substantially, and it's online. People want to go find it. FRA has it. We have it. Go ahead and take a look at that. And one of the pieces we've done is invest in technology, but also it's removing touch points on cars. Any time you can stop touching the car 2 or 3 times the railcar to get from Houston to Minneapolis and you can do it seamlessly better and that's what we're going to offer. So what's enhanced, Scott? I don't know about you guys.

You guys must not think that being able to fly across the country for people that don't know the railroad industry real well, okay? For those of you that want to fly across the country, I guess you're okay with having only regional airlines because it can't be an enhancement to be able to fly from New York to L.A., you'd love to stop in Chicago, get off, buy a new ticket, make sure your luggage makes the connection, make sure that if you change terminal, you're okay. And of course, the other airline is going to wait for you when the first one was late. So mamma mia like what are we talking about? How much more enhancement can there be.

Well, CGP and open gateways.

Certainly, part of what you're saying, it sounds like is this is in the public interest, which should be the most important thing.

And enhanced like -- let's get serious here, okay. So we both serve customers in the Houston area, okay? And if you want to move when the combined Norfolk Southern, we're going to give you a seamless move all the way to Philadelphia. The other guy has to hand it off. I don't know. Last time I looked, that's an enhancement from what we're doing today. They're going to need less railcars, less inventory to move it. Scott, I guess you can see I'm a little -- I find it funny that people can't figure out that, that is an enhanced product. And what are the competitors going to do? You're all businessmen in here. You're all smart. If you can't compete in service because you can't move it as fast and you can't compete, okay, in touch points, what's your only option. You have to compete on price now. So you have to lower your price to be able to compete against the new Union Pacific. That's what they're all worried about. Otherwise, they wouldn't be speaking up.

You're assuming application deemed complete.

You agree with me on that last point?

I understand exactly what you're trying to say. Do you have any sense, expedite time line from here, not? Is this 12 months, 15 months? What -- any quick thought on that?

The first time line that we received from the STB would say that once they accept, it will be close to a year, okay? I get to that point. But we knew it was going to take a long time Scott, if anybody -- of course, I went out there and pushed hard to say, I'd like to have it for my birthday, which is on August 17 this year. Yes, you could dream, okay, for what you want but when you don't control it, it's like when I put my taxes on that are about this thick with the IRS. Sometimes they surprise you.

You offered competitive gateway pricing, guaranteed union jobs, but some would say you didn't offer specific concessions around reciprocal switching terminal access, whatever that may be.

We have been very clear on reciprocal switch. And I can't believe that people don't get this. And we said we are all for reciprocal switching. If we don't deliver for our customers, they should have an option. So somebody who doesn't have an option that today is a single origin person somewhere on our network that we would be more than willing to open it up. All I ask is that everybody does that. So it's not just Union Pacific. And why? If you have the highest level of service in the industry, you're the fastest real good safety metrics, right, and the lowest OR that allows you to make sure that you price in a smart way. I hate to tell you, I think we win.

So absolutely, I've given that. And the only problem I've had is I'm willing to sign it. If you have the rest of the CEOs in there, get them to sign a piece of paper, I'll sign it at the bottom. Open reciprocal switching for anybody, okay, as long as it's the same. And the rules have got to be...

He is right outside.

Well, there's a whole bunch more than one person from Canada. Okay, there's a -- you have to do it so that it's not so complicated that you -- that the lawyers have to deal with it. I like the system that they have in Canada. It works. It sets what the rates are. Everybody knows it and let's go. Let's go compete.

Do you sense there's any potential for that with any of the other rails.

I don't have the right to do that.

But that's what the Board has proposed and we filed comments in support of what the Board proposed.

So, we're good with that.

Jennifer, just a couple of numbers questions on the application, if I can.

Let's go back to the concessions because we -- I sort of jumped on one and you're trying to move on to another question, Scott. Okay, bottom line on concessions. This is an end-to-end merger. This is not a duplication. If it was a duplication, of course, we'd have to give access to a whole bunch of different properties and everything else. And we do understand that we're going to have 3 lines between St. Louis and Kansas City and we're going to have to do something there. And we'll work through the process and we're talking to a number of people to be able to get that done.

But those things are complicated. It takes a while to get them done. But the rest of it, yes, how do you handle the Belt Railroad? Pretty easy. We're 16% owners, and we don't really care. It's a not-for-profit railroad. We don't use it a lot, and we want to use it less because we want to handle it ourselves. So all those little things where we touch but what is it that we want to give up? There's only 5 customers and maybe somebody will find the sixth or a seventh somewhere but any customer, but we're talking about a real low number out of the thousands of customers we have that are going to go from 2 to 1.

And we said, anybody that goes from 2 to 1 customer location, not even just customer that we'll open it up for another railroad to get in. So plus committed gateway plus we said that we are going to keep every gateway open. What else am I supposed to give like -- listen, if I was one of the other railroads, I'd love to get access to Denver, but I'm willing to trade that for access to Toronto anytime they want, but I'm not going to give it away. And we'll walk away. Scott, let's get serious here. This deal has to be better for the company for Union Pacific. Has to be able to grow the business and has to be better for our investors. If it isn't, we're pretty good as a stand-alone company, and I'm not worried about walking away from it, okay?

Quickly, if you can, like how do you think about what that comment you just made, relative to the $750 million in the...

Well, we had to start somewhere. When you're starting the process, you think about how the negotiation went, okay? You're moving through -- anybody who's done an $85 billion deal, I've never done it before. So it's a big deal. I think it was the biggest deal last year in the U.S., okay? So you identify a whole bunch of things pretty quick because you want to get to the point because otherwise, the rumors start going out and you get a whole bunch of noise. And when we originally looked at it, we said, worst-case scenario, what's it look like. And some people internally at UP said it could be that much. And some of it was lost in business, right? It was going to be some business that moved over to CSX that it was originally at Norfolk Southern. But when we actually went through it, when we put the application in the first time, we just couldn't come up to that number anymore. And that's why we said the concession number is way lower. Is it 0? No, it's not, but it's not $750 million.

Jennifer, quickly if we can. The revenue synergies from -- the EBITDA synergies from revenue originally was $2 billion, now it's $1.8 billion and then we went from 900 union jobs to 1,200, but the cost synergies stayed at $1 billion. So just quick thoughts on those 2 things.

Yes. So I mean on the revenue piece, it's mix of business. So once we had the full waybill file and we're able to do the very complete analysis, which is unique, no other railroad has done that in a merger application. So there was no sampling. It's a complete analysis of all the waybill files for the railroads. We saw that more of the business was going to be coming off the truck. More of it was going to be intermodal and that's just a mix shift in terms of the revenue EBITDA. So that's pretty easy to understand. With that growth in traffic, you need a few more train and engine people to do that. So that's the difference in people. The reason the synergies on the cost side didn't change is although you see a little growth on the labor cost, as we've continued to look at this, we continue to get more bullish about what the opportunities are. And so there was more opportunities on the transportation side in terms of how we were going to flow traffic and run the network that we saw additional savings. And those 2 just happen to net each other out to be still in that $1 billion range.

And then just also quickly, Jennifer, the -- from your update on Q2, just how is mix trending? And then your comments about fuel being a little bit higher. Any sort of near-term thoughts about how to think about operating ratio in that light.

Well, on that last part, I mean, fuel does pressure the operating ratio. And so we're certainly seeing that with fuel. Like I said, we're paying about $4.20 a gallon here. We do have a little bit of a lag in our surcharge mechanisms, and so that will flow through. But just the way the math works, it pressures the margins. On the mix piece, coal being down in the quarter, more growth on the domestic side, more short-haul rock business, that's going to probably pressure mix a little bit, but still feel positive overall.

Helps on the EPS side, hurts a little bit on the margin side, right?

And then I know we're going over. Just, Jim, one just last question I just wanted to ask you, you made a comment when Ken meets with customers, he doesn't have to talk about service anymore. Service has been really good, right? Volumes have been good, right? Productivity trends have been really good. To me, like the one missing piece in the story has been price that it's been fine. But like it's not -- it doesn't feel like it maybe what it used to be, right? When do you think we get back there? Can we get back there? When do you think we get back there?

Well, if you take a look at the mix of traffic that we have, some of it is by tariff. Some of it is by contracts. Some of them it is by multiyear contracts. So it takes a while for those things to come together. Also, there's been an impact. We have some contracts that are tied to what the costs are with some domestic trucking and everything else. So all those things make it a lot harder. I like where we are, though. You need to have the railroad on the fundamental right place so that you don't go in and have to worry about trying to explain why your service isn't delivering what you sold the customer. So I think I see positivity. Now the best thing that can happen is the economy in the U.S. continues to grow, continues to be able to have more capability.

The worst thing that could happen is if we see a downturn, and that's not what we're seeing. So for all the products that we move and you name it, we touch it, okay? Whether it's auto parts and autos, even autos have bumped up a little bit for us. You can see that in the carloads. You can see the domestic business running. So the consumer is still out there selling (sic) [ spending ]. That will help us on price and how we move ahead because I'm with you. We have a lot of discussions and a lot of deep dives with Kenny and the marketing team to say, let's get serious. We don't think we're in the right place with price against what the level of service and what the customers have gained. And what have they gained with Union Pacific.

If you can increase your car velocity by 15% or where we were. In 2019, when I showed up, we were in the 100 numbers, and now we're in the 200 numbers. So you just were able to tell every customer that they have to have less railcars because we're going to get them from origin to destination quicker. We've removed touch points. We're safer. All those things add up to go. So for us, it's pretty simple is as price is not -- Scott, and I agree with you. We need to do a better job and Kenny needs to do a better job to do that.

But let me finish off with this real quick point. Where is Union Pacific today? Union Pacific has a 25% less trains operating with more business than we had in 2019. We did not rip up track, we did not rip up capacity. In fact, we spent billions of dollars in our terminals to make them more efficient so that they can handle railcars in a quicker manner, and that's why you see the dwell being where it is at Union Pacific. So we're armed for any growth that comes to us. There's some pockets where, of course, we're going to invest to make it even more efficient, and we have that capability. So I'm pretty excited. Am I a little bit over on the next speaker?

You're a little over, so you're off the hook on the aren't you a Canadian question.

Go ahead, ask. Okay. Thank you very much, Scott. Thank you, everybody.

Thank you, Jen. Thank you, Vena.

Greetings, and welcome to the Union Pacific's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, and slides for today's presentation are available on Union Pacific's website.

It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin.

Well, good morning, everyone. Thanks for joining us. It's a wonderful morning here in Omaha a railroad and a little bit of rain coming down, but nothing that wouldn't stop men and women of Union Pacific from going out there and delivering. So really excited to be here and excited to review our first quarter and then take your questions.

So of course, I'm joined here by the regular crew. We have the Chief Financial Officer with me, Jennifer Hamann. Got Eric. Eric railroad looks pretty good this morning. So excellent job our Executive Vice President of Operations. And of course, Executive Vice President of Marketing and Sales, Kenny Rocker.

Now why don't we just go through the highlights real quick before I turn it over to Jennifer. If we go over to Slide 4, 2026 started strong as we delivered record first quarter results. Again, we showed who we are executing on new opportunities and raising the bar on what's possible for ourselves and the industry. And it's really important that we see that strength reflected in our bottom line as we reported first quarter records in operating income and net income.

For the quarter, reported net income of $1.7 billion grew 5%, earnings per share of $2.87 increased 6%, and we've improved our operating ratio. Excluding merger costs, our adjusted net income was up 7%, EPS of $2.93 increased 9%, and our operating ratio improved 80 basis points to 59.9%. These are strong results that reflect what's possible when the team consistently executes at a high level.

Now I'll let the team walk you through the quarter in more detail and then come back and wrap it up before we go to Q&A. Jennifer? Why don't we do the first quarter financials, please?

All right. Thank you, Jim, and good morning, everyone. Let me begin with the walk down of our first quarter income statement on Slide 6, where our operating revenue of $6.2 billion increased 3% versus last year as freight revenue of $5.9 billion grew 4% on 1% lower volume. Digging into the drivers, lower volume reduced freight revenue 75 basis points. Fuel surcharge revenue of $608 million increased $43 million reflecting the impact of higher year-over-year fuel prices and a 100 basis points to freight revenue.

Core pricing combined with business mix to drive 325 basis points to freight revenue improvement. As we committed, our quarterly pricing dollars exceeded inflation dollars. Specifically, coal pricing remained positive but at a lower rate than last year for business index to natural gas prices. And as we noted in January, we continue to see impacts from the competitive and global environment in select agricultural markets. Fortunately, we are well positioned to compete as our strong operating performance and productivity initiatives enable us to continue to win new business at good margins.

Our first quarter business mix was positive, although not as favorable as we might have expected, due to the higher volume in our lower average revenue per car businesses, such as coal and rock combined with lower volume on some of the higher arc businesses, such as food and refrigerated and forest products. Upping up the top line, other revenue declined 4% to $324 million, driven by lower subsidiary revenue as we have now lapped the metro transfer completed in the first quarter of 2025.

Turning to expenses. Our appendix slides provide more detail, but let me discuss the key drivers as total operating expense increased 3% to $3.8 billion. Compensation and benefits expense increased 1% as we almost entirely offset the impact of inflation with record first quarter workforce productivity that enabled a 5% smaller workforce.

First quarter cost per employee increased 6.5%, driven by higher wages and benefits, along with increased incentive compensation. We continue to expect full year compensation per employee to increase between 4% and 5%, as we work to offset cost inflation with process and technology improvements. Fuel expense grew 7% on a 7% increase in average fuel price from $2.51 to $2.69 per gallon. Purchase services and materials expense increased 7% as a result of merger-related costs, while equipment and other rents declined 9% with record first quarter cycle times.

Reported first quarter 2026 net income totaled $1.7 billion and was a first quarter record with earnings per share of $2.87. Adjusted for the merger costs, our earnings per share totaled $2.93 and operating ratio came in at 59.9%. Overall, we delivered strong quarterly results to start the year, and we are confident in the ability to continue delivering for all of our stakeholders by successfully executing on the fundamentals of our business.

Turning then to cash returns on the balance sheet on Slide 7. First quarter cash from operations totaled $2.4 billion, up 10% versus last year, and we generated free cash flow of $630 million after making significant investments in the network and returning an industry-leading dividend to our shareholders. Net debt decreased $1.2 billion as we repaid our long-term debt. We ended the quarter with an adjusted debt-to-EBITDA ratio of 2.5x, while we continue to be A rated by our 3 credit rating agencies.

Looking ahead, we are affirming our 2026 outlook. This includes our expectations for reported earnings per share of mid-single-digit growth and operating ratio improvement. Our original diesel fuel estimate of $2.35 per gallon established in January is now much harder to predict as we have seen quite a bit of volatility recently. And all the fuel prices seem to be coming down for the month of April, we will likely average over $4 per gallon. Beyond 2026, we remain committed to attaining our 3-year CAGR target of high single-digit to low double-digit EPS growth throughout 2027.

I'll now turn it over to Kenny to provide an update on the business demand. Kenny?

Thank you, Jennifer, and good morning. In the first quarter, freight revenue grew 4%. And if you exclude the impact from fuel surcharge, freight revenue increased 3%, both first quarter records. Core pricing gains, higher fuel surcharge revenue and favorable business mix more than offset the 1% lower volume in the quarter.

Let's walk through the key drivers. Starting with our bulk segment, revenue for the quarter was up 10% compared to last year, driven by a 12% increase in volume. Strength in coal was driven by sustained utility demand and favorable natural gas pricing supported by strong service execution as well as new business with LCRA, which started in April of last year. In grain, first quarter delivered record volume driven by strong export demand, including a rebound in shipments to China and continued expansion into Mexico, such as Bartlett's new facility in Monterrey. Grain products continue to benefit from business development tied to renewable fuels and associated feedstocks.

Turning to Industrial. Revenue was up 5% for the quarter on a 4% increase in volume, delivering a record first quarter and outperforming the market. Strong core pricing, both best ever quarterly average revenue per car. We continue to see strength in demand for construction projects driven by new LNG terminals and data centers, coupled with our intense focus on business development. Petrochemicals also performed well this quarter, reflecting new business wins and improved demand.

Premium revenue for the quarter declined 5% on a 9% decrease in volume and a 4% increase in average revenue per car, reflecting business mix and higher fuel surcharges. As expected, lower West Coast imports and customer shifts had a drag on international intermodal volumes, which declined 28% versus last year. But on a positive, domestic Intermodal delivered its third consecutive record quarter driven by outstanding service and continued commercial momentum. Softening vehicle sales pressured automotive volumes, though having one incremental volume with BMW offset some of the market softness.

Looking ahead on Slide 11, we remain optimistic about coal's potential despite current natural gas pricing, we expect full year coal results to be positive. In grain, improving export demand to China, along with continued momentum into Mexico, positions the business well to support growth. For grain products, we expect continued strength driven by business development and expanding renewable fuels and feedstock markets with a clear renewable fuels policy, providing more stable demand.

Moving to Industrial, despite a soft housing environment and tepid end market fundamentals, we remain firmly focused on out farming industrial production. We expect the strong volume and construction and petrochemicals to continue based on our customer wins. A great example is the Golden Triangle Polymers Company joint venture with CPChem, where we are encouraged by the upcoming start-up of this new world scale facility in the third quarter.

Wrapping up with premium. International intermodal volumes will remain subdued, although we lapped some of the shifts we experienced last year as we moved through the quarter. Domestic intermodal continues to perform well, supported by over-the-road conversions enabled by our strong service product and diverse market reach. While softer vehicle sales are expected to pressure automotive volumes, we expect business development wins will offset some of the impact. Our first quarter results reflect the team's relentless focus on revenue growth, which is achieved through pricing to the service we provide, investing for growth and driving business development.

And with that, I'll turn it over to you, Eric.

Thank you, Kenny, and good morning. Moving to Slide 13. Our first quarter operating results highlight our focus on safety, service and operational excellence. Last year, we led the industry in employee safety. We carried that momentum into the first quarter as we improved both employee safety and derailments versus their respective 3-year rolling averages.

We set first quarter records in all 6 of our key performance and efficiency metrics on Slides 13 and 14. Freight car velocity increased 9% to 235 miles per day. This performance was driven by best-ever terminal dwell of 19.7 hours, 11% better than last year and our second quarter below 20 hours. Every day, we continue to challenge ourselves to find new and innovative opportunities to reduce car touches, leverage existing technology in our terminals and implement new technologies. For service, both intermodal and manifest SPI finished at 98%, a 4 and 5-point improvement, respectively. These results compare to our best service lines, which were achieved in 2025 as we continue to raise the bar for success. We also demonstrated that maintaining a buffer of resources is critical to recovering from weather and incidents as customers trust us to provide consistent, reliable service.

Moving to Slide 14. Locomotive productivity improved 6% and was a best ever quarter. Notably, our average active locomotive decreased 4% with higher gross ton miles, highlighting efficiency gains from our combined efforts related to locomotive dwell, train length and capital investments that increased locomotive pulling power. Workforce productivity, which includes all employees, increased 7%. Our active train engine and yard workforce decreased 4% on a 1% reduction in car load levels, demonstrating our discipline as we remain more than volume variable.

Looking ahead, we continue to hire for attrition and to support our service. Train length grew 3% compared to last year. Proprietary technologies such as physics train builder combined with mainline investments and solid execution of the fundamentals enable us to safely grow train length. In closing, we had a very successful first quarter. We operated safely, efficiently managed our resources and consistently served our customers. As we progress throughout the year, we will remain nimble and continue to build on our strong momentum.

With that, I'll turn it back over to Jim.

Thank you very much, Eric. Fantastic results. If we're going to turn to Slide 16, before we get to your questions, I'd like to quickly summarize what you've heard so far. We had a strong first quarter and start to the year. Our network is running well and we are delivering on commitments to our customers. When you put it all together, we are doing what we said we would, the industry in safety, service and operational excellence, and that further translates in affirming our long-term guidance of high single digit to low double digit CAGR through 2027 with best-in-class operating ratio and return on invested capital.

Before we turn to your questions, just a quick merger update. We are 100% on track with filing a revised application on April 30. We are confident the additional information we are providing meets the STB's expectations and we look forward to moving toward approval and the real exciting part of operating in America's fist Continental Railroad.

With that, we're now ready to take your questions. Rob?

[Operator Instructions] And the first question is from the line of Scott Group of Wolfe Research.

So Jim, I wanted to ask on the merger. We were supposed to be 6 months or whatever into this process. And I guess we're about to restart the clock. Does the fact that we are taking this long. Does this give you any more or less confidence in the -- and your ability to sort of to get this approved. And I don't know, just maybe confirming we're -- yes, so that's the -- I guess that's the crux of the question. .

Listen, Scott, great question, and I appreciate it. It's a good way to start off. I thought for sure, you'd start with Jim and the team, a pretty good quarter, but I think top of mind for a lot of people is the merger. So let's talk about merger. We were not we were disappointed but we were not surprised with looking at historical events of how the process works to put the railroads together that we were going to get some things that we foresaw in what we thought was going to happen, didn't happen on the time line we like.

But we knew that this was not going to be a process that's going to happen as quick as I would like okay, to be done I was hoping it was going to be done for my birthday this year. So we're going to miss that date in August. But at the end of it, when we look at the fundamentals, we look at the facts of what this combination will deliver for both the country and being able to expedite, take trucks off of the highway, be able to move products in a much more seamless open up new markets for customers be able to provide service to some underserved markets that today, optionally, they end up going with trucks instead of going by rail, we are more convicted now than we ever have been when you take a look at what's in the merger application and all the detail that we're putting forward.

So at this point, we are much more convicted. I'd be concerned leading this company if we have lost our way in how we operate and what we do every day because of the merger. And as you can see, we've been very clear. Our time is spent on operating the railroad every day, finding ways to grow our business, finding new markets, finding new customers, adding to the customers we have. And you can see that even with all the economic uncertainty with everything that's going on in the world and with tariffs that we had to go through and our customers did, we delivered again a quarter that moves us ahead.

So because of that, let's turn to the merger itself and what's in the -- what we are going to put forward in the application and why it's such a compelling case, a much more compelling case now. The experts that we've hired are clearly going to show where their opportunity is. We know that on a service level, a seamless railroad is able to move products at less cost. Therefore, even the pricing is going to be beneficial for our customers because of our less cost. And we're going to be able to serve our customers with a product that allows them to save on their own costs internally, whether it's railcar inventory and be able to move to their end product and end user faster.

For our employees, we were real clear and we've been clear right from the start that our employees, our unionized employees. They should be part of the win of a new railroad that goes across the country, and we've guaranteed a job for everyone. And that commitment is are on glad, and we're very happy to make that with agreements or without agreements, even though we have a number of agreements.

So service is going to be better. We provide more opportunity. We take trucks off of the highway and our employees are guaranteed jobs. I think we're more convicted now that this is good for the country and good for Union Pacific. And financially, it is good for our shareholders. We see a lot of growth opportunity there, lower cost movements, much more fluidity. So I'm more convicted today than I was when we put the application in the first time, Scott.

Our next question is from the line of Chris Wetherbee with Wells Fargo.

I hope everyone is doing well. I guess maybe to sort of think about the guidance. So that was helpful on the merger, and I think it gives us a good sense of how you're thinking about it. As you think about the outlook for this year, particularly the operating ratio improvement, obviously, a good first quarter, but fuel is going to be a headwind here of fuel surcharges will be a headwind from an operating ratio perspective. So I guess if you could maybe give us a little bit of color, are there incremental productivity sort of opportunities that are becoming more apparent to you as you guys have been operating so far through the year. Can you just sort of talk a little bit about that because I do think that there's a headwind there, but maybe there's been some incremental positive offsets?

Jennifer, why don't you talk about the fuel and everything that we're doing on that piece?

Yes, sure. Thanks for the question, Chris. So you're right, fuel will definitely be a headwind, particularly here in the second quarter with -- again, I mentioned on the call, in the prepared remarks, we're paying a little north of $4 a gallon right now here in April. So that will certainly pressure margins, particularly here in the second quarter. But we have a lot of opportunities to drive efficiency in our railroad. We have opportunities and Kenny and his team are driving in terms of business development. With that great service product, we are also being very consistent in terms of pricing for the value of that service. And when you put all those things together, we are still confident for the full year that we will be able to improve our operating ratio. And we reiterated that to make sure that everyone understood if we have that confidence and we have line of sight to be able to do that. Fuel, again, pressure here in second quarter, and we feel good about the rest of the year, though.

Our next question comes from the line of Jonathan Chappell with Evercore.

Jim and team, a pretty good quarter. So my question is really for Kenny or Eric, whoever wants to answer it. We look at the numbers that Eric's team is putting up on slides 13 and 14, and then we understand there's obviously a lot of macro headwinds that you're facing across different end markets. Is there an estimate for spare capacity or maybe another way to ask it is what kind of volume growth can the current system handle without needing to add extra resources if some of those macro headwinds turn to talents?

Yes, Jonathan, thank you for that question. And certainly, a topic that we review on a consistent basis. We've always said from the railroads perspective, you have 5 critical resources, mainline capacity, terminal capacity, crews, locomotives and cars, and you're obviously hitting on one of those 5. Now as we look at the railroad today, we have latent capacity. Now we've driven that through a couple of different ways.

Number one, and I reported this morning on top of all the improvements we've made train length, we did it again, 3% improvement best quarter ever, that train length is generating lane capacity. After a number of other reasons why we do train length, that's right up there at the very top for being able to generate that capacity. In addition to that, we still invest between $500 million and $700 million a year in capacity projects. And you've heard us talk about those in the past. They're citing extensions, they're citing constructions. They're the expansion of terminals. So the Union Pacific is positioned and will remain positioned with that capacity to bring growth that Kenny and the team are working on every single day to bring this railroad.

The only thing I'll add, Eric, is 2 tangible ways to see that capacity really bearing fruit. One is on the equipment side, where we're able to go in and insert more equipment into a facility and/or spot at 100% of their order fulfillment, which allows us to go out and capture more business. But then more importantly, on the capacity -- and I've talked about this before, is the ability to shift in different lanes or geographic areas. So maybe we're going from the Gulf to the Southeast or from the Midwest shift down to the Gulf of Mexico. That's the kind of capacity benefits that we seem to really take advantage of.

And that's a really good example, too, when we think about the grain this year. So last year, you recall when we were talking about volume opportunities. Kenny and I were talking about the shift of grain into Mexico. But we've seen some of that shift back to the Pacific Northwest as China has become more open to receiving American commodities, and we didn't have to go in and build 5 more sidings. We went in with the capacity we had and took advantage of it and very successfully delivering on it.

And nor was that clearly forecasted. So we had to be agile.

So Jonathan, if I can just add what the team already said was is we build the railroad, both capacity-wise and with asset-wise with a buffer. But what's really important for us is today, with the business level that we have, and I looked at in detail every morning, we're operating with over 100 locomotives on the mainline less just because of our speed and what we've been able to improve. So we parked them. So they give us a nice buffer of locomotives and assets.

On the people side, we figured out both by technology, by investments by how we operate the yards, by how fluid we try to stay, we've been able to get more cars switched per employee real important. And we see line of sight to be better at that. On the capacity of the railroad to add 10% more business, let me say this. We've invested hundreds of millions of dollars, especially in our terminals to make them more resilient and able to recover faster and have a higher level of capacity, both by the speed that we're moving the railcars through and the way we're handling them and touching them less, moving less touches.

The overall network, and this is key of who we are and what we do. So if you turn the clock back, and I hate to look back too far, but in 2019, if we were operating this railroad the way we were in early 2019, we would have 25% more trains out there running this morning than we are today. So we did not remove capacity. So this railroad is operating at the higher volume. But let's say, it's not less volume. It's higher volume than we were in 2019, and we're operating 24% less trains to be able to move that volume.

The touches are faster, less touches, the way we operate our terminals is faster. So I'm very comfortable that we have the capacity to add a lot of business without the huge incremental costs that normally would have to, both capital and operating cost because what happens is if you're running up against your capacity, it costs you more operating dollars to be able to try to operate it through because you cause congestion. So I'm very comfortable. We do not sleep until we're comfortable that the railroad is running with the system it has.

Now Eric will tell you that we're not done. You go back again to when I came back and joined the company again after my sabbatical, some people were asking me the question, what's left. And I think you could see what was left. There was lots of opportunity, and we see lots of opportunity as we move ahead over the next few years. So thanks for the question, Jonathan.

Next question comes from the line of Jason Seidl with TD Cowen.

Obviously, a good quarter, and it's nice to see the railroad operating so strongly. This is probably on Kenny's side. I wanted to sort of dive deeper into your commentary on business development. One of your fellow railroads yesterday, talked about their success. They're seeing new projects grow in excess of 15%, and we're talking about adding maybe 1% to 2% in terms of car loading growth for next year. Could you give us some more color on UP's efforts right now, and where do you think that could go and add your car loadings into the future?

Yes. I won't give any guidance on the volume, but we are very bullish, optimistic about the new pieces of business that are coming online. I think you're talking about the industrial development aspect of it. We feel good about the numbers we closed for the quarter. We closed about 20 new construction projects in the first quarter. We feel good about where we're headed in second quarter. And I tell you, we got a strong pipeline that's out there of construction projects that are coming on.

Most of those are on the carload side. And you've heard me say in the past that we've really taken a focus on adding new customers, both at the origin and the destination and expanding that capacity. So we're pretty excited about where we are.

The next question comes from the line of Ken Hoexter with Bank of America.

Great job on the expenses, and I thought that was an impressive stat on the -- stats some. I don't think we've heard before. But looking at the way the stock is trading, I want to return to the M&A seems to suggest the market is building in maybe larger concessions that might be somewhat destructive to market value. Just again, given where you're trading and the peer,does that make sense? Is there anything in the detailed request for deal terms or discussions parties are having through the process on where you'll come out on concessions? And then, Jen, any reason you switch the language to reported outlook from adjusted in you're calling out merger costs or does that mean your long-term target still includes some merger cost. I just want to understand a clarification there.

Yes. Let me hit that last one. Ken, actually, we added that as a clarification from last time because we didn't have reported and that generated a lot of questions. And so we wanted to be clear that when we talk about the EPS growth that of our reported. So that includes the headwind to your point, that we do have from the merger cost that we didn't originally anticipate as well as the fact that we're not buying back shares right now. So it is on reported. Jim?.

Okay. Reported. Jennifer thought she was helping, and I love it, Ken, that you caught the change in words, so that was perfect. Listen, as far as the stock and conviction on that, the market is the market, okay? I can't control the market I wish I could, but I can't. But I'll tell you, fundamentally, as a business, we see growth in opportunity with customers, whether we're building in on some customers. And those will be new products that we add or the amount of investment that our customers are making in different parts of the country to grow their business and be able to export and the move within the U.S. economy. So we're real comfortable with that.

On the merger, Ken, and concessions. This is truly an end-to-end merger with a small little piece of overlap that we'll take care of as we go through in the application and say how we're going to handle that to make sure that no customer. In fact, the number of customers that are going to go from 2 to 1 is like a handful out of all the thousands of customers we have. So it's a very small piece in the hand. It's pretty hard to come up with concessions that make sense.

Now some of our competitors are out there very, very loudly talking about what this business is. And let's put the framework of where we are today and what our competition is. CSX reported yesterday, great results. I was impressed. They did a great job, okay? And they are going to compete hard and they will still be a competitor in the eastern part of our network. They will compete every day against everything we try to do as a seamless railroad. And they'll do that through price, they'll do that through innovation, They'll do that through being able to be more efficient. And that's what they need to do to compete against us. But if anybody thinks they're not going to compete, and you could see what they've done to try to compete already just with the announcement that we had on the merger and what they've done.

In the West, people get this wrong. We are not competing against Burlington Northern Santa Fe. They're owned by Berkshire that this morning is over a $1 trillion company. Berkshire has the monetary capability with $300-plus billion in cash plus they have the capability to invest in the railroad and they're going to be a strong competitor for us after. So if you take a look at the 2 biggest pieces of competition that we have in the U.S., we're very comfortable that they will compete hard against us, but we are going to be able to provide a level of service with less touches that speed up products moving across the U.S., that's why it's so compelling.

So Ken, I'm not sure, and I don't see a big change in the amount of concessions. Are we talking to people? Yes, we are. We're talking to customers. We're talking to to competitors across the spectrum to see that we could come up with something reasonable, but we're not prepared to really give concessions to the level that basically just opens up our railroad for no reason at all other than they want to gain something through this process. That's not the way America works. America works and that if it's truly detrimental to customers, the real world combination, then you need to do something about it. But when you speed up things, give more opportunity, it's pretty hard for us to see any major concessions that we have to give.

The next question comes from the line of Brandon Oglenski with Barclays.

Maybe I'll follow up on that because I think your more skeptical competitors and maybe even some investors would say yes. But this combination at a very high level is going to drive more than 40% market share to your network relative to now much smaller competitors and regional competitors. And how do you push back on that criticism of a transaction of this size?

Well, I think what you have to look at is the entire market that's out there. People want to look at the railroads and say, combined Union Pacific and the folks Southern is going to have a combined 38% or 39% actually is the number of GTMs, but we're not going to be that much bigger than our Western competitor at that level with gross tons that were both going to be moving.

As far as the local market. Listen, I think short lines do a great job and an excellent job of handling that first mile, last mile and ICS strengthening them, we'll be able to drive more business to them with this combination. So they're not going to lose in the long run. There's always some that are going to be affected because of if we don't stop cars or hand them off somewhere, we can take them to a longer route or a different route that will help. But at the end of the day, listen, the 40% or actually the 39% number when you take a look at the entire market, railroads are in the low double digit. Capture of the true mark that moves by land or by water here in the United States of America. So that opportunity is huge for all of us to be able to swing that a little bit. And I think that's a better way to take a look at it, Brandon.

Your next question comes from the line of Stephanie Moore with Jefferies.

I think I'm going to ask maybe a different question theme here. But Jim, I wanted to get your opinion in terms of how you think about just the value of Union Pacific's physical network at a time where look, investors are increasingly focused on AI-driven disruption. So what do you think the market is missing about just the intrinsic value of the network, especially post deal? And then also maybe talk a little bit about what you're doing in this world of just a lot more technology opportunities, AI-enabled efficiencies and what you're already doing in the yards and operations to drive better results?

Great. Thanks for the question. Listen, Eric, why don't you start about how we're using information AI technology to operate the railroad and what we see coming down the pike?

Absolutely. So our conversations inside UP when we talk about AI or equivalent tools, really focused first on making sure that we're not doing it just to do it. We're instead focused on what is the actual thing we're trying to solve and what's the associated value, whether that's removing car touches, dropping dollars to the bottom line, improving our service. And I think it's important that you all hear us say that because you see in other cases where that's not it. They treated as a hobby. We're not in the business of hobbies here. We're in the business of delivering value.

Now if you think about how we're using that, some of the ones that are most important because they're foundations to our service and their foundations to our productivity, which allows us to grow. It's how we think about using AI inside of our dispatching center. We have an automated movement planner is a program that we call that's informed by AI, and it's continually evolving. Automated movement planner really focuses on driving an even more consistent and reliable service by providing support to our dispatchers in real time and looking out 12 hours in advance to lay out their railroad.

If you just even look at 200 miles of railroad, there's a lot that happens in not just the movement of trains, we have to have people go out and maintain the track and then we also have variability events, unfortunately, some days. And we have to plan for that, and AI has been a great resource for us to do that.

Now when we think about inside our terminals, we've talked in the past about technologies like Mobile NX that allow us to automate part of that. There's some AI components to that, and there's certainly value in that. Even more valuable is the tools that we've provided like terminal command center to our teams that are actually on the ground operating those terminals. That provides them an even higher level of intelligence and being able to not only forecast what's coming at them, but for what they have in their yard, how do they see problems right? If you're going to go out and you're switching a bunch of cars and now you've got a trim, but you accidentally have the wrong car in one of those cuts, okay? Well, that's a big hit to the productivity and thus impacts our [indiscernible] product. We can see that ahead of time. Well, then we can plan that even 2 hours ahead that says, "Well, I'm going to be in that track. Let me grab that car then. So even in the case of mistakes, which we work tirelessly to avoid, you can even be more efficient in how you're able to address those, if you can see that risk ahead of time, and that AI tool allows us to do it.

And I'd say in total for the whole company, I mean, there's at least 8 or 10 really major projects that we're using. I've given you 2 examples, but they really represent how we're using it to, one, improve our service product and to, drive efficiency.

The nice part about technology and how fast it's changing with AI. And what it really drives for us is we always talk about the big things, trains, assets, big locomotive weigh in 434,000 pounds and how we move it. But fundamentally, across the company, whether it's how we're going to be able to communicate with customers, how we're -- the number of people you need to be able to communicate with customers and how you get information better. We're working hard on that using AI tools and information tools to be able to do that.

Even in the finance department, how do we get better being able to get information out. So it's across the board that we're doing that. Stay tuned. We're going to be implementing and have the capability to implement our locomotives to make them even more autonomous than they are today so that they can operate to give us more fuel conservation. Those tools are driven by technology in the background that allows the locomotives to operate in a smarter, much more fuel-efficient manner. And we're getting pretty close to be able to roll that out, not yet today. Eric will get real excited if I start to announce things a little bit ahead of them.

But those are the things. Big things, how fast we can change with the different flow of business. I talked about at the very start this morning about a railroad being a little bit of rain coming down in Omaha. It's rather cool in Green River this morning. It's below freezing. So we got a whole bunch of snow up at the top of the Danner Pass. We have rather breaking warm weather in other parts of the railroad. The nice part about it is we get a little bit of everything. So how you react to the weather and how you react to be able to change the network and be able to change the way we operate every railcar in a faster manner, we use tools to be able to get to the point where we're going to be able to react much quicker. We're talking about trying to get to the point where we can do that in days instead of weeks the way it takes us right now. The way we manifest and use employees to make sure that we optimize the entire system.

So it does touch a lot. We're a simple old business with big hardware. But at the end of the day, we've got a whole team and Rahul who leads that for us and is doing a spectacular job for us to look at opportunities to embed the latest in information, manipulation and get us an answer quicker and be able to be able to automate as much of this railroad as we can. So good question. Love it. Hopefully, I answered your question.

The next question is from the line of Brian Ossenbeck with JPMorgan. .

Brian, how many pounds do you have in your back now lots.

We're up to 65 and climbing. So just trying to keep up.

Impressive, Brian.

Maybe I'll put a copy of the next merger document in there as well. .

That's more than 60 pounds. You'll need a trailer behind you.

I just might. Well, in terms of -- just 2 quick follow-ups on Jim question on integration technology, kind of dovetailing that last discussion. So are you still assuming first half of '27 approval, and it doesn't sound like it, but I just wanted to confirm that you're not really expecting to address some of these concerns from your peers, just so addressing what the STB has asked for and the new application out next week. And then just would love to hear more about maybe from Eric and you, Jim, about clear concern about integration based on prior issues that the industry had quite a long time ago. Clearly, things have changed some of that you just mentioned with technology. So what can you give us in terms of new ways, new processes, new new abilities to really get ahead of what's been a huge concern in the industry, but we would assume it should go a little bit better this time around. So I know you can leave you so much on that part right now, but would love to hear how you're planning for that this time around with some new tools?

Brian, you are on it this morning. There were 5 questions in there. I love it. But let's start with the timing. Yes, we're working off of the timing that we know of that the STB has put out. So it will be second quarter next year, we would expect to be able to be at the place where they approve it, then we can move ahead. So that's the timing. Now it's not finalized. We're hoping that they can speed it up and get it -- get through the process. I think they should be able to. Again, it's Jim Vena. The way I do things, we make decisions pretty quick. But I understand they want to look at it. They want to do a thorough examination and we're ready for it because we're operating the railroad the way it should be operating, and it's not affecting what we're doing for the Union Pacific stand-alone today.

I'm going to pass it over to Eric here in a minute on integration. Our competitors, what we're doing with the application is we are answering, and given the information that the STB asked for, they were very specific on the information that they required from us, and we're answering those questions, whether it's the EPRA, whether it's market share and the amount of business that we built in. So we've done that. And we're absolutely sure that we've answered the questions that -- and how we're going to handle it.

We've decided to release 5.8 really at the end of the day, I never thought that our competitors should know exactly what that document held. But when we looked at it, listen, at the end of the day, it's not going to make a big difference. So that's going to come out. So we will answer the 3 key points plus the other point that they, in general, wanted some more information. So that's what we're answering.

As far as our competitors, you're a smart guy, Brian, and everybody on this call are smart people. Competitors are always looking to get an advantage that they can't get or they don't want to spend the money to be able to get. If a railroad wants to build in, which we are building into customers, they have every right to do that. They have every right to go through their own merger, small and large, which they have. So at the end of the day, if we built this transaction against satisfying what the other railroads, absolutely Canadian Pacific would love to get access to the West Coast of the U.S.

Well, I'd love to get the Toronto. If they want to give up Toronto in markets in Eastern Canada and into the Canadian Prairies, I would love to do that, too. But it would be pretty hard for me to ask for that. So it's really some of the stuff that they've asked for is not fundamentally about competition. It's about trying to gain for their own railroad. And we're not going to answer that. We don't need to answer that, but we're more than willing to sit down and talk. Like I would be more than willing to trade Toronto for access to Denver as somebody who wants it tomorrow.

So anybody who's listened in that wants to do that, give me a call, and I'm ready to do that. I'll run the Toronto, you can run the Denver, okay, and we'll match that up. So some of the stuff that they're saying is just not fact-based and I find it hard to believe. If you step back, though, let's talk about competition. I was just in Canada, visiting my family went out to one of the ports and terminals in Vancouver, and we talked through with one of the largest world operators of terminals, and you know what Canada is spending money to compete against the U.S. ports. In Prince Rupert, there's a plan to expand and double. In Vancouver, there's a plan to expand and double. At Contrecœur, there's a plan to expand and double the capacity for imports. That's who we're competing against.

We sometimes have a narrow view of what competition is without looking at really what's happening in the marketplace. Our intermodal product, our international and domestic product is in competition with product. The size of the investment that's being made by the Canadian government, they expand the ports in Canada, the Canadian economy that cannot and does not need that much. It's purely to compete against U.S. ports and U.S. movement of goods in the U.S. That's the real competition and sometimes we're too narrow the way we look at it. Eric, on integration?

Perfect. So Brian, on the integration side, you're right. You certainly want to learn from the learnings of past mergers. Now we got to be a little careful there, right? You hear some people go back and reference challenges from mergers 30 years ago. And to your point, right in your question, you said it, a lot has changed in 30 years. But let's hit the most important 3 items when you look back in time and then think about how we already are planning to do it differently. So one of the things that certainly caused challenges in the past was technology. When you had 2 railroads merging together with 2 different transportation systems. It wasn't the technology itself that caused the problem. It was the pace at which the integration occurred.

In other words, there was an intentional thought and change management around what is the pace you cut that over. Well, we've got a huge advantage, right? We, Union Pacific, have already demonstrated a very strong ability to change over systems, including our full transportation system called NetControl, just a little less than 2 years ago very successfully not a blip, no customer was impacted. It was seamless, it was very effective. So we've got that experience.

In addition, when you move past the technology and you think about timing, you've seen in the past with some mergers where a KPI right out of the gate is the pace of implementation. Now look, we're not in the business of going slow. We're in the business of understanding exactly what we have to on day 1, day 90, day 180. And I'll tell you on day 1, you're not going to see a lot of difference, right? We will operate these 2 railroads, largely independently, at least for the first few months. And then we'll thoughtfully because of all the planning that we're doing, implant 1 action, once that action is implemented, we'll make sure that it worked effectively and then we'll move to the next. And then I save the most important one for last.

If you look at past mergers, often, the premium railroad was buying a railroad that was operating very poorly. That's not the case here. The Norfolk Southern is a good railroad. They're good in how they think about their infrastructure, they're good in how they think about technology. Together, we're going to be even stronger, but we're not buying some railroad that's been in disarray for a decade. We're buying a really good railroad, combining it with another really good railroad. And obviously, as Jim has pointed out today, the net outcome is a positive for all of our stakeholders. So that work is all underway. It's being done very intentionally, and we're going to be the most comprehensive integration of any 2 railroads that this country has ever seen.

Brian, I appreciate the question. Thank you very much.

The next question is from the line of Walter Spracklin with RBC.

I just like to go back to the Kenny slide, I guess that's Slide 11. And when I compare that outlook slide to the same slide, the quarter before. It looks like you've added 3 new positives. You've had construction as being a plus, you deleted forestry as a negative and you improved auto from negative to neutral. So 3 positive inflections there. And then we're hearing from trucking peers that it sounds like the freight recession might be overall together. So my question is that and your Q1 results and volume are pretty good. Your railroads were operating well. If the volume is indeed looking better compared to where it was in the fourth quarter, why wouldn't your EPS guide be up as well. And I don't think your team would have an issue getting operating leverage, but it doesn't -- that logic kind of implies you are. So just love to get some clarity there on those topics.

Walter, I love the question. I'm going to pass it over to Kenny because I'll tell you, you must have been listening in because we have had that same discussion. So I can hardly wait to hear his answer. Go ahead, Kenny.

Yes. So first of all, you heard my comments, lumber is still challenged. It's just a smaller volume that we're talking about there. And yes, we're looking at autos. And I'll tell you, we highlighted the fact that we have won some incremental pieces of volume. The SAAR for lumber is still negative, call it, 3%. The SAAR for auto is still negative, call it, 2% or 3%. So we're winning our way here to get to a point that we can fill a little bit better about those markets.

There was a second question, I believe you had more on the intermodal side. And you're right, we've seen the jump up in the fuel here. Now that happened here pretty weekly, call it, mid-March. And -- we'd like to see that sustain a little bit more from a timing perspective. We'd like to see the sustained tightening of the truck market. We're looking at the prices, just like everyone else. And as we progress throughout the year, if those sustain, then you're right, we should see a little bit more uplift on the volume there. So it all begins with the service product. Eric and his team have done a fabulous job, and you're seeing us win. And again, our size is -- our goal is to increase the size of the pie here with over the road, and we're accomplishing that.

So Walter, no advance or but you gave the same answer to me as he gave to you this morning. But the next thing I said to them was pretty clear is if you have a railroad running at a high level of service and you're delivering for customers and the economy is still it's not been as impacted as some people would say because of all the ins and outs that are out there at this point, that it's his job and our job and his job and his team specifically to go sell that service level that we have, look for opportunity to grow the business. And I like it, though, he's got more positive than negatives on there.

So I'm real comfortable with that. So Walter, I know fellow Canadian, okay, spent -- you spend your time in Canada, and I go back every so often I'm not sure what the heck is going on with the Canadian teams at hockey, but most of you are probably in bed, but I stayed up to watch the oilers last night and they lost. So tough times. Hopefully, your team is winning.

Our next question comes from the line of David Vernon with Bernstein.

So Jim or Kenny, I'm wondering how you guys are thinking about this -- tackling this issue of proving that this merger enhances competition. You've been out in the market for a couple of months now with this concept of commute gateway pricing. I'm just wondering how or what kind of feedback have you gotten from customers Obviously, we've heard the other railworks, but how are you thinking about that idea and its ability to kind of help meet this fairly ambiguous notion of how the merger enhances competition?

Well, let me start. We're not ambiguous. I think how do we have competition and how do we enhance competition pretty straightforward. We're going to be able to move products across the country faster than anybody with less touch points. If people want to compete against that, okay, they're going to have to either be able to enhance their service and be able to move it with less touch points with whichever way they can do that or they're going to have to do it in price. That's what they're worried about is some lanes that are only going to be able to do it with price. We're going to enhance competition to be able to have products that move right now that are consumed mostly in the East, it's going to be able to move across the country in a much more seamless manner. They open up more markets for it. It enhances the capability to sell in markets and move the way products are supposed to move.

We're going to enhance so that we can compete better against the -- like I mentioned with the intermodal, but I could do that with the carload business, I could do that with soybeans. We're going to be able to move their product in a faster, much more efficient manner that allows them to open up markets. Again, our competitors, whether it's trucks because a large piece of the growth that we see is intermodal is we're going to be able to remove and give our customers optionality to look at do they want to go intermodal with the railroads or do they want to go by truck.

The committed gateway gives the railroads both the Western and the Eastern Railroad, the optionality to have a set price that they can offer to go out to customers and those products that we've identified. We've said that we're going to keep every gateway open. If somebody wants to get to the Southeast through the CSX at New Orleans, they can have that. It is the faster road in some markets. Why would we ever limit that capability. So the base is the base, and we are enhancing the movement. Kenny, why don't you talk about the conversation with the customers or...

Jennifer, if you point -- I'm going to see you trying to jump in first. So let me just kind of remind everyone, 520 customers that have signed a letter of support 700 commercial partners signed a letter of support, 2,000 in total that signed a letter of support. And I'll tell you, Jim and I have spent a lot of time together going out and seeing customers. Here's what's undisputed. The customers see the value on the transit improvement. They see the benefits of an interchange going away, they are excited about the fact that their supply chains. I'm talking those that invest in equipment and those that use our system equipment that, that will become more valuable to them and will increase the cycle times there.

The things that as we move throughout the journey, we do know they want to see what we're going to be filing. They want to see this process as we go through it with the STB and other stakeholders, but we are staying close to them throughout this whole journey. Let me double down real quick on something that Jim said, though, that's how we're able to win the day. Now I didn't mention this in Jim's last comments about domestic intermodal book, we've got 3 consecutive quarters where we have really put together a record quarter.

And we've done that, Eric, through first service which is what you need, and you'll see that with single line service from this merger. And then a lower cost structure allows us to open up new markets. The margins look a lot better for new pieces of business. Customers see that, customers appreciate that and that excites the customer base.

And the only thing I was going to add to what you have said is with committed gateway pricing, we're actually extending the benefit of the merger to customers that would otherwise not be impacted. And so that absolutely enhances competition. .

Yes. Good point there, Jennifer. Listen, great question. Thank you very much. Go ahead.

Our next question is from the line of Tom Wadewitz with UBS.

I wanted to ask you about just how you think about the key things you need to execute on? You said kind of if you're looking at like maybe 2Q '27 for approval. So you got some runway ahead, you want to execute well, and your service is strong, your rail network operation is very good, which I think would be supportive of the case you can make it all work, right? How do you think about volume growth? Is that also important for you to deliver volume growth as you continue to build your case that you can handle what's a heavy lift of integrating 2 large railroads.

So I think that's just like -- is that an important piece, too? And then I guess related to that, how do you think about volume versus price? I mean you are more -- you've got efficient operation, low cost structure. Do you intentionally like say, "Hey, we just want to do a little more volume think you may be intermodal and grain markets where I think there's been some question about price versus volume.

Listen, we want to increase volume, no way answer, but that's a goal. So don't have to expose or talk about that for too long. We want to increase revenue. So we do that by having more business, being able to move more products on our railroad, drive more business to our railroad, but also be very diligent on price and making sure that we price in the right way to increase revenue. And you could see that again this quarter. We've done a great job of it in the last few quarters of where we are on revenue. So that is key.

And remember, I separate what we're doing for the merger versus what we're doing for the railroad today. The railroad today's job is, is to run at a real high level, and I give Eric and the entire operating team a lot of credit. I look at it and I'm an old operating guy, okay, I spent a lot of time in this 48 years I've been railroading to be able to look at railroads and what we can do. And I'm very impressed, and I see more runway there to be able to make ourselves more efficient and be able to move the products. And that way then can go sell or sell our customers on what we can do better.

So for us, absolutely, we need to increase revenue, which we've done, and we have good line of sight on it, and we have to price at the right level for the service that we're providing, for the value we're providing. And I think there's a lot of runway left in there that we can show what we're delivering for our customers with better speed, better flexibility, better timing that they can win in the marketplace and we can grow together. There are certain markets we react and we have to react. We've had to react on the movement of some grain products, okay, just because of where the market is. We've done it with soda ash. So it is a -- if it was easy, my mother would be here running the railroad. So it's not easy. But our key goal is increase volume and increase revenue drive it to the bottom line, high level of service for our customers and operate as efficiently as possible. I think that's a good summary of the way we are, Jennifer.

That's an excellent summary. And even with some of the high truck competition we've seen in the last couple of years that have compressed it. Truck pricing is still a more expensive option than rail. And so what we're doing to be more efficient and get into new markets and offer new services to our customers just positions us very well to grow going forward. .

Kenny, anything you want to add or you're good? .

No, I think you covered it all. Okay. .

I was trying to pass it over to you. Next question.

Next question is from the line of Richa Harnain with Deutsche Bank.

So I wanted to ask about headcount. I think you made this comment record on few workforce productivity, and this is indeed the lowest quarter or headcount levels we've ever seen. And that's as growing top line. So maybe you can just update us, is this the new normal? Or could it be better? I think Jim, you made a comment that you have line of sight to be better than that, and Eric is holding us to that. So maybe talk about that and drilling to effectively how this is possible, how are you achieving these productivity initiatives? What are you doing differently? And as you think about maybe the pending merger with NS, do you think these productivity gains are transferable? Or do you think there's something unique about the U&P network, allowing you to achieve these levels of productivity more easily than maybe alternative networks.

I'm going to pass it over to Eric here in just 1 second because he has the largest amount of employees. Of course, we look at everything that we're doing on our management and how we operate the railroad from a management side, and we've done a good job of being able to be more efficient and through attrition and be able to size it the right way, and we see more benefit on there.

As far as the combination, absolutely, I don't have to talk about it a lot. That's -- we do see substantial improvement in how productive we can be when the 2 railroads are combined. You only need 1 Chief Marketing Officer, and you only need 1 CEO. So some of those things are real easy. So I'm just joking, cannot worry about it. But at the end of the day, yes, we see a lot of that. And Eric, on the day-to-day operating the railroad, what do you see moving forward?

Yes. And Jim got it exactly right, that they absolutely are transferable. So 7% improved workforce productivity. When you think about how we did that, like -- and then you think about tomorrow and a week from now, a month from now, it's the same thing. Really, one of the greatest strengths of Union Pacific, yes, it's all the initiatives that we execute successfully, but it's more our mindset right? Because when you have a mindset that says productivity drives growth, and then you can drive alignment within the whole company of why do we work every day to be productive. And we have that. We do that exceptionally well. And then you combine that with operating kind of mindset of perpetual dissatisfaction. And you can look at it every single day, like it doesn't matter. I can look at any scorecard and the team can look at any scorecard and they can have lots of conversations just like I do, and you see things.

Now sometimes those things are big and they take a while because maybe you have to make a bunch of changes, but when you look at our productivity over the last handful of years, a lot of them have come just straight from the fundamentals. Why is one terminal at 19 hours of dwell but another terminal is at 15 hours a dwell. We can't 19 be 15. And so we go and we grind on that. And we grind and we grind until we can get that terminal as good as the other one.

Now that's what I mean by fundamentals, and it expands across our entire network. You layer on top of that the technology that Jim had mentioned and Jennifer mentioned and I mentioned in a previous question that was asked, well, now you got a multiplying factor right? Now you're actually getting even more out of those initiatives. And that's what we do. I could not be more proud of what the team has accomplished in productivity because, again, we do it to position Kenny and the team in the best possible position to win in the marketplace. And there is no finish line to that.

Thanks for the question.

The next question is from the line of Ari Rosa with Citigroup.

Nice quarter here. I actually wanted to stay on the headcount point because it is truly impressive what your -- the efficiency gains that you're able to achieve here. But Jim, you've made this commitment to the unions that all the union jobs are going to be protected. I'm wondering, given the kind of productivity gains that you're seeing, is there any dimension in you worry that, that could slow down actually some of that that progress? Or how are you thinking about that commitment against -- weighed against the very impressive productivity gains that you're achieving? And then just kind of broadening out, is there anything that you think you would be doing differently in terms of how you're operating the railroad currently if the merger process were not going on?

Let me answer that last question. No. we operate the railroad the best we can today and always look for improvements. So we're not changing. And I'm telling you, I've sort of tried to tell everybody this real clear and people will tell you at Union Pacific. There's people that are dealing with the merger, dealing with the applications, dealing with how we look at putting it together when it gets approved because it's going to get approved. It's such a compelling case. But bottom line is most of the people at Union Pacific, their job is to operate the railroad. If anybody thinks I'm going to let people get lost and travel into some place to go talk about the merger, okay? That's not going to happen. We're talking -- we're railroading the Union Pacific, the way we are today, okay, now ifs and or buts.

So I'm very comfortable that we're doing the right thing. The commitment with the unions. I thought about this, I didn't wake up one morning have my cup of coffee sitting out in the balcony looking at 6:00 in the morning at the metrics and said, maybe I should just protect every employee. When we make these big decisions like that, we looked at attrition numbers, normal attrition numbers for both railroads. We've looked at how fast we think that we can put this together and get the -- optimize it so that the service is not impacted for the customers on both railroads, and we're very comfortable that the commitment that we gave will not limit our capability to move ahead and be productive, but it also guarantees people a job. We're very comfortable with that with just the attrition numbers.

And remember, this is a story. We see the opportunity to grow the business in intermodal, for example, there's areas in the country where we just don't move intermodal, it gets trucked that we know we can give the optionality. And if our service stays high, we can win more business and bring it on the railroad. So I'm very comfortable with the attrition numbers plus what we do for growing the business, that, that commitment is strong. It's set in stone, but we're very comfortable when we made that commitment that it was made with a thoughtful process. So I don't see any issue with that commitment at all impacting us as we move ahead.

Our final question is from the line of Ravi Shanker with Morgan Stanley.

It's actually Madison on for Ravi. Just one more to kind of end the call. Just wondering, given your current network utilization and service levels and kind of current levels of inflation, was wondering what does operating leverage and incremental margins look like in the up cycle?

Well, listen, we love upcycle. Jennifer would scold me if I got into too much detail. But it's -- Madison, that's exactly the way we're thinking about it is there are so many things that are going on that are sort of holding back all the railroads, truck pricing, all those things that would be helpful. So higher natural gas, we love it. Now anybody who heats a pool like I do in Phoenix, Arizona, I don't like it. But at the end of the day, for the railroad, I like it.

So I think we're in a good place. We operate in a good manner and Madison, I see us up cycle would be very beneficial. And if everything in the world settled down and we had the economy growing, would really help us because we grow with America and the businesses in America. So -- thank you very much for the question.

Thank you, Mr. Vena. There are no additional questions at this time. I'd like to turn it to you for closing comments.

Well, listen, thank you very much. I know there's lots going on. There's lots of many companies reported, and I'd like to thank you all for joining us this morning. As far as our shareholders, our owners, you can be rest assured that we look at this railroad every day to make sure we operate in the best way possible move ahead. I'm very comfortable that we're doing that, have the right team. I joke around with Kenny about only needing 1 Chief Marketing Officer. But at the end of the day, him and his team are doing a good job I can't be prouder of Eric and the team, the way they're leading and Jennifer and her whole team that keeps our feet to the fire and making sure that we're doing the right things.

So with that, looking forward to putting the application in on the 30th, getting it accepted and moving ahead with this transaction that will just build on the results of Union Pacific and make us a stronger railroad and a strong competitor to move the products that Americans use every day. Thank you very much. Appreciate everybody joining us.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.

All right. Everybody can take your seats, please. We're going to go ahead and get started with our next presentation. So Union Pacific, Jim Vena, CEO, Jennifer Hamann, CFO. Thanks very much for being here. I know, again, DC is probably your second home here for the most part. But I appreciate you coming over making time for us as well.

You say it was my second home? It's actually Scottsdale, Arizona. That's where I'd like to be this morning. I think it's 85 degrees there today. It would be a beautiful day. My grandkids are there. So that's my second home. But go ahead. Sorry for interrupting.

No problem. Well, we do have a couple of slides here, right? So I don't know, Jennifer, you want to kick us off here and get things rolling?

Jim is in control. Okay. Obviously, you got a little cautionary information.

So it is funny is as we had the boiler plate was maybe just a couple of lines or a couple of small paragraphs. And after we get into the merger, I'm just about afraid to read it. Every time I read this thing, it basically says don't believe anything I say, or go talk to somebody else to verify it. But bottom line is that's online, go through it. We always talk about things that we're looking forward. So if there's any question to make sure you get a hold of us. And that really only a couple of slides.

I'd like to talk about, and let's just talk about it real quick. One is, is to change up, if you've heard me speak before, a little bit about where we are as a railroad right now. Safety is really important for us, and we ended up the year as the safest railroad in Class 1 railroad when it came to people coming to work and going home. And these are FRA stats, not our own stats. So that's a great place to be. And our partner in this, our merger partner, Norfolk Southern was the safest when it came to derailments and the incidents. So we love that combination of how do we learn from each other when this thing comes together and how do we continue to be the best. Now the railroad industry is way better than we were. So this is not a slide on anybody because I think the whole industry is -- had a 2025 that was the best year ever. But at the end of the day, we know that we have to move and get better. So service is real good. Sorry, safety is in the right place headed the right way.

When it comes to service, we think -- and we've got to be careful because we measure ourselves and we get feedback from customers that we had the highest level of service at Union Pacific has ever had. But on top of that, we think it was the best service in the industry as far as delivering what we sold to our customers. Now I just want to talk about, and this is really important is people ask us what's the railroad like? What kind of capacity do you have? And what have you done? So this is a clear, nice, easy representation that since 2019, we have with the more traffic, we grew last year at 113,000 carloads. But with more traffic, we actually operate 24% less trains. So we've been able to remove the number of trains starts and number of trains operating by basically 1/4 and be able to operate the same amount of business or more. That's who we are at Union Pacific. That capacity was built for that additional 24% in trains.

Our terminals were built for a certain amount of capacity. So we've done the same thing in the terminals. We've taken places like Inglewood in Houston from 2,200 cars capability to over 3,000 cars capability. We don't operate 3,000 cars over that, but it gives us that buffer that we want. And I wanted to -- this is a great representation to think about as we bring in the 2 million loads that we've talked about that we see as an opportunity out there, we'll be able to put them on the railroad without spending or worried about whether we have the capacity. And anybody who's heard me speak, knows we keep 500 locomotives ready to go. We wouldn't go out and buy 500 locomotives to have them ready to go, but we have them because we have over 1,000 of them excess because of the efficiency we put in the system. So we're in a good place.

Jennifer, next slide. And listen, I've talked a little bit, but this slide clearly shows the key measures that we use on to judge ourselves against ourselves and against the industry because you're always competing against the industry. Freight car velocity, very happy where we are. That sped up cars. Our customers have win when you -- freight car velocity increases, they need less cars to be able to handle the same amount of product. They need less inventory to be able to do that. And when we merge, we'll take it up to another level by removing touch points that we have. You can see where our service performance index is. That is a -- instead of precipitation down, that is an amalgamation of all everything that we have with individual customers. It's not a high-level number where we're measuring train speed or we're measuring something else and claiming that we do real well. Customers don't care what train speed is. What they care about is did you move that railcar from origin to destination? Did you show up in the window you told them and did you deliver it in the time frame that you said undamaged?

So I'm going to stop there. Great workforce productivity, great train length, locomotive productivity. And that translates to something that precipitates out and that's our operating ratio. And those operating ratios without naming any of the other railroads are absolutely, we took off some of the noise property sales, different things that actually don't tie in to how we're operating. So I think we're in a good place. And Jennifer can talk a little bit about the quarter where we are so far, and then we'll take some questions, Brian.

Yes. So from the first quarter standpoint, really a good start to the quarter, both operationally and from a volume standpoint. If you look at the volumes on the right-hand side. So right now, through the first 10 weeks on the AAR car loadings were basically flat. And if you go from the bottom up, you think about the premium piece for us, that's intermodal and it's automotive. International Intermodal, we knew we had a very tough comparison year-over-year, that's down. We're actually seeing growth though in the domestic side, and that's really supported by that strong service product that Jim talked about just a minute ago.

On the finished vehicle side, that demand is still a little bit weak, down about 7%, both on the finished vehicles and parts side to start the year. Industrial, up 4%. That's a great new story for us. It's the -- in many ways, the heart and sold the UP franchise, great business development, continued strong growth in that Texas Gulf Coast region. Industrial chems, plastics, that's up about 7%. You are still seeing some weakness, though, when you think about the residential housing construction, forest products, I think, is down about 6% quarter-to-date. So little bit of a mixed bag, but still up 4% positive. On the bulk side, plus 14%, continued great story there, both on the grain and the coal side. Both loadings for those products are up about 17% quarter-to-date. So great demand there. And again, with the railroad operating as well as it is fluid, we're picking up every carload that our customers have available to us and delivering that to them in a very efficient manner.

Mix for the quarter is probably a little bit positive, pretty similar to what we saw in the fourth quarter. Probably can't sit here and not mention fuel because I know that's been something that all the roads have been talking about. Fuel prices, certainly, we came into the year, we were thinking about $2.35 a gallon. Right now, we're probably looking at a number that's probably closer to $270 a gallon for the quarter, which is up about $0.20 or so from where we finished 2025. But I will say we've seen some spot prices as high as $390. So a lot of volatility there in terms of pricing. And as you all know, we have a couple of month lag there in terms of our fuel surcharge mechanism. So it's going to impact the expense side some in the first quarter. But that's where the work that we do to be more fuel efficient.

We had a record consumption rate in 2025, continuing to do things to widen that gap between rails and trucks in terms of the fuel efficiency is a great new story for us. And when you have the rising fuel prices like you see right now, that difference becomes just that much more important. So about $30 million in merger costs for the quarter is what we're looking at. But again, a good start to the year. We feel good about it. We think continuing on the momentum that we had coming out of 2025, feel very positive about the winning combination that we have right now.

Brian, if I can take like 30 more seconds. So you need to have a railroad that's operating at the right place at the right level with safety service and operational excellence, and that's what we have. And that's the only way you can go into moving ahead in what we see. Also, this is who we are at Union Pacific leading ROIC. Can we afford this deal? Our shareholders voted 99.52%. And they're very sophisticated. They understand whether we have that capability to be able to move this forward, and that's real important for us.

But on top of that is the way we think. We don't think about, okay, just doing because that would be the easy way out. As an industry and specifically, the reason I'm at Union Pacific and the reason what we try to do is we look at what's possible. And this merger changes the paradigm of the level of service we can provide customers. It changes the speed of moving products and it makes American industry more competitive against world competitors and allows us to win in the marketplace. That's what it's all about. So we're real excited. And we'll go through the process, okay? It's long, way longer than I would like, of course, but we knew it when we got into it, that it was going to be a long process. So Brian, all yours, okay? Unless you just want me to keep on going because I could fill the next 24 minutes, okay? And I'd love questions from the people that -- in the audience here, please.

Sure. Well, we can try to fit all that in here. But just to go back to the current quarter, the operations. I mean clearly, the network is running very well and has been for a while. But is there -- you talked about fuel Jennifer, I mean it's going to come and go, but can you quantify like what the lag impact here is in this quarter? And there's also been significant weather. Obviously, winter comes every year, but some others have also called out that impact specifically here in the first quarter.

Yes. So from a winter standpoint, I would say we haven't seen anything unusual. We had Winter Storm Fern. we recovered from that and I think 4 or 5 days. Again, it's the resiliency that's in our network. We've gotten hit a little bit here over the last week mostly from winds, I would say, is probably a bigger impact than snow.

100-mile wind, an hour winds. Tough through the prairies.

Yes. You've got to stop those double-stack intermodal trains when you've got those kind of winds going on. But again, I don't see any significant cost certainly nothing that we would expect to call out for the quarter in terms of anything there. On the fuel side, like I said, it's up about $0.20 from where we had it in the fourth quarter. So that's how I would look at that.

The lag says we'll recover it but there's, it's a timing thing, and it is what it is, right? It's going to impact us this quarter for sure when you get that kind of change. And what's the effect of the storms and the wind and everything? Our car velocity this morning is about 228. And if you go back a couple of slides, that we don't have to. Last year, we were running around 214, 215. So even with everything out there that we've had, the network's resilient. It's not back up to the 230 , 240 where we'd like to be this time of the year with the traffic mix we have, but I like it. Eric and the whole operating team have done a heck of a job.

Just think about that, you said we're down to 228. I mean it used to be up to 228. It's how the paradigm has changed for us.

We look at what's possible.

But in terms of the demand side?

We spend too much time together...

In terms of the demand side, though, I mean you've seen a couple of good PMIs. Obviously, we have the conflict in the Middle East has certainly created a lot more uncertainty, but truck market is tighter. Some of the end markets, Jennifer you highlighted, are getting a little bit better. So how are you feeling about demand and sort of with this level of service even excluding the merger, you are able to continue to deliver on truckload conversion?

.

So far, what we've seen is you would -- if you look at it without digging into the whole economy, you would say, boy, it's going to be a benefit, and that's what we're hoping. But you always have a concern that is going to affect the consumer. Is higher prices for fuel? Is at higher prices for travel? Is it higher prices and now that change the consumer? If it's a short-term blip, which we think it is, this should fix itself pretty soon, not fix itself, but it will come down to a much normal number of where the supply and demand curve was.

We're pretty comfortable with it. So we don't see a huge benefit coming from it because we don't think it will last forever, but we also don't think we're going to damage the economy. But then again, I'm not no expert. That's what all the experts that tell us the information where we are. Jennifer, anything to add?

No. I mean, again, I think the key for us is the service product and being in close communication with our customers so we understand what their needs are. And I think that's where you've seen us grow our business over the last couple of years, really outperforming the markets, and that's what we'll look to do again in 2026, and we'll just see what those markets are.

So inflation has been one of the main themes coming out of the first quarter. There's always inflation, but it seems like it's maybe a little bit hotter than some of us would have expected. Is -- can UP and I guess the industry overall get -- I mean, certainly still inflation plus pricing. But in the past, it's been easier to get margin accretive price instead of dollar accretive. And I know there's difference in terms of just say it's just the math, but I think it still does matter to a lot of folks in the room. If you're able to get to that level where it's just margin accretive and you don't have to think about the dollars. Is that something that you can get with better service? Is that something that's really mix dependent?

Yes. I mean mix does play a role. But from a service standpoint, when you're able to go in and talk to a customer and the first part of your conversation isn't about service issues. Instead, your first part of your conversation is about how are you looking to grow? How can I help you? How can I support you. It's much easier to have that price conversation. And I think Kenny and team do a really good job communicating to our customers the value of the UP service product and the value that we're providing to them as a trusted transportation provider.

So that's a strong positive. The little bit of a headwind that we have from a pricing standpoint here in 2026 is really primarily related to we got a pretty good sized uplift last year from coal. While natural gas prices have stayed fairly steady, you just won't see that same uplift. So it's not going to be a detractor from our price in 2026. We just won't have that benefit. But otherwise, we feel very good about the markets that we're pricing into. It's still competitive. I mean that's -- it's a competitive sport that we play in. So you have to take into consideration those competitive factors. But with the service product that we have, that's a strong tailwind.

Absolutely, you need to price. Absolutely, you need to bring in new business, which we did last year. Absolutely, you need to be able to figure out a way to have more free cash so that you -- at the end of the day, you need to be very capital and look at how we spend capital. And this year, it's $3.3 billion, a little drop from last year because we advanced some things into last year. Because we look at capital over a multiyear process, not just 1 year. So I like where we are. I like where we are on the margin, and we do a lot of work operationally to become more efficient with less assets, less inputs to be able to drive this business.

So that we can win in that marketplace and give our marketing and salespeople that advantage of good service, but also have that room to play with to build new markets and to invest in the company. That's the way we look at it. Listen, we're just simple people from Omaha okay. We're not that complicated. It's all about how much cash I can put to the bottom line, Brian. People can look at everything else. When somebody tells me you got the $4 billion of cash, I sort of like that number.

So in terms of, I guess, the next 1.5 months, maybe you can just talk about the application. You're still on track for, I guess, at the end of next month. And what should we expect to see, I guess, differently as you address some of the comments both from the STB, obviously, but also from -- I mean there's obviously a ton of stakeholders, but you can address some of those? Or are those things you'd rather play out during the merger review process?

I think -- remember, the process is controlled by the STB and the 3 members plus all the people that work at the STB. They wrote us 15 pages with some pretty clear instructions on the 3 key areas that they wanted to see more information on, and that's what we're going to answer. I think through this process, it's normal for them as we're going through it, they ask for some more information, and I'm good with that. And I said that to them day 1 when we put the first application in was, listen, tell us what you want.

There's no big secret. And in fact, we told them, we'll be public about it, if you want, and let every other stakeholder understand that we're going through the process to build the information. Because we're giving the information to the STB for them to look at our information and others on what they're doing. So there's no big secret about it. We know how good this merger is for the country. This is not a surprise. Son of a gun, some people say, can it be 2 million loads? There's other people that have told us it's way higher. So at the end of the day, we're very comfortable on what we're going to be able to provide for service. So we're putting the product in and answering the questions for the STB that they gave us. If we put too much more in, you have to worry that all the people that are against it, and especially our competitors that are worried about competing against us is the new railroad.

Because like we were talking about just before and I won't use the example I gave you, Brian, there isn't a business in the world that would complain about what a competitor is doing if they actually we're dumb and we're doing things that were going to harm their business. You would let them do that because you would win in the marketplace. The reason people are worried about us is we -- they know we're going to have a better service product. They truly understand that we're going to be able to give a lower cost supply chain benefit to our customers that move across the Mississippi, which also tie into the rest of the business they do with us. And the only way they can compete if they can't compete at the same level on service because of the touch points, they're going to have to compete on price. And that means them lowering their price to be able to compete against us at the price and service that we offer.

So I'm looking forward to the hearings. I really am. I wish they'd speed it up, like I said a thousand times, but it is what it is. We knew it when we started, it was going to take us a while. But what I love is where the railroad is right now. It's coming along pretty good. And I think I'm blessed. I've got a heck of a team. Jennifer is here with me, fantastic. Eric Gehringer, I don't know, he's a rocket scientist from school, but he does a pretty good job as an operating person. In fact, I think a lot of days, he thinks he's way better than me. I'm not sure about that, and every so often, I have to teach him a lesson, but a very smart guy and Kenny Rocker. So I love the team we have. I love where we are, and I love the how we're moving ahead with it. And we'll put the application in into April, a lot of work, 5,000 pages, maybe now 6,000 pages plus the 500, the 200 letters of support, 500 from customers. So I'm looking forward to moving ahead through this process.

So one thing you did do with the application was raise the synergy target for truckload conversion is it's clearly been a topic in the industry for quite some time, and obviously, right now. But as we've seen with CPKC, with their merger, like they're actually pretty far behind plan for their cross-border opportunity in truckload. So what's different about this merger and this application and this opportunity that gives you that level of confidence to hit that target?

Listen, you know what, I don't know what CPKC is doing. I really don't. But the way I look at it is this way, is they sold the number to their shareholders when they were going through the merger. And I guess you're telling me that they haven't made the numbers, okay? That's their problem, not mine. I understand where I am and where we are, where we are is as we were competing head-to-head going into Mexico, and we outgrew them. And that's real important for us, okay? So I like where Union Pacific and FXE and some of the business that we also give to Canadian Pacific to go across the border. We like it where we are.

Now we sell our network and there's a big difference, Brian. And if you take a look at the network that Union Pacific has versus Canadian National or Canadian Pacific. So if you're selling truck and you're selling intermodal, there's a big difference when you have Seattle, Sacramento, Roseville, Reno, Las Vegas, Los Angeles, Bakersfield, I could just keep on going across the west and the size of the population that we handle plus in the East, think about how big those communities are from Pittsburgh and Pennsylvania and Norfolk right? Atlanta, Jacksonville, I could keep on going. So that's why there's a -- when we've built it up, we built it up using our network and what the capability is to move.

We are not a strictly north-south railroad. I'm not passing judgment. And I'm absolutely sure, Keith is a real smart guy. I missed them this morning. I was a little late getting the cup of coffee and doing some calls, but I'm sure he probably said, Listen, I'm sure Ven has got it all planned, and we're going to -- they're going to beat the $2 million. Is that what you said?

We're going to check the transcript, I don't it's that --

No, it's not that clear? I knew he wouldn't say that.

Well, he did say if you were able to do it, he'd be the first to recognize that. So there's a lot to figure out here, of course. The process is just...

It's an -- it's amazing how people know so much about other people's railroad, right? A pretty smart shareholders thought we have an idea of what we were doing when they voted at 99.52% to approve this thing. But first of all, we have the financial resources to be able to handle it. And we have a plan that allows the shareholders to win. Shareholders are pretty smart. I think JPMorgan might be one of the shareholders that voted.

In terms of the plan, when you think about going through this process, and I think most of us would agree that there's going to be concessions of some sort. Where do you and the Board kind of draw. Is there a red line? I mean it's going to be a long process we have to go through and see it. But like at what point do you say, okay, this is just impairing the core value of the network, you just showed us here operating at very good levels, has been for a while, like -- is there a red line you have? And at what point during this process, do you think that could be evident that you might have to make that call?

Listen, it's a -- if you take a look at the transaction, it's truly a bolt-on, and the fact is that we only have 3 customer locations that are going from 2 to 1. And if you had an overlap, you'd have to worry, it would be a different story of what you would have to give up or give some open -- some access. So it's a bolt-on. In the application, we've already said the committed gateway. And of course, we can move on the length of time it's in place and the commodities involved, but this is a process, Brian, right? You can't -- you know the way it works. I went up to one leader, one union leader, and I said, we're guaranteeing jobs for every unionized employee, the day we merged the 2 companies.

And that union leader without naming them, you know what he said to me. He said, "Well, that's good. You gave that already. I want more". So you need to go through the process and get there. But committed gateway, dispute resolution I've already said that if people don't have service at the level and they don't have an option, we're more than willing to open it up to a competitor. And we're all -- and I'm all open to reciprocal switching. Always have been. It has to be for all of us, though, not just Union Pacific, but anybody who wants reciprocal switching, I'm all game for it. As long as you don't damage the product, hurt everybody else that we're trying to move.

So those are big things like stop and think about what I just said, reciprocal switching? Absolutely. Why? We think we can win. We have a high level of service, we can go win against the rest of them. A committed gateway? That's huge. Railroads don't usually like doing that. People sort of discounted that don't understand how you railroad. Railroads have always maximized their length of haul to try to make sure they make the most amount of money and it doesn't matter whether it's the best route when you're going to another railroad. By giving both every touch point to be open and every gateway open, if a customer says, the best option to get to the Southeast of the U.S. from the southern part of our network is to go CSX, they can have it. That's a big deal instead of us saying, "You have to go through Atlanta". And then we'll give it to you in Atlanta before you could go east. Think about that.

Those are huge ways and we're changing the way the railroad industry is going to move ahead. People discount them as small. They are not small. Absolutely, it changes, and it makes us all have to compete at a higher level. Jennifer, anything I missed there?

No. I mean just going back to the red line, I mean, to your point, Brian, we have -- and we laid this out in our 2024 Investor Day, we see a very strong potential for just the core UP franchise. And we've been fulfilling on that commitment, and we're very optimistic about continuing to do that. So we're not going to do anything that would lessen that opportunity. And so that's really how we look at it in totality is this needs to be incremental for our business. We absolutely believe it is, and we think we can deliver great value. But if something comes back, that would destroy that, that's where we walk away.

In the merger because of the way we look at the business by having each gateway open still and having been on top of that committed gateway, let's talk about our competitors for a minute. The deal is done. We merge. We still have CSX as a strong competitor in the East. There's still -- every customer is going to have the same access to the new Union Pacific and CSX. And CSX is doing everything they can to make themselves as efficient as possible to be able to compete at a higher level. And you got to love it. They're doing great things.

And out West, listen, we're not competing against Burlington Northern Santa Fe. We're competing against Berkshire. That's who owns them. Last time I looked, they're worth $1.1 trillion. If anybody thinks that they are an easy competitor then you're missing the understanding of who they really are, $1.1 trillion company with $370 billion of cash on their balance sheet. They can compete against anybody at a strong level. So this is not big UP against poor BNSF. This is UP against Berkshire competing in the West, and this is UP competing against a strong company, CSX in the East. Remember that this is not as simple as some people think. Burlington Northern Santa Fe could buy anything they want in the rail industry and still have cash left over from their parent company. So those are facts not -- those are facts, not fiction.

One of the other stakeholders we should talk about just real briefly is the -- all the communities, all the environmental studies, like I think that's been quite a challenge for the last even small mergers being delayed. This one is obviously much bigger and more complex. I assume that the work is already being started, but just -- so we cover all the bases, like is that something that we should be focused on? Clearly, that's a whole another set of stakeholders.

We are focused on that. But fundamentally, what the regulations ask us to do is take a look at what additional traffic would do and what the impact is to the communities and how we do that. What it doesn't get us to do because it's not part of the regulation is actually talked that if we can move trucks off of the interstate system, we're 70% more greenhouse gas efficient. Environmentally, there's no danger but the railroad is the way to operate. We're much more for the amount of fuel that we burn for every container or every shipment that we move. So it is better for the country.

But we do understand, and we have worked through what the impact would be if we shift some traffic from different lanes and how we would do that, Brian. But it's very small, the amount of true change. Because listen, we're talking about 2 million loads, that's 36,000 containers a week. We double stack them. We put 500, 600 per train, okay? If you divide that by the 7 days, you really don't end up with that many more trains a day above beyond what we have, okay? So it's -- we are looking at that in depth, but it's not the big wholesale change like some people have made this number out to be.

Well, I just go back to your first chart, Jim, where it shows how we have already reduced trains on our network because of how we're operating. And so if you compare the future state versus where we used to be, we don't think we'll even be back to necessarily that level of trains on our network to start. So that's the other part of that question

I hope you're right that they go back to 2019. Nobody is going to look that for back. They'll only look at what we're doing yesterday, right? But I hear you. So yes, we've dropped 25% in the number of trains and impact to communities. Just because of the way we operate.

So I would love in the last couple of minutes here, Jim, to hear in the process, what have you learned about Norfolk's network, people and culture that maybe didn't fully appreciate or have a better understanding of since you began this merger, talks and now working on the integration and the planning?

Well, listen, they're railroaders. They really are, okay? And that is the highest regard I can give somebody if we're in -- our industry is you're a railroader. They want to do better. They want to move things. They want to provide great service to customers. They want to be safe and they truly are railroaders across that whole company. Culturally, we are different. There's no [events] or buts the people from -- and think about it people from California are going to be different than South Carolina. And people from Atlanta are different culturally a little bit, not that much than what we are in Omaha.

But at the end of the day, I think the fundamentals of who we are and what we do are real strong. I actually went for a train ride between Chicago and Elkhart. I didn't go on a business car. I didn't go by vehicle. I didn't go by high rail. I put myself on the head end of a train with 2 unionized people, locomotive engineer and conductor. They were surprised that I actually knew what the switches are, the generator field and the engine run and how you isolate, I guess they haven't figured out that I used to be a locomotive engineer. But at the end of the day, you know what I figured out? They're proud of their company. They're proud of what they're doing. They love that we guarantee them a job and they love that they can help America grow by having a better railroad and this combination, they see that.

And that was from unionized people. So that's who they are. The time I spent in Atlanta with their management team, there's some strong people in there, and we're going to work hard to integrate this company together and get the best people to run this company and move it forward.

Well, right on time, consistent with your strategy and your plan. So thank you for keeping us on time Jim and Jennifer, and we really appreciate you being here today.

Listen thanks for the invitation. I appreciate it. Thanks for listening to me everyone.

Good morning, everyone. Welcome to day 2 of Barclays 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, Airline and Transport analyst, and very excited to have up next Union Pacific. We're joined by Jim Vena, CEO; Jennifer Hamann, CFO; and Kenny Rocker, Head of Marketing and Sales.

So very excited to talk about a lot of developments here on the M&A front and on your business. But for those that have done this already, let's just queue up question number one for the audience real quick. Do you currently own UNP? Yes, overweight, market weight, 3 underweight or 4, no.

Can I get the names for underweight?

Okay. That's [indiscernible] favorably. Question number two, please. And your -- what's your general bias towards Union Pacific right now, positive, negative or neutral?

Okay. And then question number three, please. In your opinion, through-cycle EPS for Union Pacific will be above peers, in line with peers or below peers. And thanks, everyone, for participating. We do publish these at the end of the conference.

All right, Jim, maybe somewhat of a favorite audience here.

Yes. I thought maybe one of the UP people in the crowd with a button there would have tried to skew it. But thank God you did, [ Diana ].

Well, thank you for coming to Miami, especially during a busy time for you guys. I think yesterday, you made a filing with the STB effectively saying that the refiling of the application for the merger with Norfolk Southern would be end by April 30. I think some expectations have been that, that would be March. So can you talk to maybe the slight delay here?

Well, listen, thanks very much for inviting us and having us here, and thanks for everybody that's showing up in the room and online. Maybe just before I answer that, I just have to talk about, in general, how we feel today versus where we were 6 months ago and where we were last July. What we're proposing in this merger, we even have more conviction now on what the benefits are, benefits for the country, having an end-to-end railroad that operates seamlessly, very important, enhances competition because anytime you can move things seamlessly across the country, people that have to compete against you, have to compete against you on that level of service or they have to compete against you on some other way. So if they can even match the service.

And remember, in our industry, we're moving products and we're moving a lot of product in one railcar. So it's important that -- and customers use that as inventory and they also bring it closer to themselves for final inventory and how they're going to use that product. So if we can move it quicker, they get the benefit of carrying less inventory and all of you know how to figure out the inventory costs. And on top of that, they have less cost for transportation because they don't have to own as many railcars to move that business that they're moving. So we're going to offer that.

And we know by the millions of cars that we interchange yearly with other railroads, what happens. And we are even more sure and convicted that we can gain 24 to 48 hours on those cars by removing the touch points, switching earlier the way we handle them from origin to destination. So if you're one of our competitors, you need to compete against service, which you're going to have a hard time doing because you still have to -- you're not set up to go across the country.

And second is you have to compete somehow. And I think the customer wins. The customer is going to see them trying to compete against us to take into account those other things using price. And that's really the reason the railroads are so adamant against it is that they want to talk about competition. And I don't blame them. They're smart people at the other railroads, but they have to do something. And what that's something is, is to see what they can get the STB to be able to put in place so that they can try to close that gap.

But that's not the STB's job is to close that gap for them financially. It's their job to make sure that the competition is out there. So Brandon, I'm telling you we're very comfortable on that. Now the process of application and then approval and going through all the steps, listen, some of the regulations date back to the early 1900s when railroads actually were the predominant way to move products across the United States of America. You had water and you had railroads. But a lot of places, the rivers don't line up, okay, with where people were populated in the country. If you go across our network, we've -- some of the cities that are there today were established by Union Pacific as they built out and the other railroads in the western part of the U.S. So bottom line is there's a process. We knew it.

I think if today, somebody was writing the regulations, they'd be different. But it is what it is, and it is a process. So we went through the process first to put the application in, and that was important for us to cover off all those key areas that the STB is responsible for. Is it in public interest? Does it enhance competition? Is it good for employees, the environmental? And we put that all in that application, and we made sure we did that. And because it was a bolt-on with a very small piece and a very -- of overlap in a very small piece of 2:1 customers, we dealt with that.

So they said that we needed to give them some more information. Last week, through the liaison, they told us that the way they wanted to see that information was different than we thought 3 weeks ago when -- after they had sent it back to us to put more information in. So -- and we were -- by regulation, we had to give them an answer on the 17th, whether we were going to reapply and what -- when they could expect the application. So we put out yesterday that it's the end of April. That's what it's -- that's all it is, is just going through the process.

Now I'm hoping we're working hard and the contractors we've hired, the economists, right, the traffic studies, people that are doing this separately from us because they've got some expertise on that. They need some time to do that. And that's where we are, Brandon. I don't know if you to have any comments on where the -- you guys are good. I'm going to bring them in as much as I can, Brandon, if you don't mind.

Sure. And on process, so assuming that you did file by April 30, what's the next steps?

Well, it's laid out in general, what happens is they give any constituent time to be able to look and formally respond to the application. And I'm sure they've been working at it because it's not substantive change of what we're doing to it. So they're going to have a few extra months. And hopefully, the STB looks at that and says they don't need the 90 days for that and give them 45 days because they've already been looking at that application for a while. But that happens, then there could be hearings, then there could be back and forth before we get to the end.

Yes. Listen, it's different than the way I do business. I made a decision on some stuff that we're buying for our company. And I think it took me 20 minutes last night with Jennifer, and we pounded it out and we're done. So I like to do things in 20 minutes, and some things take a little bit longer. But we knew it. Brandon, this is not a surprise. If it was a surprise, then people out in the audience and online should think, holy cow, that Union Pacific leadership doesn't understand. We understand. And -- but we also want to try to speed it up. It is what it is.

Does this push back the idea that the deal could close mid next year or early next year?

Yes, I think we're still there. We really are. It's a great deal for America. If this was not a compelling story for customers, for our employees, and everybody has heard me say this, but I'll say it again. When you go through mergers, people talk about New York dock protection. What we've offered is black and white a job for life at the new Union Pacific for every unionized employee. That's a big deal, right? So when we look at that, environmentally, we might operate a few more trains, but -- through some of the communities, but we're taking trucks off the highway and trucks within the city. That is huge.

Remember, we're 70% more greenhouse gas efficient than a truck. So when we start -- when we look at the whole scheme from one end to the other and also United States service and defense, we move a lot of products for the Army and other parts of the defense. And being able to do that in a seamless manner from one end to the other, I got it. We probably don't have to worry about it. But I'll tell you, we're ready to move things in a real fast expedited fashion from the east to the west or from the west to the east, from the north to the south and do whatever we have to. And a seamless railroad just does it better, one bill, one contact, one way to look at it. So the STB gets it. They're smart.

They're very smart people, but they want to go through the process, and they don't want to get sued by the other railroads that they gave -- that they did something that was not by regulation. So we're good with it. Well, I don't have bad dreams about it, Brandon, going, oh my God, what's going on? It's expected.

Jim, this all sounds wonderful, but one of your former colleagues will be on stage here tomorrow, and I suspect the conversation is going to go in a very different direction. And I think a lot of it is going to be focused around the idea that M&A...

You can name them.

Mr. Creel.

Mr. Creel. Yes. I know Keith, good friends. I think we're going to bet on the hockey ladies and the men at some point. But I think he doesn't want to go up as high as I do on the ladies.

Well, I think he's going to push the idea that M&A needs to enhance rail-to-rail competition. Do you agree with that?

Well, listen, Keith is a real smart guy. I've known him for a long time, and I give him accolades on what he's been able to do. When he was putting together Canadian Pacific and Kansas City Southern, he talked about single line, seamless, better competition, and that was the story. So what we're doing now, you replace Canadian Pacific by Union Pacific and you replace Norfolk Southern from Kansas City. And what we're talking about is a seamless that enhances the movement and it gives customers better optionality. So he has to say something. The rest of the industry has to say something.

And the reason they have to say something is this. If you're in business, anybody who's a leader of a company will tell you that if you're a competitor and direct competitor for a small piece of the business, remember, us railroads make up about 13% of the total movement of goods in the U.S. So we're not the majority like we used to be in 1890. Second is Union Pacific today runs 27% on a GTM basis of the traffic that's on the railroads. Our biggest competitor on the West is Burlington Northern, and they're at 39%. When we get this deal done on a GTM, which is really the amount of goods you move, we're going to be the same size. So I don't know how we end up hurting that.

And if you're one of the competitors, what you're worried about is this. Like I said a minute ago, if you're in an industry, you would only complain if you think what the other company is doing, which is Union Pacific, is driving [indiscernible] than you can deliver. Otherwise, why would you complain? You would let that company do it. So all the noise we're getting from the railroads is they're worried about competing and they know the only way they're going to be able to move traffic when you -- as I opened on the service piece is they have to do it with price. That's what they're worried about.

Canadian National is worried about what happens to some of their automobile. We're going to be more competitive into Michigan and Ohio and the Southeast, right? CSX is worried about seamlessly, can we attack some of their and go after some of the business that they have in the box car business, in the merchandise business that they have. But the application -- so that's what's going to said. And hopefully, you asked that question. So, you said when you went through the Canadian Pacific Kansas City that it was such end-to-end as the way to go and all this. And we have about the same amount of overlap as they had in their deal. And that you need to ask them about how about Canada. Last time I looked, I haven't seen anybody in the 2 railroads in Canada announcement come up that they need to split the railroads in 2 because -- in 4. So they have 4 railroads in Canada, and they shouldn't operate across the country. So if you ask them those questions, go ahead. I'll be listening in to see if you do.

I'm sure it will be a nice exchange. Can you maybe talk to the revenue synergies, or Jennifer? Because I think when you guys did file the application, they actually came up and you guys took away what you thought were going to be concessions. Can you speak to that change you made?

Maybe I'll just talk to the concessions piece first, and then Kenny can talk to the revenue synergies. So you're right. When we first made the announcement about the merger application, we discounted out about $750 million in concessions that we thought might be necessary in terms of getting the deal done. As we then spent time over the next several months really studying where the traffic is going to come from, where the origins and destinations are and really the enhanced service product going back to the competition piece that we're going to be offering and how we can enhance it otherwise.

As we look at that, we don't think those concessions are necessary. Again, it's largely end-to-end. 75% of the business that we're expecting to grow is coming off the highway. It's not coming from another road, coming off the highway. And we offered competitive gateway pricing, which not only helps address some of the customers that might be impacted by the merger, it actually extends that benefit out further to customers that would have seen no change in their business with the merger, but for us offering this, and now they have the ability for either BNSF or CSX to offer a through rate for them. So when we did all that and looked at that, we're like, we don't need those concessions. We don't think they're necessary to make our point and to drive better enhanced competition.

So before I hit on these revenue synergies, I want to add a different perspective to what Jim mentioned about the merger. From a customer perspective, the customer wins also. So when Jim first came back in August of 2023, the first week on the job as we were competing with Canadian Pacific, we looked at our service product, and that's the first thing that we added to, to make sure it was stronger. In that sense, the customer won. We also are in competitive situations where, to Jim's point, you do have to price. In that sense, the customer wins. So let's make it clear, the customer will win in this merger.

Now with these revenue synergies, yes, we laid it out. Jennifer did a good job. You're talking about 2 million trucks that are going to come off the highway. The thing that we're excited about is this both carload and the intermodal side. We don't talk about that carload piece. We've got 6 lanes that we've laid out that are going to attack the watershed markets. A lot of that's moving on water. A lot of that is moving on trucks. And then on the intermodal side, we've got some lanes that we really think are going to be exciting from SoCal into the Northeast, from the Texas, Mexico area into the Southeast. Jim and I were with a pretty large intermodal customer last week, and they did a good job of saying, "Hey, we think you're thinking about it right. We think it could be a little bit undersized, and we think there are some other lanes that the merger will open up.

And I guess, can you just expand for the audience because maybe not everyone understands how rail interchange works today and why it can be so inefficient for a shipper to go east to west and kind of that arbitrary border near the Mississippi River?

Yes. So a few things, and we don't talk about it a lot. A lot of the business -- I'll just give an example when we talk about Chicago, a lot of that business stops in Chicago and then is rubber tired to another railroad inside Chicago. And then the more egregious thing is that it stops in Chicago and then it's trucked into Toledo, Detroit, other places in Ohio. And so how do you -- the customer wants the solution where [ steel ] will and where it goes in the end. They don't want to have to negotiate that and go through and have that other logistics lag there.

I think some of your competitors would push back and say, "Hey, look, we could get these benefits just by working better together, and we've seen announcements with your peers launching new services.

Yes, they're going to -- that's great. That's called competition and enhanced competition. I think they're making our case is I hope they do. I hope they look at ways to be able to improve it. The history will tell you, though, that those things don't last. Railroads start looking internally about their assets and how they handle it. And today, I could tell you that we have disagreements on locomotives, fuel, and we pass locomotives back and forth, but people will say, well, I don't know if we should -- you didn't give us 3,000 gallons. It was 2,850 gallons. So we don't want to pay that and you go back and forth trying to settle it. And oh, we get 24 free hours or it wasn't our fault. It was a customer fault.

Bottom line is when you have a seamless railroad, all that goes away. It's how you move it. And everybody misses -- everybody loves the intermodal. I also love merchandise. And if you're originating somewhere in the western part of the U.S. and going east is we handle it what's the best for Union Pacific. We've tried to make deals with other railroads to see if you can move traffic in a much more seamless, but you're talking about capital, what a railroad has to do, and they're not willing -- nobody is willing to do that, especially if you don't have a long-term commercial deal to do that. And it's just never happened.

We're going to be able to -- at that hump yard that we have in Houston, we're going to build blocks for Philadelphia. We're going to build blocks for Pittsburgh. So you don't handle the cars on the other side. That's just fact. Like I like talking fact, not fiction or what's going to happen. Like my kids -- well, my kids are 40, but when they were younger, they would talk about, geez, maybe I get to go to Mars, okay? Well, I'm okay with that. That's a dream, right? We've been to the moon. I'd rather think I know how to get to the moon than to worry about that. And that's what the analogy is for this is they can talk, but I can't see -- I've never seen the result last for a long time.

With Canadian Pacific, before they purchased Kansas City Southern, we delivered an 11,000-plus foot train, okay, to go across the Norfolk Southern over the Meridian Speedway. For some reason, now that -- that was a deal that was there for years. This is not a 3-month deal. Now we have to split the train in 2 pieces and give them max 8,500 feet. I think that's a pretty prime example of railroads for whatever reason, it was okay on the railroad before, but not okay a few months after you take the ownership of a company. That's what happens.

Sorry for the long answer, but I like to talk facts, Brandon. Not something that I'm making up because it comes back to the key point. If they truly thought the other railroads, and they're smart. They -- when you take a look at it, if you're one of the other railroads, you look at this deal and you say, how is it going to impact us? What is it that it's going to do to us? If they thought that what it was going to do to them was we wouldn't be able to technologically put the companies together, which we did with NetControl, okay, in our company. And that's our base fundamental, and it was a nonevent, and we think we can do that pretty -- use the same template, not day 1, do that at Norfolk Southern, and implement the best systems that both companies have across each other.

At the end of the day, if they can't argue, they come up with things like, I wonder if they can handle the technological change. The fact is, we've done it internally, and we've upgraded all our main systems. Second is, how is the competition? What does it do to us? Brandon, what are they going to say? If you have to compete on price and you might have to take a price cut to compete against the new Union Pacific and you can't grow your business the way we can on the watershed and what because we go long haul, what's Canadian Pacific and Canadian National going to do? They want to try to do everything they can to affect this transaction. The STB is too smart for that. They know you should never listen to a competitor as the key input on when you're looking at what's happening. It's just common knowledge.

Well, I appreciate that. Can we queue up question #4? And if there's any questions from the audience as well, just raise your hand, we'll get you a mic. In your opinion, what should UNP do with excess cash? Bolt-on M&A, larger M&A, share repurchases, dividends, debt paydown?

Give it back to the shareholders. That's our -- that's the way we look at it. We need to return money to our shareholders. Shareholders are real important.

After the [indiscernible].

Yes, after capital and everything else, I got it. But did I hurt that question by sort of...

Question #5, please. In your opinion, what multiple of 2026 earnings should Union Pacific trade? You can go ahead and vote, please.

We don't get the vote, can...

[indiscernible] 6.

Okay. And then question #6, please. What do you see as the most significant share price headwind facing UNP? Core growth, margin performance, capital deployment or execution and strategy?

And while we're waiting for the results of this, Jennifer, I did want to ask about the business. It looks like, I think last week, volumes looked pretty good for your network. I think you guys have been talking about a pretty decent operations. I don't know, can you give us an update on how the year is trending thus far?

Yes, sure. So we were impacted a little bit in January with some weather that hit the southern part of our region. we rebounded. And in fact, that was right around the time of our earnings release, and you heard us talk about the fact that we looked for a quick rebound. We've done that. The network is running. We're back at, call it, 230, 240 car miles per day. Our dwell times are sub-20 again. And with that, you've seen the carloads come back because we're, again, back in a position where we're putting the cars up against the customers. We're moving them on demand.

And you've actually seen us -- I think right now, our carloads are down 2% overall in the quarter, but we're up year-over-year in the month of February, and that's really largely because a lot of that bulk business, we're seeing strong demand on the grain side, strong demand on the coal side and even some of the petrochem markets, plastics in particular, and domestic intermodal is still good for us. So you've got the biggest headwinds out there in terms of the international intermodal, which is the year-over-year comp that we knew was there. And then some of the industrial markets, autos is weaker, although starting to look a little bit better, forest products with housing. But net-net, when you've got a well-running network, you're going to get every carload that's available, and we've rebounded from that January weather and running very, very well.

And Kenny, are you guys getting incremental wins on the network this year?

Yes. I mean you have to set aside the market because the market can change on you at any time. So we talked about the coal. We had a win around spring time this time last year that we're enjoying on top of that. Same thing with the grain business. Grain is up. The markets are stable, but they're not hot, but they're up because we are winning. We are winning in moving product out of the Gulf, moving into Mexico. Same thing with the petrochem business. Petrochem business is not like it's on fire. You have to go out there and win, and we've done that, and we feel good about winning more. And then we talked about domestic intermodal. And the thing about domestic intermodal we like is that it's been pure over-the-road truck wins, not against share or another railroad. So we've been able to open up the pie with a great service product.

And our customers are expanding, right? We can see them in the aggregate moves and we...

We see that on the aggregate side. We see that in mature markets like the grain business where we've added literally more destinations and more origins. Later today, Jim is going to get a contract for a customer that just signed on a new grain facility in Iowa for us that we expect to get us some really good growth.

We've got a record number of shuttles in place for our grain business today.

We've got a record number of shuttles, and we had a number of commodities that have had record revenues here recently, and we want to build on that.

Does this sound maybe a little bit more bullish than the outlook was on the earnings call?

We'll see. I mean it is still February. So I mean, we like how we've started the year, but there's a lot more of the year to play out. If we can get some benefit from the economy as we talked, if you look at some of the macro indicators, I know people are excited about ISM, excited about some of the truck pricing. We'll see if that continues. If that does, we're in a great position to capitalize on it.

The fundamentals are real important, Brandon, and that's why our strategy is safety, service and operational excellence. If you can deliver a service at the level that we're delivering here where really the amount of noise is just about miniscule or not there, then customers look at it and say, if you're able to do that for a long time, and it can't be just a quarter. If you're doing it for a year, 1.5 years, they trust that you're going to be able to do that. And there's no advantage of us. I'm just -- we're just the operating people led by Eric Gehringer, are basically making the job easy for Kenny to go win. So [indiscernible] the gun, okay, let's go.

Well, Jim, we only have about a minute here. What do you want to leave us with?

Listen, an exciting time in the railroad industry. It really is, strong competitors, and we want to win. The only way to win is to look at what's coming, not look backwards. The worst thing you can do in the world is imagine the world that's static and you only look backwards. So the reason we're moving ahead is we look at things on what's possible. And what's possible is for us to have a railroad that's going to compete better against trucks, against barges. We open up for our customers new markets and we win. That's what it's all about. We like to move forward and not backwards.

Thank you very much for joining us.

Thank you.

Greetings. Welcome to the Union Pacific's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website.

At this time, it is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may begin.

Thank you, Rob. Appreciate. Let's get going this morning. But maybe let's just take a second before we get into the prepared remarks, and then I'm really looking forward to the questions and answers. So I'm sure there won't be anything on mergers. It will be all about how good Eric and the team are running the railroad. But -- thanks for joining us this morning. But I do need to call out the entire Union Pacific team.

We've had a significant weather event that impacted the vast majority of the United States of America from 1 end to the other. And we felt that in the Southern region that is -- that has these storms come through, but I'm telling you, it used to take us weeks to recover. And Eric and the team have done a spectacular job. I wouldn't say that we're at 100% this morning recovered. But Eric's promised me by the time I look at the metrics on Thursday morning, will be back to normal.

So Eric, listen, you and the team, do you want to just give a quick update on some of the big impacts, what's left to do here in the next so the customers that might be listed and can understand exactly where we are.

Yes, to your point, Jim, the team has done a heck of a job. And it really is in that Texas and really in the Louisiana, Arkansas area. And really where we are pretty much 70% recovered, and that includes partnering with a lot of our customers who when this weather happens, they have to make adjustments to their their operations as well. We welcome that.

We work with Kenny's team to be able to do that. And like you said, when we wake up Thursday morning, we should be back.

Listen, we're at Union Pacific and me specifically and the rest of the team with me. We like to deal with back, not how people feel. One of my favorite sayings when somebody tells me, I think this, I tell them, tell me what the facts are. And the facts are the northern part of the railroad, which usually gets impacted with real cold weather that did has recovered really well.

The western part of the railroad in L.A. late there wasn't very much of an impact. It was pretty clean. -- and they're operating like they should. And in that central east and south part, they've done a spectacular job of recovering, where it would have taken us weeks to get us back to where we are Nice to see that short time after a few days.

And that speaks to the facts of who we are and what we do with buffer of resources, making sure we add locomotives in the right place that would help. And all the assets and the people that we need, and I've got to give the employees credit for coming out and whether that was pretty tough. Now I always try to tell people I've done it before. But yes, that was a long time ago.

Right now, the toughest thing I have to do is drive out of my garage and drive into another garage. So it's pretty easy. But I appreciate all the hard work by everybody. So why don't we get going? So I already said, good morning, and thanks for joining us on the Union Pacific's Fourth Quarter and Full Year 2025 Results.

I'm joined in Omaha by Chief Financial Officer, Jennifer Hamann; Executive President Marketing, Kenny Rocker, and of course, Eric, who has already spoken. So nice to have the team with me here this morning.

Let's dig into 2025. Throughout the year, we continue to build on what's possible. Quarter-to-quarter, we challenged ourselves on each other. The result the Union Pacific team delivered our best ever full year across safety, service and operating excellence.

As we close out the year, it's clear the team is consistently delivering at the highest levels -- and I'm confident that's what we'll continue to do.

Now let's discuss the highlights further starting on Slide 4. This morning, Union Pacific reported 2025 full year reported net income of $7.1 billion, up 6% and earnings per share of $11.98 up 8%. 2025 freight revenue, excluding the impact of fuel surcharge grew 3% versus 2024 and set a best ever full year record.

Strong core pricing gains, combined with an additional 113,000 railcars more than offset business mix. Our annual operating expenses after adjusting for merger costs and other one-timers were roughly flat year-over-year, an excellent result against business growth as well as inflationary pressures. We remain disciplined setting the best ever full year record for workforce productivity as we utilize 3% fewer employees to move 1% more volume. And we further managed our costs by operating a very efficient network, removing car touches and reducing dwell.

We set best-ever records in many areas, freight car velocity, locomotive productivity, terminal dwell, train length, fuel consumption. I'm going to stop there. Eric would like me to have another 10, but that's it. That's enough to name a few.

Importantly, we achieved these records while maintaining a buffer of resources as we safely delivered for our customers. Our 2025 full year adjusted operating ratio improved 60 basis points to 59.3% in versus 2024s results. Reported net income was another best ever full year record in '25 driven by increased other income and higher operating income from revenue growth and productivity.

Other income grew in part from industrial park land sales, demonstrating that we will take advantage of opportunities to monetize assets and maximize value to our shareholders.

Jennifer -- how about you dig into the fourth quarter financials, and then Kenny and Eric will quickly walk you through the marketing and operate in details. Then I'll come back for a quick wrap up before we go to Q&A. Jennifer?

Thank you, Jim, and good morning. Let's begin with our fourth quarter income statement on Slide 6, where operating revenue of $6.1 billion decreased 1% versus 2024 as freight revenue of $5.8 billion declined only 1% on 4% lower volume. Breaking down the drivers of freight revenue, the lower quarterly volume reduced freight revenue, 400 basis points. Fuel surcharge revenue of $603 million increased $15 million as higher year-over-year fuel prices added 75 basis points to freight revenue.

Core pricing gains, combined with business mix to drive 275 basis points of improvement to freight revenue, although still strong, quarterly pricing and mix were impacted by the competitive and global market environment, particularly in agricultural. While we remain focused on selling our valuable service product at the right margins, we have to compete.

Fortunately, our strong operating efficiency and continuous drive to improve allow us to compete and still generate strong cash returns. Fourth quarter mix dynamic was slightly positive, although not as favorable as expected, due to lower volumes in some of our higher average revenue per car or ARC businesses such as forest products, food and refrigerated and energy and specialized markets, and higher volume in some of our lower ARC businesses such as coal and rock.

Wrapping up the top line, other revenue declined 2% to $326 million, driven by lower revenue from the transfer of Metro operations.

Switching to expenses, our appendix slides provide some more detail, but let me discuss the key drivers as total operating expense increased 2% to $3.7 billion. Reported compensation and benefits decreased 3%, driven by the favorable comparison to the $40 million crew staffing agreement we had in the fourth quarter of 2024.

Our continued focus on operational excellence enabled record fourth quarter workforce productivity with workforce levels 5% lower than 2024. Fourth quarter compensation per employee increased 5% as a result of wage inflation and higher guarantee.

For 2026, we expect our all-in compensation per employee to be up around 4% to 5% as we continue to identify opportunities to offset increasing wage and benefit inflation with process improvements, technology and investments.

Reported purchase services and materials increased 8%, driven by merger-related costs, higher inflation and increased maintenance and repair cost. Fuel expense grew 2%, driven by a 3% increase in fuel prices from $2.41 to $2.49 per gallon, partially offset by improved fuel consumption.

Equipment and other rents declined 8%, driven by lower operating equipment leases and improved cycle times that reflect our strong network fluidity.

Finally, other expense increased 22% to $344 million on higher casualty costs and rising property taxes, as well as the comparison to 2024s bad debt adjustment. Against our record fourth quarter 2024, operating income declined 5% to $2.4 billion. Below the line, other income was the best ever quarter and increased $264 million, driven primarily by industrial park land sales, which Jim mentioned earlier.

Reported net income totaled $1.8 billion and was a fourth quarter record with earnings per share of $3.11. Our adjusted earnings per share totaled $2.86 and adjusted operating ratio came in at 60%.

Turning to shareholder returns and the balance sheet on Slide 7. Full year 2025 cash from operations totaled $9.3 billion, roughly flat to 2024, while our cash conversion declined 10 points as a result of higher cash capital and our significant gain on land sales at year-end.

Cash returned to shareholders grew 25% versus 2024 as we rewarded our shareholders by returning $5.9 billion in 2025 through both dividends and share repurchases. Our adjusted debt-to-EBITDA ratio finished the year at 2.7x as we maintain a strong balance sheet and continue to be A rated by our 3 credit agencies.

Return on invested capital improved 50 basis points to 16.3%. As we've discussed, our goal is to have industry-leading operating ratio and ROIC. And I'm confident that when the dust settles after earnings season, we will remain the leader in 2025.

In 2026, we expect our cash balances to steadily grow as we first prioritized paying off the $1.5 billion of long-term debt that comes due in the first half of the year and then can serve cash in anticipation of the merger closing.

Now I'll turn it over to Kenny, and I'll come back in a little bit to discuss our outlook. Kenny?

Thank you, Jennifer, and good morning. Before I dive into the fourth quarter results, I want to acknowledge the team's hustle and drive, which helped deliver a best ever for your record for freight revenue, excluding fuel.

Now turning to the fourth quarter on Slide 9. Freight revenue was down slightly on a 4% decline in volume. Our strong service product allowed the team to offset that pressure with pricing. With fuel surcharges and business mix, we delivered a 4% increase in average revenue per car. Let's talk about the key drivers for each of these business groups.

Starting with our bulk segment. Revenue for the quarter was up 3% compared to last year on a 3% increase in volume. While business mix had average revenue per car flat. Strength in coal was driven by sustained demand and favorable natural gas pricing. We're seeing smaller wins build momentum and provide incremental volume in a mature market.

In grain, lower domestic demand and reduced soybean exports to China were partially offset by business development wins in Mexico. And as Jennifer mentioned, the competitive and global environment also impacted quarterly pricing and mix. Grain products growth in renewable fuels and associated feedstocks was tempered by uncertainty around the renewable fuel tax credit.

Food and beverage volumes remain pressured with softness in Mexico beer shipments. Fertilizer and sulfur finished the quarter strong, driven by increased phosphate shipments and higher sulfur demand from the mining industry.

Turning to Industrial. Revenue was up 1% for the quarter on a 1% increase in volume. Average revenue per car was flat as strong core pricing gains were offset by business mix. demand and business wins increased in petrochemicals and construction shipments, partially offset by decreased volume in our forest and petroleum markets. Premium revenue for the quarter declined 6% on a 10% increase in volume and a 5% increase in average revenue per car, reflecting business mix and higher fuel surcharges.

Intermodal volumes were challenged by lower West Coast imports and customer shifts. Despite that, 2025 was the best ever year for domestic intermodal, which also delivered another record-breaking quarter, driven by exceptional service and business wins. Automotive volumes declined due to reduced OEM production driven by softer consumer demand and ongoing quality holds.

Now let's focus on 2026 and the macro indicators we're watching on Slide 10. Based on S&P Global's January outlook. At the start of the year, the indicators point to a softer environment. That said, it's still early in the year, and these forecasts can move as conditions evolve. We'll watch the data closely, but we'll stay focused on what we can control, delivering strong service, hustling to win and new business and partnering with our customers to grow.

Looking ahead on Slide 11. While we've been seeing volatility, we remain optimistic about coal potential with natural gas prices expected to remain favorable in the near term. grain exports, mostly to Mexico and some to China, coupled with ongoing business development should support growth.

In grain products, we expect continued strength supported by aggressive business development and expanding markets for renewable fuels and feedstocks. And as the policy for renewable fuels becomes clearer, we expect that to further support growth.

Moving to Industrial. We're planning for a challenging backdrop. Industrial production is forecasted to be flat and housing starts are expected to decline by more than 2%. Our team is laser focused on business development and leveraging our strong service product to close gaps. We expect our petrochemicals market to remain strong driven by investments we've made in our Gulf Coast franchise and winning with new and existing customers.

Wrapping up with premium. We expect continued softness in international intermodal volumes in the near term as imports stay below last year's level. Later in the year, comparison these, but the import environment remains fluid.

On the domestic side, we see continued opportunity and growth from over-the-road conversions enabled by our strong service product and multiple channels to win. Softening vehicle sales will pressure automotive volumes. That said, the team continues to hustle and recent business development wins will help offset some of that softness.

Looking ahead, we're confident in our ability to compete with a strong business development pipeline, and a service product that continues to differentiate Union Pacific, we're focused on converting opportunities through strong customer relationships, commercial intensity and consistent execution.

And with that, I'll turn it over to Eric to review our operational performance.

Thank you, Kenny, and good morning. Moving to Slide 13, where in the fourth quarter, we extended our safety performance, delivering meaningful improvement in both personal injury and derailment rates compared to our 3-year rolling average.

Importantly, for the full year 2025, we achieved best-ever results in both areas, and we expect to lead the industry in employee safety. These outcomes reinforce our commitment to safety and demonstrate the effectiveness of our training programs and technology investments. Freight car velocity of 239 miles per day beat last year's record fourth quarter by 9% and set a best ever quarterly record. This result was driven by record quarterly terminal dwell of 19.8 hours, increased train speed and continued process and technology improvements to remove daily car touches. Ttruly exceptional work as we build further momentum to operate a safer railroad and drive capacity for future growth.

Our service product tracked ahead of what we sold to our customers as fourth quarter intermodal and manifest service performance both improved to finish at 100%. As a reminder, Service Performance Index will be rebased to our best monthly performance as we continue to raise the bar for success.

We will remain agile and maintain our buffer of resources positioning us to respond quickly to demand.

Now let's review our key efficiency metrics on Slide 14. Fourth quarter locomotive productivity improved 4% versus 2024. Additionally, our 2025 full year results set a record, demonstrating the team's focus on further reducing locomotive dwell to maximize asset efficiency. Workforce productivity improved 3% and set a quarterly record for the sixth consecutive quarter.

We continue to enhance and automate our operations while improving the safety of how we work. Train length in the quarter improved 3% versus 2024, a strong result against the mix headwinds associated with softer international intermodal shipments, which were down roughly 30% year-over-year.

All in, 2025 was a best ever year for train length averaging almost 9,700 feet as we adapted our transportation plan for the business and leverage targeted investments to generate mainline capacity.

With that, let's review our capital outlook for 2026 on Slide 15. Our capital plan is developed through a disciplined multiyear strategy to strengthen our infrastructure and generate strong returns. In 2026, we are targeting a capital spending of roughly $3.3 billion.

As we've said before, our first capital dollars will support safe, reliable and productive operations. We are prioritizing our core infrastructure, modernizing our locomotive fleet and acquiring freight cars to support both replacement needs and future growth.

We're also investing in targeted capacity projects that align with our growth initiatives. These investments position us to capture additional volume opportunities and drive meaningful productivity improvements across the network.

A few examples include the continuation of our siding construction and extension projects in the Pacific Northwest and along the Sunset route in the Southwest. We're also making terminal investments for our manifest network in and around Houston and the Gulf Coast region.

On the Intermodal front, we're planning additional investments at Inland Empire and Phoenix to increase capacity and support growth in those markets. Our focus is on aligning the right resources in the right places at the right times, so we can grow with our customers and continue driving efficiencies across the network.

Before I pass it over to Jennifer, I want to express my gratitude to the UP team and their unwavering focus on safety and service. By staying disciplined on the fundamentals of railroading, we expect our team to continue this momentum in 2026 and beyond.

So with that, I'll turn it back over to Jennifer to review our initial financial outlook for the year.

Thank you, Eric. Turning to Slide 17. Before I give our thoughts on 2026, let me just summarize what we achieved in 2025. The strong results we reported today are on target with what we laid out last January. The path to achieving the results, however, was actually quite different.

My point in highlighting that is pretty simple. We are executing our strategy of safety, service and operational excellence, leading to growth at a very high level. That level of execution makes us more nimble as a company and enables us to both win in the competitive freight transportation market as well as to take advantage of spot market opportunities, whether that be higher-than-expected coal demand, domestic intermodal moves or opportunistic real estate sales.

The entire Union Pacific team is collectively driving for excellence, and that's producing best-in-class industry returns. As we apply that mindset to 2026, our current plans do not anticipate a significant economic up [indiscernible] we are, however, confident in our operational capabilities as our network is running better than ever.

Our service product creates value for customers, and we are committed to outperforming the markets through our business development efforts. It's also important to note that since we laid out our 3-year targets in September of 2024, several things have changed. Notably, S&P Global's 2026 economic estimates in key areas such as industrial production, housing starts and auto sales have deteriorated.

In addition, rail inflation is ticking up again. we expect slightly over 4% inflation in 2026. Our commitment to yielding price dollars that exceed inflation dollars has not changed, but price may not be a driver of our improving margins in 2026. And of course, in September 2024, we did not anticipate the impact of merger costs and pausing our share repurchases.

Despite this different backdrop, we remain committed to attaining our 3-year CAGR of high single to low double-digit EPS growth through 2027. Specific to 2026, our earnings outlook is in the mid-single-digit range as we continue to face volume and cost headwinds. As 2025 demonstrated, the year ahead will likely present some ups and downs, but I am confident that we can adapt and drive financial gains.

We are planning $3.3 billion for 2026 capital improvements and we will continue to deliver value to our shareholders with consistent annual dividend increases.

Importantly, we fully expect to improve our operating ratio versus 2025 and remain the industry leader in operating ratio and return on invested capital. The team's accomplishments in 2025 demonstrate the capabilities of our great franchise and we look forward to making further improvements in 2026 as a stand-alone company and in 2027 when we merge with the Norfolk Southern. It is truly a great time to be at Union Pacific.

And with that, I'll turn it back to Jim to wrap things up.

Thank you, Jennifer. Turning now to Slide 19. Before we get to your questions, I'd like to summarize what you've heard. First, Jennifer reviewed the fourth quarter financials. Car loads declined 4% in the quarter, driven by tough year-over-year international intermodal comparisons. We had strong core pricing gains and continue to drive productivity throughout our network.

Kenny gave an overview of fourth quarter volumes and laid out initial thoughts for 2026. We are focused on pricing to the value we provide and compete in the marketplace. It's clear our service execution over the last 2 years plus is helping us win with our customers. We see opportunities in several areas, including chemicals and domestic intermodal, to name a few, to leverage our franchise to further grow our business.

Eric reviewed our record safety service and operational results. From a safety perspective, we made strong improvements and expect that we will end the year as the industry leader in employee safety.

On the service front, we have shown our customers what consistent, reliable service looks like and how it drives value through the supply chain. On operational excellence, we more than met the challenges we set several quarterly and full year fluidity dwell and productivity records, and the team is ready to drive further improvements in 2026.

Lastly, Jennifer discussed our outlook for the upcoming year. Similar to 2025, we are focused on building on our safety performance, winning new business and controlling our costs, all to generate improved financials. Our diverse franchise brings us challenges and opportunities every day, and our job is to maximize what's possible.

As we continue to successfully execute on our strategy, we will remain the industry leader that keeps raising the bar as we drive value for our shareholders.

Before we open it up for questions, I'd like to make just a couple of comments on the merger. Job one for our team in 2026 is continuing to improve and run a great railroad. I like where we are. I like what we have planned, and I love the way we've been able to increase productivity, and we've been able to adjust depending on where the business is and also what the impact of input costs are.

Job 2 is working through the regulatory process to merge with the Norfolk Southern. I'll be honest, myself, and we are disappointed that the STB determined we needed to provide more information after providing close to 7,000 pages. And working with them and listening to them if they needed more information. But this procedural step that we've seen in previous acquisitions, which were ultimately approved.

Let's be clear. This does not reflect the value of our combined railroad will provide America and our customers. We are confident that we've demonstrated our merger enhances competition is in the best interest of the public. Our combined railroad will move goods faster while removing millions of trucks off to congested highways in several large cities, and customers will benefit from faster, more reliable service that unlocks new markets.

The STB's request is focused on 3 areas requiring clarification. Our response will take a few weeks to prepare and then we will refile our application as soon as possible. We view this as a short-term blip and do not expect a significant change to the time line as we are still targeting closing in the first half of 2027.

We are following the process and doing our part to move forward with transparency and speed. We are delivering at the highest levels. So fundamentally, I like where we are and aligned on what it takes to win, driving safety, service and operational improvements to support growth as we work towards combining with Norfolk Southern.

So with that, Rob, we're ready to take questions if there's any.

[Operator Instructions]. And our first question comes from the line of Jonathan Chappell with Evercore ISI.

I'm going to give you a break and go to Jennifer first today. Jennifer, I know there's a lot of moving parts and you got where you end up in 25 in a different manner than you expected 12 months ago. But just Help us understand a little bit. You said price may not be a driver of improving margins in '26, given the accelerated inflation. You talked about 4% on the comp per employee. You're not expecting a macro recovery -- so how do you get to OR improvement in '26? Is this a function of headcount, productivity? And if there's any way to frame the magnitude based on what you see today and Kenny laid out from a macro standpoint, that would be helpful.

Yes. Thanks for that question, Jonathan. So you heard that right in terms of -- from what we're expecting today, at least as we sit here from a price standpoint that while we absolutely believe that we will and have a plan to improve our operating ratio in 2026, we don't think that we're going to get any help from price. Of course, that's an early look.

And really, it's a function of a couple of things. We definitely benefited in 2025 from natural gas prices and strong coal pricing. While that may hold, we're just not going to have that as a tailwind for us in 2026. And then you still have a pretty weak domestic intermodal market. And those 2 things really are what's reflected in that pricing commentary.

In terms of productivity, Eric and his team did a fantastic job in 2025, driving productivity, driving efficiency, and we have more ahead of us in 2026. And so that definitely will be a continued tailwind for us as we move into 2026. And that's going to be supportive of improving our margins.

And then the last thing I'll mention is the business mix. It should be a more favorable business mix for us in 2026 than in 2025. Now we were a little off in '25. I thought it was going to be a better mix in 2025 than it ended up being. But you still saw us make margin improvement. So that's where I think just the way that we're running and executing today. is a huge benefit for us. We are moving every available carload there is, and I anticipate we'll continue to do that in 2026. So that's really how we're looking at it.

Our next question comes from the line of Jordan Alliger with Goldman Sachs.

It's Andrzej on for Jordan. I was just curious if you could dig a little more in on the $2 billion of targeted net revenue gains from the expected merger. I think about $4.2 billion of increased traffic gains are being offset by $2.2 billion of costs associated with handling that traffic. The question is how variable can that $4 billion gross traffic number be based on your planning assumptions?

And then could you just discuss a little more related to how you project the associated costs of taking on that new traffic, which altogether, I think it implies a pretty healthy EBITDA margin for the potential new traffic coming on board.

So if I have your question right, you're asking us when we put the merger application and we talked about growth in the number of the carload growth. And you want to know if that's conservative or not or where the market is. And you also want to understand whether -- how we're going to handle that business.

So let's split that up in 2 pieces. -- we had experts -- we looked at it before, of course, before we decided to cross the bridge and merge with Norfolk Southern, we did our own analysis of the traffic that's available both long-haul intermodal that today, we have a lower percentage than the mid-length intermodal business just because of the handoff of what happens when you have to hand off from 1 railroad to the other and it just does not open the market and penetrate it as well. So we're very comfortable that, that $2 million that we put into the application is there.

And in fact, we are and always have been, just like when we talked about price before, we're conservative. If anybody thinks we're going to let Kenny get away with being conservative internally than DREAM ON and you don't know who I am, okay? So the same thing with this. We're very comfortable.

And then we had experts look at the market, and they wrote in their best guesstimate or estimate at this point on what we're going to do. Anytime you increase business, you get the added on the trains that you have and what you need to do. So it's always much more efficient than running traffic that is in a decreasing position where you have to try to figure out how to adjust your network.

So bottom line is, I'm very comfortable that the business is out there. Now there has been some talk about this business. It's $2 million and my God, how much is that.

Well, if you do the math, it's just -- it's around 38,000 carloads, you have to remember the way we -- all of us count intermodal. So you can just about cut some of that in half because there's 2 containers at least on a railcar. And for us, we load up our trains.

Also, we don't run 10,000-foot trains. We run our intermodal package because we have built the system to be able to do that somewhere between 14,000 and 18,000 feet. And we do that every day, and we've been doing it for now the last few years. So the total number of additional movements that we're going to have on the railroad, that impact what capital we need to require is not as large as people think, and we know that it's not that large.

Let me take one more step down if you take a look at the way we operate. The way we operate is this morning, when I looked, okay, like I do every morning, we have over 2,000 movements, foreign railroad, local trains running on our network.

So if we add 10 more trains a day or 15 or 14 more trains a day, it's a pretty small rounding error on the impact to the network. So I'm very comfortable that when the merger gets finalized, which it will, just because of the enhanced product that we're offering our customers. And just an end-to-end railroad from one end of the country to the other is enhanced all by itself. We're going to be able to provide seamless, faster service to our customers, let alone in the watershed.

So Eric, do you have anything more to talk about how the network is going to handle this little bit of business that we're going to bring on that we hopefully is more than 2 million.

Okay. Let's build on that where we started. So really, we're talking about a 6% increase in our operating inventory and as the combined entity. And I want everybody to make sure you hear that 6%. So you have 3 things you do.

Number one, you rely on the buffer of capacity we already have. right? We've talked all the time internally and externally about the fact that we keep a buffer of resources for locomotives and cars, but we also do that for terminal capacity and mainline capacity. We don't run terminals up to 100% capacity. Heck when we get to about 80%, we're already making investments.

Second thing, when you look at the application, the base year is 2023. So we've made capacity investments. And independently, and NS has made capacity investments as well in '23, '24, '25, and those are all tailwinds for us to utilize. And then Jim hit the last one I got to be honest with you, I totally agree with Jim, when I don't remember what railroad said it, but something about 10,000 feet.

And I had a hard time computing that because we don't run trains at 10,000 feet. Here at Union Pacific, we've invested in our people and the technology that allows us to safely and reliably operate those trains that link Jim mentioned. So very comfortable with it. We're working through the integration process, and it will be the most thoroughly planned and executed integration of 2 railroads.

Listen, sorry for the long answer. We'll try to be shorter. So this thing doesn't go too long, but great question. Thank you very much.

The next question is from the line of Ken Hoexter with Bank of America.

Great job on the ops. I guess just a quick one, just to clarify, the base rate for your mid-single-digit growth, is that the $11.98 reported? Or is it the normalized? I'm just kind of a lot of questions on that.

And then premerger, you're now building to low single digit, mid-single digit into 2027. Maybe you can just kind of -- are we really ramping that up for the 27 outlook? And kind of what should expectations? I know it's a 2 years ahead, but just because you've reiterated that target, I just want to understand your thoughts there. in the face of $3.8 billion down to $3.3 billion CapEx. So why the reduction and what's getting pulled out?

Well, for one question, Ken, you managed to hit a lot of points there. Let me see if I can hit them all. So our guide of mid-single digits is off of the $11.98. Our reported EPS, which was up 8% year-over-year in 2025.

You also asked in terms of the CapEx piece at the end there. We are sizing our CapEx relative to what the network needs. And Jim has talked about this before. CapEx isn't just a snapshot in time. It's not a single year. These are multiyear investments. Eric mentioned some of the investments that we're making in and around Houston. That's over $300 million in total, but that's going to be over many years. So we're looking ahead. We're looking at what we have ahead of us in terms of what we need, and we feel very comfortable with that. What was your middle question? I missed that one.

Just the -- sorry, the middle part of it was the ramp into the low midterm for this 2027.

I mean, you're right. Mathematically, that does put a lot of pressure on 2027. Again, we're sitting here on January 27. It's tough to know exactly what's going to happen. The economic indicators don't look great, but if that's different, we're positioned. We have the resources, and we're going to capitalize on that.

Absolutely. The market is not telling us that's available today, but the market is often wrong. And seen ahead to 2027, again, continue to run well, and we feel very comfortable with the guide, even though that does mean if we're right in the mid-single digits for 2026, that puts a big lift on 2027 for us.

And we stopped the share buyback of $4 billion to $5 billion right $4.5 billion this year. So just because we're making sure that we have the cash, as Jennifer spoke about. And Ken, you should know me by now and you should know this team. We'd rather be a little conservative in what we how we look at it and make sure that we over deliver on what we have, and that's our challenge all the time. So Ken, good question. Thank you very much.

The next question is from the line of David Vernon with Bernstein.

So a bigger picture question for you around some of the access issues. Obviously, the regulator came out with the decision to maybe change some of the rules around switching, I'm not going to call it reciprocal because it's all recipe if 2 parties are involved. But if you think about the switching sort of regulation moving away from maybe the mid paper precedent, how does that change your perspective on the business? Or what kind of impact do you expect that to have as we think about a future either with or without the merger, if we're going to maybe make it a little bit easier for shippers to petition for a switch.

How does that change the UP business. We've been getting a lot of questions on that from investors. I'd love to get your thoughts on it.

Yes. Listen, I think it's a timely question, David. I appreciate it. Anybody who's heard me for the last son of a gun, okay? I was at CN 10 years ago. So that was on calls 2 years ago, I've been very consistent, and I haven't changed. I'm all about competition, and that's what I love about this merger, it's going to make everybody more competitive, and it's going to drive better results for our customers. But on that issue, I am not afraid to compete. And I think customers should have optionality.

In general, the devils in the details, okay, with what they've put out, and we have to work through. But I am very supportive of if you can't deliver for your customers, then customers should have optionality. And I have no issue with that. Now it needs to be across the whole industry, not just Okay, Union Pacific. It has to be for everybody.

I would love to compete with some customers that are not getting the service level we're providing in the Western U.S. and when we have the merger in the Eastern U.S. or with the Canadian railroads that are running north south, okay, through and into Iowa. We'd love to compete against them, and we have no issue opening some of our customers up or all of them up as long as everybody does.

So that's where I met with it. The devil's in the details, and let's make sure that whatever happens actually improves the customer experience. The worst thing you can do is have a system in place that is complicated -- no one understands how the customer can win. If you increase touch points and you make it complicated, then the customer actually sees a deterioration. They're going to have to carry more inventory and more assets to try to move through it.

So as long as we protect the investments that we've made, okay, to provide service to our customers. Just in Inglewood, hundreds of millions of dollars to have the buffer in there to be able to recover as fast as we have. So I'm all for it. I like it.

Let's get through the details. And I've told everybody that the regulators who wanted to listen to me long before anybody put anything out in this last one that I would be supportive. Now I don't think everybody is on the same page. But if they are, it should be an easy fix to go ahead and get it done. I'm ready and Union Pacific is ready to challenge ourselves.

And the cream rises to the top when you have more competition. So David, hopefully, I helped you with that answer, and you're clear about where we are on it.

You absolutely did. And maybe just as a quick follow-up. Do you have a day for when the application is going to be resubmitted. I'm not sure if that filing has been yet, but I think the FTP ask you guys for Tuomi when the recent bid was going on?

Okay. I've been having an exciting morning watching the railroad to cover. Then you ask me a question like that. I'm telling you we got experts working on stuff. And trying to get all these experts that give me all the detail. We're working on sort of a sliding scale right now. I don't like it.

I wish it was in tomorrow, but they're working hard. And this is weeks -- and this was why we started with trying to get the application in way before the full 6 months because I was absolutely sure even though we thought we had done a good job that the STB was going to find something that they wanted us to look at it again. And I understand why. This is a big combination. This needs to be done right. And I give the STB credit that they're going to look at it. I think the 3 members plus all the people at the STB, they have a responsibility to make sure that what we're doing is positive.

They're going to come to the same conclusion as I have and the entire team here in Norfolk Southern has that it is positive. It is positive for customers, for our employees, for America, taking trucks off the road. But at the end of the day, it's a process, frustrating as it is, okay? Once in a while, I go home and I have a nice Irish whiskey to call myself down before I go to bed, just to say, okay, I'm good with this. But stay tuned.

As soon as we know exactly the date, I'll be the first 1 to announce it. I think we'll put a press release out that says that in March on whatever date it's going to come out. So sorry, I can't give you a definitive 1 this morning, but you know I'm pushing them hard to get this thing done.

The next question is from the line of Chris Wetherbee with Wells Fargo.

I guess maybe as it relates to the merger and the competitive landscape, obviously, there's a lot of customer relationships that need to be addressed as you go through this process. I know it's relatively early, but with the application and people have had a chance to look at it in a sense of how you're thinking about you'll have obviously more comments to come as you just noted, Jim, I guess maybe specifically on the intermodal side, can you talk to us about how that sort of discussion is developing.

There's obviously some big partners that are not on your railroad in the West, but maybe would be on the combined railroad in the East. Just kind of get a sense of maybe how that discussion sort of looks right now and maybe how we should think about those relationships evolving in 2026? What's embedded in your outlook on volume?

Let me pass it over to Kenny here in 1 minute, but let me just say this. We've had discussions with customers from bulk customers from customers that are single car movers, customers that are chemical customers that are moving industrial products that need to move. And every one of the customers that I've spoken with have -- they understand it. They see the benefit. Are they concerned? What they're always concerned about is, will Union Pacific? And they should be, okay? That should be a question they ask and they've asked me that question is are you going to be able to keep the service level up with a combined railroad.

And are you going to impact me because they remember Canadian Pacific, Shamal with their IT system. And I tell them to listen with net control, what we did was we fund -- it's the fundamental base of everything that feeds into the railroad, we did it and it was a nonevent. I've also been railroading for 47 years. And at the end of the day, it's really important and for me, it's real important. Whether it was when I was in Vancouver and we were getting rid of those 4-hour quite people were having, we did it in a way so that customers don't see the impact. So that's really important to me.

And with that, I think the feedback is, if you can provide me good service, they see the benefit and they see the pressure. This is going to put on the other rail approach to compete. And if -- and Chris, it's pretty simple. If you can't compete on service, if you can't win and be faster across the country and across when we extend by 200 to 300 miles customers on the east side of the Mississippi and customers on the west side of the Mississippi that can get further into the Ohio Valley. Or people from the East can get into Texas easier or into California easier, they're going to have to compete on price.

So I think the pressure is not going to be on customers, they're going to see much more competition as we move ahead. But Kenny, you've had lots of discussions with people and why don't you give Chris a little bit of more background and color.

Yes, Chris, I think Jim hit it across the board. All of our customers not just intermodal, but let's talk about intermodal, and we're pretty excited about it. As you know, hub has come out, Swift has come out. One has come out. And what those intermodal customers see are the investments that Eric and this management team have made, we've talked about them with Inland Empire, Phoenix, Twin Cities.

The service is strong. I talked about it in my results today, while we're coming from a place of strength, being able to have our best ever domestic intermodal business and we talked about it in all 2025. Over the road wins with Uber over the road wins in Phoenix, over the road wins in the Kansas City. So we're coming from a position of strength, and we're excited about it.

Got it. This model is a pretty good one, Jim.

I don't know how you spell that, I'll leave it to you, Chris.

Our next question is from the line of Walter Spracklin with RBC Capital Markets.

So if I start on operating ratio, if I look at your operating metrics, Jim, they look really good. I mean lengths like Eric highlighted are record levels, velocity record levels. When I see that kind of operating performance, my inclination is to kind of improve your operating ratio fairly -- not by a little bit, maybe 100 basis points or more, but I'm curious as to Jennifer made some comments about pricing and -- or sorry, inflation and how pricing won't be a contributor. Do you need pricing? Do you need volume to get north of 100 basis points? Or can you do that through those metrics that you're hitting right now without help from macro or price?

Walter, you are smart guy, you've been around for a long time and you understand this. You need you use a whole bunch of levers when we look at operating ratio, and that's a result of everything that we do. So we will continue to look at how we can operate better and how we can operate more efficiently. And you could see the work that was done by Eric and the entire operating team on productivity.

Some things are given to us. whether I like it or not, when I showed up this time came back to work, we signed a collective agreement that increased wages substantially for our employees. And then this time, okay, one of the parties went out fast and signed a pattern agreement that we've had to live with.

Now we have agreements with everybody, but that includes a 4% wage increase, okay, first year. So at the end of the day, that's the pressure we have -- now Kenny needs to deliver on price, okay? We're talking about price and saying where it is right now, but it's unacceptable if Kenny and the marketing team think that their job is to -- for the value we give customers to understand the marketplace and price it properly.

So Walter, I'm very comfortable that we're going to be able to improve our OR this year. Jennifer is always much more conservative than me. And that's okay. That's where she should be. Okay, she's the person that puts it all on paper and gives us the numbers. If I gave you my number, it would be scary, but I'm not going to give it to you, but I think I'm very comfortable where we are, Walter.

And Walter, I got to say it like thank God, I'm not in Winnipeg. When I saw minus 38 in I was thinking some of -- I felt bad for those people at Canadian National. Like let me tell you, they are tough. But I hope that answered your question.

The next question is from the line of Jason Seidl with TB Cowen.

This is Elliot Alper for Jason Seidl. Wanted to ask about the 2026 outlook. Can you speak to the volume and pricing assumptions within your guidance? I know you're pricing in excess of that 4% inflation number. But -- can you speak to maybe how customers are absorbing new contracts given the muted customer demand you're seeing and kind of the expectations for the year?

I can't give you the color, but let me just remind you what I said exactly. And we're not giving numbers as to volumes other than we do plan to outperform the markets.

On the price side, we said that our price dollars on an absolute basis will exceed our inflation dollars. So that's an important nuance. We are not talking about it in percentages. It's absolute dollars. So Kenny take it away.

Yes. So last year around this time, we laid out macroeconomic indicators. And we said at that time, they were mixed. And then in 2025, we put up a record year in freight revenue. So I just want to say that. So we know we can win in a difficult environment.

And we know we have some commodities that are going to -- we'll have to really go after like 4, it's in lumber. We'll see how that plays out. Automotive. We'll see how that plays out. But you look across the board, and construction as the weather was good, we had a banner remarkable year. Plastics banner remarkable year. Industrial Chemicals ban a remarkable year. Grain products been a remarkable year.

So in all 3 phases, we've been able to grow in a difficult environment. We're committed to that. We've got a strong service product. And so with that, we're going to gather the demand that's out there maximize the price breaks on the service that we have, and we'll see where that lands us.

Our next question is from the line of Scott Group with Wolfe Research.

So Jim, we've got the STB decision on the application. They sort of had a comment, hey, if you want to improve the overall confidence in approval here changed in any way? And ultimately, what is giving you so much confidence in approval here.

So Scott, if this was a bad deal, if this truly was not better for our customers, better for our employees, then you know what, you'd be speaking, but no one would listen and no 1 would see the facts. This combination is compelling. It changes the dynamic and the competition. And remember, fundamentally, railroads the other railroads can say what they have to say, and they're very vocal about it, but they're complaining because they're worried about competing against us because no business would ever, ever complain if somebody in their marketplace was doing something stupid.

If you were offering really bad coffee across the street, you go over there and try it out, you check out all their business processes, you check and see how their app is. You check and see how their payment is, and you can check and see how there is -- and if they were really bad, I don't know, maybe the rest of them won't do that in our industry, but I would tell the owner of that coffee shop across the street from my coffee shop, I'm telling you your coffee is the best, okay? I wouldn't complain.

I'd only complain -- and I'd go back worried if the product they had was better than mine. And I have to do what I have to do. So bottom line is that's why I'm very confident. And it's not just Jim Vena that's confident [indiscernible] companies together.

So I'm very confident that at the end of the day, going through this process and is it painful -- if this was the Jim Vena's STB, I would get that decision done by my birthday, okay, this summer. But this is not Jim Vena, okay? STB, we need to go through the process. We knew it was going to be long and thorough and [indiscernible] at, okay? I wish it was thorough and shorter, but you know what, it is what it is. So we'll deal with that as we go.

So Scott, very comfortable with it. And we're going in to answer the questions that they asked us when they gave us the response, one of the things asked us to do is give our red line of where we're going to -- where we have. And any big deal has that optionality that say to the buyer, the company that's going to spend $85 billion in stock and cash at what point you could actually walk away.

And we never thought that was material in looking at the merits of the business and whether it made sense to put the railroads together, and we didn't provide it. The STB wants it, we'll give it. I have no idea what the other railroads are going to do with that they'll scurry home and take a look at it and see what they can do to figure out how they can get close to that number where our walk away is, but I don't understand it against the merits.

So we'll answer the key questions. We'll make sure we do it right. And if we have more information and we can add something in the merger as we put in the refreshed merger application, we'll do that. But that's where we are with it, Scott.

Our next question is from the line of Tom Wadewitz with UBS.

I wanted to ask you about your thought process while we're in this approval phase. You talked about maybe first half of '27. It might be like maybe implied more even for what happens with Norfolk, but I would guess you have maybe some thoughts on kind of combined strategy. So how do you approach volume? I think Norfolk had seen some volume shift over to CSX on J.B. Hunt. I don't know if there's any risk to your volume. But do you think volume as you're in this kind of broader approval phase before you can run the railroad combined, do you say, hey, we got to be aggressive on volume and kind of win volume back? Or get as much volume as we can? Or is this like, hey, we don't need to be too aggressive because when we got the combined railroad, then we're going to really go out there and win.

Listen, I can't tell Norfolk Southern what to do. okay? And I'm not going to say it publicly because I just can't. And it would be illegal for me to tell him what to do. But I'll tell you what we're doing at Union Pacific. We are looking to grow our business, and that's what we're going to do in 2026. We're looking for every opportunity.

When you serve a customer that gives you 30 railcars and they're served also by another railroad.

In Texas, we want -- if our service level is high and our pricing is good, then we would expect them to give us 32 cars and 33 cars. So we're going out to grow our business. And if you take a look at the way we handle the the Canadian Pacific merger with Kansas City, I think we've done an excellent job of growing our business in and out of Mexico, even though they have a seamless railroad going in.

The true numbers are, we've done a spectacular job with FX and with Canadian Pacific. We still ship with Canadian Pacific into Mexico, and we ship with the FXE into Mexico, both northbound and southbound, so that's the way I look at it, Tom, is this year, the merger is one thing, but the fundamental of what we need to do to operate the railroad and grow our business and increase price for the value we're giving and looking at the markets and what we have to do and what's possible.

And sometimes, we've had to drop price, and we've done that this year with some of our commodities. That are single served because of the marketplace and what they were competing on. And I've mentioned it publicly, we've had to do that with the soda ash is because of what's happening with their competitors that are from China with synthetic soda ash.

So at the end of the day, that's where we are. I expect Kenny to grow the fricking business. Otherwise, why do I need a marketing department? I expect Eric to deliver improvements in productivity.

Otherwise, why do I need a brick-and operating department headed up by Eric. And he's doing a good job. Gentlemen, you guys are doing good, don't get me wrong. This is not me put you on the hot seat. And Jennifer you better deliver too, okay? So at the end of it, that's where we are, okay? So hopefully, I gave you a clear view of the way I look at it.

Next question is from the line of Brandon Oglenski with Barclays.

Jim, I guess, can you put in context the proposed rulemaking change the STB made on reciprocal switching and dropping the requirement to prove anticompetitive behavior. And especially in the context of like your open access gateway proposal and the merger as well. Appreciate it.

Okay. Well, listen, I need to get these guys into it also a little bit. And Kenny, why don't you tell people what our position is on reciprocal switching some open access, okay?

Yes. I think you hit it up early in the question. I think Jonathan Chappell asked it, but when you look at our service product being the way it is, we're not afraid to compete. I said that in our words, we've been able to grow again. We want to expand the pie. We're not looking at just growth on the international side on the over the road from some of the ports going back at.

We're looking at expanding the pie and we're doing that through the investments. We've invested in 20 cities. We've invested in Kansas City. We've invested in the Gulf Coast also on the car load business. You've seen us show optionality, Jim and also Brandon and where we normally might have gone to the West Coast or P&W on the grain business, we pivoted down to Mexico. So we're looking to go out there and compete regardless -- there was another part of the question in terms of the gateways and keeping those open. Our customers demand optionality. We want our customers to have optionality. There's no case where we go out and we would not want to provide optionality for our customers.

So Eric, are you operate to competing if we had reciprocal switching or some sort of access as long as it's fair, as long as the details work to make the customer better. If we don't deliver, somebody else should -- so how is your feeling on.

No fear at all, but I'm going to focus on the back half of what you said. And Brandon, we talked about this to Kenny's point a little bit earlier. When you start thinking about reciprocal switching, what you have to be really cognizant of is what is the experience the customer is going to have.

And you can horriblize it, and I'm not going to horribilize it. But even in your average scenario, if it's not designed properly, that car or that collection of cars that the second carrier is now handling, they're going to be in a terminal at least for a day or -- and so now you've added somewhere between, say, 20 and 50 hours of dwell to that car. That's not what customers want. At least that's not what our customers want.

Our customers want us to seamlessly pick up the car, take it to our terminal, process through it quickly. like our record dwell in the fourth quarter of 19.8 hours and get it an outbound train. So how we design this, in fact, specifically how the STB designs this -- we need to make sure that we're really cognizant of is it achieving the ultimate goal of our customers, which is to be able to deliver the transit time that they promised their customers.

And if I could add 1 thing is -- and we've done it -- so we've worked with customers to build in. And in fact, we have 2 places that we're going through the process to get 3 places. Jennifer, that's right. You're right. The places that we are in the process of going through the regulatory environment they'd be able to build in, where customers are single served, and we're willing to spend our money.

And that's the way it should be. business should not be -- you get a free bees from somebody else. Like, I don't know, I'd have a hard time if I had a coffee shop and I love copy, and I'm short of coffee this morning. I need a double espresso. But at the end of the day, I had a coffee shop and somebody wants to set up in my coffee shop to sell their coffee.

If you want to have a brick and coffee shop, build one across the street, build the next door to me, do whatever. So at the end of the day, I'm not afraid to compete we're -- in fact, I think it's been an advantage for Union Pacific and the merged Norfolk Southern Union Pacific to have open access. We even are put more pressure on our competitors, okay? to be able to win in the marketplace. If we can have a real high level of service, which we have.

But on top of that, if we need to spend money, side of a gun, some of the railroads, our competitors have huge amount of money put aside they could build into just about anywhere if they wanted to. So that's the way I look at it. It's about competition. This is not your grandmother's railroad that's afraid and protective.

Somebody wants to go through New Orleans because that's the quickest way to get to the Southeast and into Florida. We want to go there. If you don't, what you end up doing is you lose the business eventually, somebody comes from overseas to take that market away from you. And we've seen that in places where people get protectionists. We're not protectionist.

But I'm telling you, we didn't like the last time the STB came up with a way to do service and access. It was so brick and complicated. All we were going to do was hire lawyers to try to figure out how to do that. And I I've got this love-hate relationship with lawyers. Okay, I love them and sometimes they bother the heck out of me. But at the end of the day, we're here to compete, and I have no problem if we have something that provides service, higher service for our customers, and we'll win and they'll pay us for that service if we provide the service that makes them better and they can win in the marketplace.

We need to partner with more and more of them as we go. So listen, gentlemen, thank you very much. Sorry again for the long answer, but you got me going on this issue. So thank you.

Thanks, Jim. Sorry if it was a duplicate question.

Oh, I don't worry about it. I love it because you need to reinforce things 10x. So that was not a shot against you about the question. I love it. We probably weren't clear the first time. So don't worry about that at all. Okay.

Next question is from the line of Stephanie Moore with Jefferies.

Well, based in Nashville here, we're pretty iced in. So if UNP is back up and running by Thursday, then I hope we can say the same for my household. So that's pretty impressive. But I did want to return -- yes. No, it's pretty impressive. I did want to maybe return to the pricing conversation. Look, considering how strong the network is performing and the value you are providing for customers. Can you talk a little bit about the pricing opportunity going forward for you guys? I mean -- is there something that needs to happen from an industry standpoint to bolster pricing? Is this just a function of an improving rate backdrop? And then how is UNP specifically positioned post merger as well?.

So we've got 2 structural things that are going on at Jennifer talk to both of them. On the coal side, we've got some mechanisms in the contract that helped us out a little bit in 2 -- and we see that as -- we'll see what happens with that going forward. And then the same thing we've talked about this now and we're talking 3 years in terms of domestic intermodal and where the rates are from that level, and we haven't seen the pricing uplift there.

Now I get to make this pretty crystal clear. We have the mindset with this service product that we are pricing to those levels. We have the mindset that has not -- we haven't backed away or changed anything on how we're looking at the pricing. We have those 2 structural things that we talked about. Outside of those, the teams are doing a very good job sitting now with customers, share in the service product that they have and talking about opening up new markets for growth and/or on the renewal.

So there is no change whatsoever. I need to make sure we're all on the same page on that. service drives price. Service drain price -- we're consistent with that. So hurry up.

Yes. And rail is still more price competitive than truck.

And rail is more price competitive than truck. Yes. Thank you very much. Thanks for the question.

The next question is from the line of Ariel Rosa with Citigroup.

So I know a number of people have asked about reciprocal switching, but I actually wanted to broaden the question out a little bit more. Just if we could talk about the relationship between the Class 1s and STB, I don't know if you would agree with this. I know you've been railroading a long time. It seems to me that over the last 20, 25 years or so, the STB has been relatively hands off with the rails as long as service has been pretty good.

But now as we think about kind of transcontinental mergers, just the scale of the rails post-UPNS, assuming it goes through, is there anything that concerns you where the STB might say just given the size of the railroads in that scenario that the STB says, we need to be more proactive.

We need to be more aggressive in our regulatory approach and how we think about protecting customer interests and I guess, is there anything -- I know you said, obviously, competition doesn't concern you, but is there anything that would concern you where you would say, okay, that's a step too far? Or that's something that STB could do that would kind of impede our ability to hit our synergy targets so that would erode margins kind of structurally over the long term.

The answer is no, but let me give you a little bit more feedback. So Ari , and I know you set me up to help me with this question, and I think it's a wonderful question. People think about the railroad and the regulatory environment, and they're thinking back to the 1890s, okay, 1900 when there was no highway system. There was vehicles were just starting to be manufactured. There was some trucks.

So the competition was railroad against railroad was the key way and boats using water to be able to move products. If you actually move to today, we have -- if you look only in the railroad, you could say that we have X amount of business. But if you actually look at all the business, everything that's moved railroads have a pretty small percentage of the total business that's out there that's being moved.

So our competitor is trucks and vessels and international vessels coming in with competition. It is Brazil, moving products into the largest soybean crushing facility, which is in [ Ragusa, ] okay, which is in Mexico, and that's our competition.

So at the end of the day, we have to stop thinking about the railroads. And if we end up with 38% or 40% of the total market, and we hope to grow it. But if that's where we end up, it's a small piece.

The other thing is then it's just real philosophically, real important. Listen, the other railroads, we're going back and forth lots -- they're smart people that operate those other railroads, okay? I know a lot of people in the other railroads, and they're smart people, and we should be proud as a nation that with all the regulations and everything that we do from safety and everything else, we would -- I would put the railroads in the United States of America up against and in North America up against anybody.

No one has a railroad that can move a product at the price we move it and how safe we move it as an industry. So we can go back and forth. That's just normal business. I don't know why it's part of the railroad business. I don't know why they're doing it now because they're afraid to compete against us. We're going to have a stronger competitor. But at the end of the day, I think the regulators know they can't reck this industry.

If they reck this industry by over -- by making it overcomplicated, trucks are getting more efficient. They know it answer but, and I use Waymo as an example, but there's trucks out there running right now to see how they can automate and have less people with more products in a truck, okay, or multiple trucks.

That's our true competition, and that's where we have to win. So STB are bright people, okay? I've got to know Patrick a little bit. I can't talk to them very much anymore just because of they're going through this merger plus the other 2 okay? Michelle Karen. But at the end of the day, they're smart. They know they don't want to reck the industry, but we also have to look forward and quick looking backwards to 1890 or a merger that happened in 1995. Okay? I had black curly hair, big mustache, I look cool back then, okay? -- not so cool anymore.

But at the end of the day, technology has moved ahead, how we operate information flow, how fast we can get information, okay? Using AI, and it tells us exactly I knew what was happening on the railroad 5 minutes after I got up. I didn't have to phone anybody, okay? So I sent Eric, a little note to thanking and the team on how well they're doing on recovering real fast. But at the end of the day, that's where we are. So -- the answer to get back to the first simplified non AI-generated answer. The answer is no. I'm not worried.

Our next question is from the line of Richa Hamain with Deutsche Bank.

This is Megan on for Rich. My question is for Jennifer. You laid out the full year expectation for compensation per employee to be up 4% to 5% year-over-year. and mentioned opportunities to offset the increasing wage and benefit inflation through a few things like process improvements and technology -- could you just clarify if that 4% to 5% increase includes your offsetting efforts? Or do those represent potential upside improve in costs? And any color that you're willing to share on opportunities that you've already identified would be really helpful.

Sure. So yes, the 4% to 5% that we say is what I'll call that the net compensation for employees. So that already takes into consideration what we're planning to do. And when you think about the drivers of that inflation this year, it's really 3 things. It's the new agreements that we've signed and the wage inflation.

It increases to health and welfare, so higher benefit cost as well as higher payroll taxes as they raise the limits every year in terms of what's taxable on a Tier 1 and Tier 2 basis. So those are the 3 main drivers.

In terms of what we're doing to offset that, it's really across the board. And Eric's team is certainly a big part of that, doing more with RCL, taking more car touches out so that you need fewer people working in the yards, doing more in terms of automating our switch operations Eric, do you want to go into a little bit more of that?

Yes. And you have 3 of the really important ones. The other one that really stress is how we operate the railroad. When I look at other railroads, I see them take on initiatives where they've got some spend, say, $70 million on something, and they set a goal to reduce it by 2%. That's not how we do it here. here at Union Pacific, we look at the fundamental.

What is the thing that we have to do or the collection of things that ultimately result in the railroad running even better. And then we like to say the cost falls out. And so when you see our record number on car velocity, 9% above a record quarter last fourth quarter when you see our locomotive productivity. -- that's what I would encourage you to focus on. Watch as we continue. And it's tough work.

And when you put up as many gains as we put up, right, getting the next percent, it's tough. But as I tell my team all the time, we're in the business of doing hard and my team's our team, excuse me, has delivered on that, and we'll continue to deliver that in '26.

Yes. And that's where you see the continued gains on the workforce productivity, right?

Exactly. So less people, even though the cost per employee might be up, right, the total cost for the company is in a different place just because of the productivity gains. So we will continue to see. And you can see that from where our head count direction has been over the last few years. Yes, up 2% volume in 2025 in total was down 3.5% on the world. And let's not miss that because that's how you take care of the inflationary cost per employee as you need less employees to do the same amount of work okay? Good question. Thank you very much.

The next question is from the line of Brian Ossenbeck with JPMorgan.

Brian. Do want to keep you too much longer from that double spreads.

I got nothing else to do today, okay? This is the most important thing I need to do today is make sure that people understand what we're doing. So I appreciate the view hanging on.

All right. So just 2 kind of follow-up ones really. Eric, you just mentioned you're in the business of doing hard. It's hard to miss all the records you've been setting, but you're still expected to reset the bar and push higher. You gave a few comments about how you do that, but I just wanted to hear maybe a little bit more, especially I think you have 0 furloughs.

So also maybe you can address sort of the reserve buffer from the labor side. If we do get some positive upside or at least there'll be some uncertainty we're not thinking of right now. And then Jim, just to wrap up maybe the M&A stuff. It doesn't sound like you're really thinking about addressing some other comments from the rails just focused on the 3 main from the STB and also doesn't seem like you're too concerned about the whole red line and having to provide that publicly. So maybe if you can give some color on that to wrap up. Appreciate it.

Yes, I'll start. So you brought up headcount, on translate that into hiring -- now as we think about our hiring plan for 2026, remember a couple of things.

First thing we look at is attrition, right, to maintain our buffer of resources, one of which is our crews. We've got to make sure that we cover attrition. And then to the person's question, a few questions ago, we then do the puts and takes. So if we sign an agreement with a Union right, that may add heads, we don't expect that in 2026.

But then we go through all of our technology initiatives, we go through the fundamentals that I was talking about, and we make adjustments to that. Now a lot of people start on the labor side and they should. But we also are just as focused on the nonlabor side.

So when you think about the work that we've done over the last 3 years on fuel, whether it's modernizing locomotives, the expansion of our energy management system, our program for where do we partial fill, full fill, that saved us tens of millions of dollars and that trend will continue.

Even when we think about modernizations alone, that's a 5% fuel savings per unit that we modernize. So I'm telling you, we can go through the whole portfolio because that's how we manage it here. We come into the year with specific initiatives. There are dozens and dozens and dozens of them, and we work tirelessly to execute. And you saw the results in '25, and I expect that we'll be just as successful in '26.

And Brian, if I can just add one thing on that is what you don't see is we are carrying extra people, but we don't have them furloughed. We actually have guaranteed payments, just the way the collective agreements are that we -- and they're actually -- that buffer is built that way that we have some guaranteed payments.

We try to structure the number of employees in the right place, and Eric does Eric and team do a fantastic job of driving that to be at the right place, so that we don't get behind. But we also are paying some guarantees that nobody would see outside of us internally. So that's where the excess that buffer is situated.

On the merger, listen, we always have different opinions. And it's interesting to hear the other railroads talk about some of the things they've talked about, like we're going to shut down 300 lanes. We don't have 300 lanes in intermodal to shut down. We have more than 300 customer-to-customer points, but trains going into terminals.

So we're going to keep them all open. And in fact, we want to expand that, not be less we've put on new trains that run now from LA to the west side of Chicago, G2 because we see a market there that we didn't operate. So that's a lane we've added, and we want to continue to have the lanes that open up access for our customers east and west across the country.

And one railroad put out that I was -- they sent it out to the customers that I was a leader on the EJ&E in 2008. Well, I wasn't in the U.S. in 2008. I was battle in the western part of the CN network. And -- but I still got credit for whatever happened on the EJ&E. So that's why I like to talk about fact not fiction.

So bottom line is, as we move ahead, we're going to have to give some things, and we know that like this red line, I don't like it. I don't see what the benefit, but it's not about Jim Vena, it's about what the STB thinks. And they also need to be reasonable and understand that we're doing the right things because we're not holding anything back.

We've told them black and white day on when I called in to the STB to tell them that we were going to merge, I said, "Tell us what you want and we will provide it. There's no big secret " I think we're pretty open about fundamentally who we are, what we do, what we're trying to do move forward. And there isn't any big secret because it's such a compelling case.

So I don't like it because I don't think it adds to the merits, but guess what? I wish Jim Vena had a totalitarian system that I could get every decision that I want, but I don't even get it at home with my wife and kids for God's sakes. Let alone with the regulator. And I'm good with that. That's just part of the process and we knew that's what it was going to look like.

In fact, sometimes I don't even get it here in the company. Eric tries to tell me what to do. Jennifer, for sure, okay, tell me what they do. And Kenny, he's a little -- he's a really good salesman, okay? I always keep my hands on my wallet when he's around and make sure he doesn't take $10 out of my pocket. But at the end of the day, that's just the way life works, and we'll work through this because it's a compelling piece of business and compelling for our customers in the country, okay, and our employees. And I'm looking forward to when we have this railroad put together.

A final question is from the line of Ravi Shanker with Morgan Stanley.

I think I just have 1 kind of more of a cleanup question, not on M&A, so I'll give you a break on that. I know you had highlighted in the beginning of the call, the fact the winter storm had been having on some operations. I was just wondering if you were able to quantify at all what you think the impact on the quarter could be from the recent weather or if you just have any more color there?

Jennifer?

Yes. I mean it's going to add a little bit of cost to us, and that's really a cleanup cost, a little crewdelay, extra limits, lodging, those types of things. probably a little extra propane for switch heaters because we lost commercial power in several places.

But the big thing that we'll see sometimes in winter storms is lost revenue. If you've got long customer shutdowns, prolonged periods where we're not able to serve our customers. We don't see that happening as we sit here today, different than a couple of years ago when there were some bad weather in that Houston area, where you did have customers who were out for extended periods, that was much more impactful.

Again, as we sit here, we don't see that. So we'll look to make up the lost carline. -- you'll certainly see that reflected in next week's loads when we report out to the AAR. But with a lot of the quarter in front of us, basically 2 months left, I think we'll make that up and really just be left with a little bit of extra cost from the cleanup.

And it's a great question, and that's why it's really important for us to have the capability to recover fast. And the faster we can recover, and that's what I like about Thursday morning, number is looking pretty good, is that those impacts are not as significant, and we get back to the customers to say, ship us everything you got, we're ready to move and let's move ahead. So listen, thank you very much. Great question. That was the last question, Rob?

Yes, Mr. Vena, it was.

Let me just tie it up here real quick, okay? Because I've really enjoyed the call this morning. I think it's -- it's great to talk about what we're doing and how we move ahead. And I appreciate the questions. I think the questions were great. Looking forward to talking to you after the first quarter results. But -- we're going to operate this railroad in the best way we can with all the talent we have and people out in the field that do a spectacular job -- and at the same time, we work through the process for the merger.

So I'm excited. The whole team is excited. We get up every morning we could have just left it along and not worried about a merger and just rolled it out for a couple of years, ride the horse in the range and have a little bit of fun, go out to the Super Bowl, go do whatever the heck we do and we're supposed to be working. But guess what? I'm not into that and either is this team.

We are here to deliver for our customers and win in the marketplace and be the best railroad in North America. So we're challenged by our competitors. They're smart. They want to beat us. And at the end of the day, I love it. Let's go challenge, and we'll talk to you all later on. Thank you very much for taking the time to spend it. A little bit of time with us this morning. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Greetings, and welcome to the Union Pacific and Norfolk Southern STB Merger Application Conference Call. [Operator Instructions]. 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. Jim Vena, Chief Executive Officer for Union Pacific. Mr. Vena, you may now begin.

Thank you, Rob, and good morning, everyone. Appreciate everybody at this time of the year, taking time to join us. We, this morning, had put forward some 7,000 pages for the merger to the STB and thought that we take a few minutes this morning to just go over the highlights, and make sure everybody understands that or has a better understanding of what's in those 7,000 pages.

Second is, it's a nice crisp 18 degrees here in Omaha. And Eric will tell you, this is the best time to railroad, okay? The engineering guys aren't working as much on track and those trains are running hot and fast. So let's keep them running so everybody gets their presents at Christmas time. So appreciate everybody joining me. Thank you very much.

Also with me here this morning is Norfolk Southern President and Chief Executive Officer, Mark George, along with our teams, Kenny Rocker, Ed Elkins, Eric Gehringer, John Orr, Jennifer Hamann, Jason Zampi and Todd Rynaski.

Today, Union Pacific and Norfolk Southern submitted our application with the Surface Transportation Board requesting approval to merge our two companies. This marks a critical milestone in connecting America with its first transcontinental railroad. Given the thorough scope of the application, nearly 7,000 pages in total, we are here today to highlight the key points. However, our core message is unchanged, and this combination will create strong value for all our stakeholders. The application provides clear evidence that this significant transaction exceeds the STB's merger requirements.

Before moving to the first slide, I want to emphasize the importance of approaching our combination from a position of strength. At Union Pacific, we expect to end this year as the safest for employees while also achieving record operating levels. At Norfolk Southern, Mark and his team expect to finish as the industry leader in mainline and community safety, together as a merged company, we are committed to continuing to lead the industry in safety, service and operational excellence.

Now let's continue to Slide 4, where I will summarize the key benefits of this historic opportunity. The merger between Union Pacific and Norfolk Southern is more than just a business deal. It's a pivotal opportunity to strengthen America's competitiveness, deliver exceptional service for our customers, enhance the safety of freight transportation and safeguard jobs.

For America, our transcontinental railroad will accelerate freight movement, reach underserved markets with new rail solutions and strengthen the U.S. supply chain. It's about completing Abraham Lincoln's vision fortifying America's position as a global economic powerhouse. Our merger will remove more than 2 million truckloads off-highways, improving safety, reducing emissions and easing road congestion.

For customers, our combined network will provide single aligned service across the country. Customers will benefit from faster, more reliable service, improved asset utilization and a streamlined customer experience. Status quo isn't an option. We must advance and deliver for our customers.

For safety and service, adjustments to train routing and blocking patterns will reduce an estimated 2,400 daily rail car and container handling and save approximately the 60,000 car miles per day. This eliminates the unnecessary touches that can lead to incidents or delays. Data shows that rail is already 15x safer than trucking. And through the application of best practices and continued investment in advanced safety technologies, we will do our part to make America even safer.

And for our people, every employee with a Union job at the time of the merger will continue to have one. In fact, we formalized that commitment with multiple Union partners, including our largest union, SMART TD. A combined network facilitates volume growth, and we expect to add approximately 900 new net Union jobs by the end of the third year.

These are good American jobs with an annual pay and benefit package of $160,000 a year, roughly 40% above the national industrial average. Bottom line, the why? Our merger is very clear. The combination strengthens competition and is a win for America for our customers for the safety of our communities, for our people, it's about growth, innovation and building a stronger future to this great nation.

Let's move to the next slide. America's economy moves on rail, and our merger will not only enhance competition within the U.S. supply chain, but also enable American business to compete globally and grow. Kenny and Ed we'll do a deeper dive on the competitive enhancements we're offering, but the critical nature of that competition cannot be underestimated. The U.S. remains one of the only developed nations without a true transcontinental railroad. This lack of seamless connectivity creates fragmentation and inefficiencies that put American shippers at ports at a disadvantage.

As to enhancing competition in the rail industry, look no further than our peers' reaction. Our announcement alone loan is driving others in the industry to respond with new service offerings. We are confident this would not happen if they didn't understand that our merged company drives greater competition by offering a superior product. Mark, why don't I stop there and let you discuss how the competitive impact extends beyond just rail competition.

Thanks, Jim. It's great to be here with our team today. In addition to enhancing rail competition, our transcontinental railroad will compete more effectively with trucks on the highway, providing more options for shippers while creating growth opportunities for the rail industry. Trucks demonstrate just how efficient it can be if there's an option for coast-to-coast unimpeded movement of freight. They operate on seamless roadways built, maintained and paid for by American taxpayers.

Moving more freight to rail won't just make our economy more efficient. It will benefit the average American citizen. Railroads privately invest billions to maintain our own infrastructure while advancing safety. This contrast with trucks who congest highways, inflict wear and tear on roads and have the poor safety record of any mode of freight transportation.

Yet the highway has been growing share of freight consistently for decades at the expense of rails, who've experienced meaningful share loss. The Bureau of Transportation's statistics reveal that rail market share has declined by nearly 10 points between 2014 and 2023. This transaction is intended to stop and reverse that share loss by offering more single-line options to shippers. So rail can compete more effectively with the highway alternatives.

You'll see in our application that roughly 75% of the freight converted to the combined railroad will come from the highway. Unlike the last merger that the STB approved, where the inverse was the objective. In that merger, a large majority of the targeted freight was to come from other railroads, not the highway.

Railroad partnerships are one way to bridge the East-West divide, but 200 years of history has taught us that these are not enduring endeavors that customers can count on. Partnerships can deliver meaningful benefits in the short term but each company still prioritizes its own customers and answers to its own stakeholders. Priorities change and once conditions or economics shift, the agreements tend to break down. Limitations with partnerships also extend beyond the coordination and handoff of freight as railroads continue to modernize their individual technology systems and customer service platforms evolve differently.

The systems are not callable. It creates gaps in key areas like communication, pricing and shipment visibility, again, all hindering the customer experience. Single-line service is more reliable and streamlined for our customers and partnerships are as was so effectively articulated during the last merger that the STB approved.

The benefits extend beyond the mainline freight rail network to our short-line operators who often serve the last-mile of track, a faster single-line network help short lines deliver superior service to a greater number of customers and improves access to more markets. This opportunity to grow is one that leads to investment and job creation in the communities that short lines serve.

Ultimately, that is what this merger is all about, providing shippers greater geographic reach on a much more efficient and seamless network. With that, we will unlock new growth opportunities for shippers and supercharge the reindustrialization of America. Kenny and Ed, let me turn it over to you to further discuss the customer benefits and the volume growth we anticipate coming from our combination.

Thank you, Mark, and good morning. Over the past few months, we've had hundreds of conversations with our customers and talks in depth about what's possible with UP and the NS combination. Customers see the potential. That's why we've received over 700 statements of support from our commercial partners, including over 500 from shippers. The support is from all across the country, representing farmers, housing market suppliers, chemical industries, intermodal customers, soda ash producers and short lines. The message is clear.

This historic merger is an opportunity to build a faster, better and stronger railroad that is positioned to help our customers grow. Let's get right into the benefits our customers will see on Slide 7.

Customers will benefit from seamless single-line service. Our merger will transform 10,000 existing lanes from interline to single-line service. That means customers will benefit from fewer handoffs less complexity and more predictable transit times. Removing interchange points and eliminating drags will give customers faster, more reliable transit.

Today, handoff can add at least 24 to 48 hours of delay per shipment plus expense from crosstown drays to bypass interchange and efficiencies. In Chicago, for example, our merger is expected to eliminate 350 crosstown moves per day as well as remove long-haul freight from congested highways. Railcar owners will see improved asset utilization, faster, more predictable service means customers can turn cars quickly, reducing idle time and cutting equipment costs.

Doing business will be easier. Customers will have one commercial team, one contract, one invoice and most importantly, one accountable partner for their entire rail journey. We will also provide a unified digital experience. Today, customers either pay for costly third-party providers to bridge gaps between railroad systems or employee staff dedicated to track and trace all rail shipments.

By integrating data end to end, customers will see instant savings along with greater access and control. Customers will benefit from the long-term alignment of capital investments for growth. Today, we sometimes struggle to justify investments for a single market. Tomorrow, we'll see broader opportunities, an investment in Pittsburgh could support growth in Portland and a Gulf Coast plant project could unlock markets in the Northeast.

Our combined network will operate as one system ensuring every investment delivers value to customers and markets nationwide. Customers will also benefit new markets and products via new and/or improved lanes which will be discussed in detail in the next 2 slides. We've identified a 4,000 additional county-to-county lane, where shippers currently using trucks for the first time have access to single-line rail service. Ed, why don't you talk through the growth opportunities we've identified.

Thank you, Kenny, and I'm happy to. Let's turn to Slide #8. We work closely with rail market expert, Oliver Wyman and economists from Charles River Associates and Econic to pinpoint the customer benefits and volume growth that our combination will create. Let's start with Intermodal, which we view as our greatest future growth engine.

Our merger will streamline rail connections between major manufacturing and population centers, particularly along corridors linking Texas to the Southeast and to the Northeast. Expanding single-line services into the Upper Midwest with direct rail connections from Southern California and Texas to key destinations like Cincinnati, Columbus, Toledo and Detroit will enable more efficient, lower-cost supply chains.

Now as we see it, our combined intermodal business will grow by more than 1.4 million annual loads as we offer 6 new premium intermodal lanes operating 7 days a week. One new route between Southern California and the Northeast will be 252 miles shorter than the current interline routing, saving up to 20 hours of transit time. and a second new route will save up to 95 hours of transit time on intermodal traffic that wants to move between Southern California and the Southeast by routing via Shreveport and Meridian rather than Memphis.

With these 2 new routes, our customers will immediately see the benefits of single-line service. Let's go to Slide 9. The benefits from the merger will also reshape the playing field for carload customers across the U.S. and in industries like agriculture, food, chemicals, forest products, coal and metals, just to name a few. Forecast by our experts indicate that the growth opportunity from our combination will be 425,000 annual carloads of merchandise, bulk and automotive products.

We're going to secure this volume with 6 new manifest trains that will bridge the East-West divide and other transportation plan changes that will eliminate car handlings and route miles. We see meaningful opportunity in the watershed, which we define as the manufacturing and agricultural heart of the country that lies roughly 250 miles from our major gateways along the Mississippi River.

Today, rail massively underperforms in these watershed markets, capturing less than 10% of the volume. But by transforming the watershed markets from interline to single-line service, we expect to convert 105,000 carloads annually from truck to rail. So in summary, our merged railroad is going to be well positioned to serve our customers in new and exciting ways that will create tremendous growth opportunity for years to come.

Kenny, I'm going to throw it back to you and let you discuss how the merger will promote both rail and truck competition.

Thank you, Ed. One of the first questions we receive when meeting with our customers and stakeholders is how will the merger enhance competition. Our application provides detailed insights from leading economists, but let's discuss it at a high level.

First, faster, more reliable single-line rail service enhances competition. The Oliver Wyman Verify statement demonstrates that customers overwhelmingly prefer single-line rail options, which we've also illustrated on the right side of Slide 10. Based on their comprehensive review, rail's total market share in tons against truck is roughly 2 to 3x higher where single-line service is available. Second, this is an end-to-end merger.

We have only 3 customer locations out of more than 20,000 that will go from 2 serving Class 1 railroads down to 1, and we've already worked individually with those customers to provide them with a second rail option. It is encouraging that one of the impacted customers submitted a support letter indicating, and I quote, "The proposed merger will enhance competition and yield significant benefits for shippers."

Within our merger application, we detail voluntary gateway commitments to preserve competition and keep gateways open so customers can continue to use preferred interline routes. Importantly, we are committing to the STB's prescribed gateway reporting requirement. Not only are we preserving competition, we are enhancing it. When we announced our merger in July, we highlighted our success in the Pacific Northwest I-5 corridor, where we work with BN to offer competitive rates.

For over 25 years, this program has driven sustained growth as rail capture freight that wants to move by truck. Our vision is now bigger. Through committed gateway pricing, or CGP, we'll apply a similar principle to our gateways, creating faster, more flexible options for certain customers and extending the benefits of seamless coordination beyond the direct UPNS footprint. CGP gives customers shipping to or from facilities solely served by CSX or Burlington Northern, accessibility to competitor rates through our primary gateways, including those connecting the short line partners with limited interchange access.

Let me give you a quick example. Without CGP, a solely serve UP industrial chemical customer in Texas shipping to a solely serve CXX customer in South Carolina would not see any benefits from our transaction. With CGP, however, the CSX will be able to market directly to that customer using a formulaic competitive rate based on shipments moving in that market and extending the benefits from our merger.

Committed gateway pricing is purely additive, providing an extra rate and service option without removing any existing choices. To wrap up on enhancing competition, my answer to customers and stakeholders is that we are very confident that our merger doesn't just preserve rail competition, it enhances it.

Next, Eric and John will talk through details regarding our operating and service assurance plans.

Thank you, Kenny, and good morning. As Kenny and Ed both discussed, we see significant opportunities to deliver faster, more reliable and more efficient service to our customers. That is the what. But it's equally important for our stakeholders to understand our plans for the how. That's where John and I are focused.

Starting on Slide 12. The operating plan to integrate our networks specifically addresses the effects on rail lines, terminal activities, passenger services, equipment requirements and utilization and much more. Development of the operating plan relied on both the expertise of experienced service design personnel from UP and NS and industry consultants from Oliver Wyman, the firm that created multi-rail.

The first step was to define the base plan, which represents 2 stand-alone networks. It provides the foundation for demonstrating the benefits made possible by the proposed combination. Next, we built the optimized plan by analyzing how our combined railroad could better handle existing traffic. Through that, we found significant opportunities to reroute traffic and adjust blocking so trains can bypass intermediate handlings in traditional gateway cities.

Fewer handlings boost reliability, creates yard capacity and improve safety. It also speeds up locomotives and railcars, lowering resource needs and generating cost savings for both railroads and private car owners. You've seen us successfully demonstrate these principles at Union Pacific for the last couple of years, and the results speak for themselves.

I'll stop there and turn it over to John to talk you through the opportunities we see from our optimized plan. John?

Yes. Thank you, Eric, and good morning. As Eric noted, we've been laser-focused on the how, ensuring our game plan for this merger benefits all of our stakeholders. Ed touched on the benefits of our intermodal customers. For our manifest customers, we've estimated that 40% of the combined company's manifest routes will benefit from fewer handlings. Driving these results is a simpler, streamlined and more efficient rail network.

While the slide displays the daily impact annually, this equates to almost 900,000 fewer handlings, about 1.7 million fewer train miles and a reduction of nearly 22,000 car miles. When you look at the additional volume we expect to move as part of the merger, most of the incremental traffic will be absorbed directly into the optimized plan, where train blocks and car blocks become more efficient.

Additionally, we also consider the investments and operating changes necessary to safely and reliably achieve all of the growth opportunities Kenny and Ed just outlined. That takes us to our growth plan, which I'll let Eric detail on the next slide.

Thank you, John. Moving to Slide 13. The growth plan involved the development of capacity projections to account for additional traffic drawn to the improved network. Based on those projections, we plan to invest over $1 billion of our total $2.1 billion of merger-related capital to increase capacity on main lines and in manifest and intermodal terminals.

Specific to mainline capacity, major projects identified include Union Pacific Sunset and Golden State routes as well as Norfolk Southern's Kansas City to Butler, Indiana and New Orleans to Atlantic corridors. These investments totaling roughly $500 million will increase double track mileage and extend sidings to unlock improved transit times and service for our shippers.

Related to manifest and intermodal terminals, we plan to proactively invest approximately $500 million to expand capacity to accommodate for the growth. This includes investments at 7 intermodal terminals, 2 manifest terminals and 2 automotive facilities. Key locations for investment include Houston, Port Laredo, L.A. Inland Empire, Chattanooga, Toledo and Jacksonville. Importantly, our investment approach is unchanged versus how we run our network today.

We apply people, process and technology first and deploy capital as needed in advance of anticipated growth. Moving to Slide 14. As we discussed in our service assurance plan, the UPNS merger is designed to make our network more resilient and protect against disruptions. First, our merger is end-to-end with virtually no overlap. That dynamic inherently reduces the friction points where history would say issues can occur.

And while we are confident issues will not arise, our proposed alternative dispute resolution program will provide customers with a voluntary, efficient method to resolve merger-related service disputes. Second, our combined network significantly increases the availability of critical resources. This buffer of resources is essential for keeping traffic flowing and responding quickly when temporary strains occur on the network.

Simply put, a larger unified system gives us more flexibility and capacity to manage challenges. Third, the merger creates new options for rerouting traffic rapidly when congestion or external disruptions arise. With a broader network, we can respond faster and recover sooner from events like severe weather or unexpected outages. And finally, as John stated earlier, our optimized plan reduces the number of handlings, especially at points where UP and NS currently interchange traffic.

Fewer handlings mean fewer opportunities for delays and variability. Importantly, we plan to execute the integration in phases, which will ensure the solutions are reliable and effective. We will be diligent in the application of a change management process as we monitor relevant metrics against rigorous success definitions that must be met before further changes. Running a railroad requires seamless coordination of our critical resources, customer interactions and back-office functions.

IT systems make this possible, and effective integration is essential for achieving the benefits of this merger. Today, Union Pacific is the only North American railroad to have modernized the big 3 operating systems, positive train control, dispatch and our transportation management system called net control. And over the last 5 years, both companies have completed successful seamless technology cutovers that we detail in our application.

What's important to stress is that our technology cutovers did not impact customers or other railroads. Instead, they gave us the foundation, experience and confidence required for our future integrations. Immediately after the merger is approved, we will maintain existing IT systems to ensure continuity and service stability. At the same time, we will create visibility into both railroad systems and data, enabling the combined company to quickly address issues and support customer needs across the entire network.

Similar to our phased operational cutover, our phased technology integration allows our team to test and confirm reliability before moving forward, minimizing risk and maintaining service quality. Before we hand it off to Jennifer and Jason, John will reiterate our commitment to safety.

Thank you, Eric. Safety is a shared core value, and our merger brings together 2 industry leaders who are committed to that principle. Union Pacific has achieved a 41% improvement in employee safety from year-to-date September 2023 versus the same period in 2025. Norfolk Southern has improved our FRA accident rate by 45% over that same period and 53% since 2022.

Together, we will be even better. Our goal is clear, 0 accidents. In coordination with the Federal Railway Administration, we will implement a comprehensive safety integration plan. This plan ensures that every operational change is executed with safety at the forefront. As we've demonstrated at Norfolk Southern, this focus on safety accompanied by relentless root cause analysis and continuous improvement from our dedicated and talented people leads to a fluid network, unwavering reliability and exceptional service.

To summarize, it's an exciting time to be a railroader at Union Pacific and Norfolk Southern. Both teams are dedicated to safety, service and operational excellence, and we are committed to not only maintaining these standards but elevating them. Jennifer?

Thank you, John. In the weeks and months leading up to our July merger announcement, we worked closely with the Norfolk Southern team to develop an understanding of how our companies could benefit from a merger. And that range from revenue synergies to cost synergies to the capital required to unlock the value from the merger.

And the strong financial benefits driven by our proposed merger were overwhelmingly approved by our respective shareholder bases back in November. Since July, as part of our STB application process, we engaged with subject matter experts who independently conducted significant analysis to deep dive into the overall merger impact. As you've heard today, the case is very compelling for all our stakeholders, but I think it's important to clearly understand that our conviction is rooted in facts and backed by data.

Jason, why don't you hit on some of the highlights from the experts?

Thanks, Jennifer. Let's turn to Slide 16. In our application, you'll find verified statements to the STB from several experts. David Hunt and Matthew Schabas from Oliver Wyman, the industry-leading adviser on rail strategy, research traffic studies and rail waybill files to inform their view of the intermodal, carload and watershed market opportunities.

Dr. Mark Israel, founding partner of Econic and a leading antitrust economic expert, evaluated the impact to rail competition from our proposed open gateways and committed gateway pricing. Dr. Elizabeth Bailey with Charles River Associates, an expert on antitrust and competition policy, examined the horizontal and geographic competitive impacts from the transaction. And finally, Matthew Graham, Union Pacific's General Director of Environmental Management, provided analysis on the environmental benefits from the merger.

Their statements are backed by data and years of experience in their fields. They demonstrate the broad benefits of the merger and debunk some of the misconceptions that have been in the market. Specifically, while we've been clear that this merger is, at its core, about unlocking growth for the railroad, it does so in the most traditional of ways by adding value for customers through a product that can only be delivered when you connect end-to-end networks.

Single-line coast-to-coast service doesn't just enhance competition for our customers through service efficiencies, it's also price efficient. As an example, Oliver Wyman's research of general merchandise traffic moving between 1,000 and 1,500 miles shows that interline traffic has an average revenue per ton mile cost that is roughly 35% more than a comparable move that is single-line service. We take exception to the view that our merger will drive price inflation.

To that point, in Dr. Israel's statement, he makes it clear that a pro-competitive transaction like our merger will create downward pressure on price relative to the state of play without a merger. And with rail already generally cheaper than truck, our customers will see cost savings that will be deflationary for the U.S. supply chain. That's a win for Main Street economics and the need for greater affordability.

As to competition, Dr. Bailey concluded that the substantial competitive benefits and greater economic efficiency that we are expecting to result from the transaction outweigh the limited potential adverse effects. For the environment, rail is already the most sustainable way to move freight over ground with roughly 75% less carbon emissions than trucks and the opportunity to remove 2 million trucks off the U.S. highways and 2.7 million metric tons of carbon dioxide emissions annually is a win for everyone.

Jennifer, I'll turn it back to you to talk through the financial benefits.

Thanks, Jason. Let me add a little more on that price topic. As we have at Union Pacific said since 2019 when we embarked on our efficiency journey, by continuing to be more efficient, this allows us to compete for more freight with more competitive prices while still growing the bottom line. And this merger is both an extension and an expansion of that premise.

Further, based on the experts research and additional analysis, we are very comfortable with our original financial estimates with even more conviction to the upside. Let's go to Slide 17 for further detail. The work done by Oliver Wyman affirmed that faster, more reliable single-line service leads to volume growth. In fact, we now expect up to $2 billion in net revenue EBITDA synergies by the end of year 3, an improvement from what we originally estimated back in July.

Importantly, we now do not believe significant concessions are needed given the strong value offered by the merger in combination with the enhancements that we are offering. On the cost side, our teams went through an extensive effort to analyze various opportunities. Similar to our July announcement, we continue to see nearly $1 billion of opportunity here. In terms of the saving categories, it cuts across all areas, including labor, technology, purchase services and operations. As Eric discussed, we expect to spend roughly $2.1 billion of incremental capital over the 3-year integration period.

These investments are needed to support growth and unlock the synergies we see ahead for the merged company. Approximately $1 billion will support capacity improvements and an additional $1.1 billion will be focused on technology integration and other investments. In our application work, we've also identified annual capital synergies of $133 million as we leverage our combined network and fleet more efficiently.

As you'll see in our merger pro formas, after refining our top line and the expense analysis, we are now projecting stronger overall results. This is largely driven by our updated assumption around concessions. Our cash generation will be more than sufficient to return debt levels back to our longer-term targets in year 2, and then we'll resume share repurchases. We will maintain our balanced approach to capital allocation, prioritizing investment back into the business, targeting annual dividend increases and devoting excess cash and balance sheet capacity to share repurchases.

We are excited to complete this phase of the process by filing the application with the STB, and we're looking forward to an ongoing dialogue about the strong benefits that our merger offers to all stakeholders. With that, I'll turn it back to you, Jim.

Thank you all. Since our announcement in July, the team has worked diligently to meet the required milestones to make this possible, whether that's gaining over 99% shareholder approval or submitting a comprehensive application in advance of our 6-month deadline they've delivered. And it's that continued diligence and resolve that we rely on when we successfully move beyond the merger approval to a seamless integration.

Our team is committed to transparently working hand-in-hand with the Surface Transportation Board to answer any questions they may have throughout their review process. Let me sum it up. Our transaction is supported by over 2,000 parties, including more than 500 shippers, 800 public officials and 700 other rail industry stakeholders. It's clearly changed the conversation in our industry, which was needed.

Competition makes us all better, not just with other railroads, but also against trucks. This is about raising the bar for American competitiveness with a unified single-line rail network. As you heard from Kenny and Ed, the benefits from our merger will drive intermodal and carload volume growth as customers see the benefit of a single-line service that unlocks new markets.

And beyond that clear benefit, we are confident our merger further enhances competition. As you heard from Eric and John, we have carefully developed our operating and service assurance plans by applying the same principles we use daily to run our railroads, working safely, reducing car touches and driving asset efficiency. When we focus on successfully executing the fundamentals, we deliver a superior service product.

Integrating our merged railroads will be no different. We will plan, educate, test, and execute, all with an eye to maintaining a resource buffer. I need to reiterate, this will be the most carefully planned and executed merger in our industry's history, and we will invest what it takes to ensure a clean outcome that avoids disruption to our customers and overall supply chain. We know and understand the stakes.

And as Jennifer and Jason discussed, our merger has been analyzed by leading economists and rail experts who overwhelmingly agree that our combination enhances rail competition and delivers strong value for customers. The work we've done to complete our application also confirms our merger economics, which are even more compelling as we think about converting volume growth and operational efficiency into strong free cash flow and returns for shareholders.

To wrap up, for our industry to move forward, we need to do what's never been done before. If we stand still, we are going to get left behind. I'm not into that. The benefits of this transaction are undeniable, and we are confident through a fair review process, our merger will be approved. And by filing our merger application today, we look to take the next step for America in driving the economic growth and prosperity of the future.

The STB has a 30-day acceptance review period, and then we'll work through 2026 to be as efficient and expeditious through this process as we can be. Union Pacific and Norfolk Southern are in the right position to make it happen, and we are ready to deliver. So with that, Rob, I know a long presentation, but we wanted to make sure we covered off all the key points.

Let's open it up for a few questions. We have about an hour this morning, total time. So don't have a lot of time, but let's go through some of the questions, please.

[Operator Instructions] Our first question will be coming from the line of Chris Wetherbee with Wells Fargo.

I guess maybe I wanted to start on Slide 17. I think the net revenue synergy number has moved up and concessions have come down. So I was hoping maybe you could elaborate a little bit more maybe on both sides of those. So maybe where the incremental revenue opportunity was coming because I think even gross was a little bit lower than that $2 billion previously.

And then obviously, also on the concession side, I'm not sure if that's coming from some of the gateway pricing sort of offerings that you guys have out there, maybe identifying what drives that incremental decrease in the concessions as well.

Chris, you are sharp this morning. That was a question with about 18 parts, but that's pretty good. So let's start it because I think it covers a lot of what we wanted to make sure. And Jennifer -- Jason, why don't you Jennifer start off on Page 17 and go over the -- what we found.

Sure. So in particular to your question, Chris, the $2 billion net revenue EBITDA synergies -- so if you're comparing that to when we talked to you in July, what we talked to you in July about was net revenue synergies of $1 billion. So you've got a $1 billion greater net revenue EBITDA synergies here, what we're announcing today than what we talked about in July.

$750 million of that, to your point, is the concessions. We included $750 million last year -- or excuse me, in July, it feels like last year, a while ago because we were still analyzing kind of making some early looks at it, and we wanted to be conservative, obviously. As we have now gone through it, as we work very closely with our experts, we firmly believe that the end-to-end nature of this transaction in and of itself enhances competition.

Beyond that, we're offering additional things like the committed gateway pricing, open gateways that we think further meets that test for the STB. And so that's why we have now taken that out of our analysis. The other $250 million, that's as, again, we've done more analysis, more detailed look at the lanes at the watershed markets at the intermodal opportunity, and that's what's brought us to the full $2 billion net revenue EBITDA synergies. So that's kind of how it breaks down.

Okay. Anybody else want to add something that maybe Jennifer missed, I thought she covered all of those questions. You guys good? Thanks a lot, Chris. Good question.

Next question comes from the line of Jonathan Chappell with Ever Core ISI.

I'm going to throw this to Kenny. It's a perfect follow-up, I think, to the prior question. Can you just explain a little bit more about the committed gateway pricing, what this means exactly, how it benefits your peers and why that basically was the reason why $750 million of concessions was removed from the forecast?

Yes, Jon, you need to understand that it offers BNSF and CSX competitive rates based on those moving traffic in the marketplace to and from solely serve facilities on UP or NS to the interchange and to and from solely serve customers on BN or CSX. Now this program design is an improvement to a successful program already in place between UP and the BN and the Pacific Northwest on the I-5 corridor, which I mentioned earlier in my comments.

But this is also important. Not only will it for BN and CXX have certainty around the compensation required to UP and the NS, but they will also be able to market directly to customers on our line, offering them a one-stop shop, single point of contact, one freight bill, one contract and more. They will be able to offer many of the customer and competitive benefits of a single railroad with the only continued downside being that we'd be operating that interchange with UP and NS.

And as I'm going through all this, just remember, there's a lot of detail on this topic in our application, and you can learn more. And I'd just point you to look at Katie Novak's verify statement.

The next question comes from the line of David Vernon with Bernstein.

Congratulations to the team on getting this thing in. So...

I want it, David, but I'm okay.

Well, at least it's before the week of Christmas anyway. So Kenny, maybe the natural extension of that would be to maybe talk a little bit about whether you've gotten any feedback from BN or CSX on this idea. And then the core question I would have for you is I just want to make sure we understand the 1.4 million intermodal loads and 450,000 carloads that you've identified as growth.

Is that net new to the industry? Or does that also include some revenue diversion from airline service on other railroads? I'm just trying to make sure I understand what is net new and what is maybe diversion? And then if you have any sort of feedback on whether BN or CSX have commented on this committed gateway pricing strategy?

So listen, before we go back to Kenny and the marketing guys, bottom line is the growth that we see both in the carload and the intermodal, a lot of it is brand-new business, especially in the shadow of the Mississippi and being able to provide seamless, less touch point movement. On the carload side, of course, absolutely the same thing. We see new business coming on to the railroad.

And if you think about it, the 24-, 48-hour difference on when you have the handoff going across the Mississippi is going to disappear. So that's real important for us, and we think we can grow the business. In fact, the nice part is when the experts looked at it, they went and identified business that's out there that we're capable if we do a good job on safety and service and operational excellence to deliver it.

Now are we going to win some business from other railroads? Absolutely. Customers have a choice. They get to decide what -- where their competitive position is, what is better. And they're going to go with the one that gives them enhanced service, enhanced safety and enhance the competitive advantage. So we're looking forward to that. So it's going to be a mix of both. Kenny? or Mark?

Yes, just remember what I said in my comments, 3/4 of that growth that we've got in volume, 75% is really diversion from the highway, meaning the other quarter is rail to rail, but 3/4 is really coming from the highway. So go ahead, Kenny.

Yes. All I was going to add is these are new services. I think we mentioned that we're going to put on in place that are not in today. So we're excited about that, and it will be a single-line service.

The next question is from the line of Tom Wadewitz with UBS.

And also congratulations on the filing. It's -- I don't even know how to describe it, but congratulations on getting the MAA filing done. The -- I think in terms of the operational changes and the changes in traffic flow, how would you characterize the biggest changes? It looks like the Chicago gateway is something that historically is a congestion point.

I think part of taking -- speeding things up is moving traffic. But maybe if there are a couple of gateway shifts that you could characterize or just the largest shift in trains, how much traffic is moving Chicago to Kansas City? Or what are you doing with traffic flows if there are big kind of moves from one gateway to another?

Listen, let me start and then I'll turn it over to the operating guys because they live it every day. Bottom line is what the merger will do will allow us to look at the networks on what the speed is and what the customers want. So no advance or buts, there's going to be traffic that's headed towards Chicago today, the interchange that we would look at doing it in a different place because we can drop the amount of touch points.

At Union Pacific, we have a whole group that looks every week to see how they can remove touch points on the railroad because every touch point costs you time and allows an event to maybe be moved not as safe as it should be. So that's what we expect. Eric, why don't you talk a little bit in general about how you see the movements and where we're going to have to invest some capital, and we know that to be able to speed it up, to be able to move east, west and west-east better.

Yes, Tom, I'll give you an example, and I'll take it to a macro level. So primary example to look and there's details inside the application, and you actually heard Ed mentioned this in his prepared comments, is this new daily. I'm going to stress that daily rail service for intermodal coming out of California to the Northeast.

The combined network is going to be able to take advantage of routing that traffic through Kansas City, which isn't a change on to itself, but then routing it onto the NS' network between Kansas City and Butler, Indiana, reducing both the track miles that the train has to travel, but also being able to reduce the transit time by more than 20 hours. Now when you back up and think about this, it's $1 billion that we're committing to, to be able to invest in our infrastructure out of $2.1 billion.

I said in my prepared comments, but I think it's important for everybody to hear it again. That's roughly split with half of the $1 billion being spent on mainline capacity and the other half in terminals. mainline capacity, siding construction, siding extension, additional double track, terminal investments, the build-out of classification yards, the expansion of receiving yards, receiving portions of the yard, et cetera, et cetera.

We've got those plans. You'll see many of them in our application, and we look forward to discussing them with our customers because fundamentally, that's what's going to support the growth we have built into the merger.

Yes. So listen, before we go to the next question, I think this is really important. And John, you and I have worked together for years, okay, at that other Canadian railroad that I still have a little bit burnt in my heart. I still like it, even though they don't talk nice about me all the time anymore.

But still, John, so you worked in Chicago, you know that place real good. It's good, it's good. But if it's bad, it's bad. So what do we do with this advantage of single line and how we look at routing?

Yes. You're exactly right, Jim. And the seamless simplified version of running an operating plan it creates a stable, safer and more reliable offering to our shippers. And the beauty of being able to declutter a place like Chicago has impacts beyond the 1 plus 1 equals 2. It's truly a force multiplier. And as we can shift workload to where it wants to go rather than has gone historically, now you're adding benefit to the customer.

One of the very important things we learned back in the day and even how Eric and I have been approaching the preparation for the business model is that we're in the field. We're not -- we've got our base assumptions in the academic component of the merger. We're also taking it from a practical perspective, and our teams are working together in the field, learning how we work, respecting our perspectives, but being highly challenged by both Eric and I on the art of the possible.

And that is thinking outside of it through the shippers' view. So what we have in our application is going to mature and grow and even be more streamlined as we learn the network even more effectively and deploy what our customer feedback and how we want to engage. So yes.

Yes. Well, listen, that's perfect. Well, we're going to try to move these questions a little quicker because I do have a sort of rather hard stop, and I apologize, but I didn't know that we were actually going to get everything done either yesterday or today, and that's why we finally noticed everybody. But let's go to the next question. And sometimes I'm just going to say yes and no. or Mark, you could say yes or no, and we'll move on. So who's next, Rob?

The next question is from the line of Scott Group with Wolfe Research.

So is the cost of the committed gateway in the $2 billion of net revenue synergies and how much? And maybe just, Jennifer, like can you just like what is the net change in your financial assumptions here? And then maybe, Jim, a yes, no question, if you're looking for one. There's been a lot of statements to support some opposition rails, some rails, Teamsters, some shipper groups. Like have you seen anything or heard anything that changes your view of odds of approval here?

Listen, it's -- I'm going to start with that one because that's really important. Let's bucket what we've heard from people. We have a lot of customers that see it. We've had customers, Scott, that actually are single-serve in the soda ash patch come out positive because they see the benefit because it's a worldwide market. They're competing against not just what's happening in the United States of America.

We have businesses like some of the railroads that have come out against us. Bottom line is, and I can't repeat this enough, any business in America or any business in the world, if you thought your competitor was going to be able -- was doing something that was not going to make them as efficient. They weren't going to be able to handle it. They were going to do things that were going to impact the way they could provide service and benefit -- enhanced benefits to customers.

I hate to tell you, Scott, I sure wouldn't say anything. I wouldn't go out. I'd let them go down that path. The reason we get some of that noise from that bucket is they see they're going to have to compete against us. We're going to provide an enhanced service. We're going to provide enhanced time line, and they have to compete. If they can't provide the same level of service as we can, there's only one other option that they can do. And that's called price.

And that's what they're worried about. So I'm good with where we are. In fact, it's wonderful where we are. As far as the Teamsters, listen, they're smart. They're playing the game trying to get something for us and they're smart negotiators. I give all of them a lot of benefit. You can't -- it is what it is. I would have been surprised if we had every union this early signed up. But the base has already been set.

And our largest union, SMART TD and others, up to 5 of them have already agreed on how we move ahead. We will get to the right place with the rest of them. Do you know why, Scott? We didn't negotiate this, but we guarantee the job. And some people will say, Vanda, don't say the word guarantee. I'm saying it again, guarantee the job for every unionized employee that works for this company on day 1 when the merger closes has a job for life.

No one has ever done that. People talk about New York Dock. New York Dock does not provide long-term benefit. It's a 6-year max. And in fact, you know who it really hurts is the employee that has 1 year of service because their protection is only 1 year. And I'm not into that. So for our employees in both companies, I want this to be a win, and we all do, and it's a win.

Mark and I talked about this lots when we were going through agreeing how we'd move ahead. So sorry, you thought that was a yes, no. I apologize. It's a little bit more than that because it's complicated. But we'll move ahead, and we'll find deals when they make sense with all the rest of the unions.

If I can just add, Jim, a lot of that opposition came before an application was even filed. People assume making really poor assumptions, things that -- now that you see the application, it will be much harder for them to come out with any kind of sound opposition because of what's being offered in the application to make the environment far more competitive. misinformation like the number of intermodal lanes that were going to be eliminated, which had no basis in reality.

So let's see what happens now with the application now that it's finally there. And like Jim said, even with labor, I mean, there were comments there about safety. You got to remember, we're the -- 2 of the safest railroads coming together. We're going to be sharing best practices to improve even more. We've got -- you heard in the prepared remarks, 2,400 fewer daily handoffs and handlings and 60,000 fewer car miles per day.

That translates to reduced exposure for our employees to keep everybody safer. So again, the data is now out there. The details are out there. Let's be judged based on that, not the panic from the original merger announcement.

So Jennifer, that was our yes and no answer.

You guys are making it easy for me because I'm going to give the short answer, Scott. I'm not going to give you a number other than to say, when we look at it in total, $4.2 billion of revenue increase from the traffic gains that's going to get you down to a net revenue EBITDA synergies of $2 billion. And that's all taken into consideration the traffic that's moving, the lanes that it's moving in and how we expect to compete very effectively with our enhanced service.

I think, Jennifer, just to add and kind of summarize that, right? So $2 billion of net revenue EBITDA, up from $1 billion. Cost synergies were $1 billion before, $1 billion now. We now plan $2.1 billion in capital versus $2 billion before, and we've identified $133 million of savings from a CapEx perspective on an annual basis. So all in, it takes a very compelling financial transaction and is now even more compelling.

Okay. Scott, good question. You got us going on that one there. Appreciate it.

Our next question is from the line of Jason Seidl with TD Cowen.

Jim, Mark, thank you for the 6,700-page gift that you put out this morning. Previously, you mentioned the shipper overlap was fewer than 20. But what I've read so far, it looks like you pointed out that there's only 3 2: 1 shippers, and you talked a little bit about some of the solutions in addressing that. How many 3 to 2 shippers are out there?

And what's sort of in place to address the competition there? And then maybe in your actions with the STB, do you know if they're going to look at modality when they consider enhancing competition?

I'm not sure exactly what they're going to look at. I'll tell you what the word enhanced means if you're looking up in the dictionary to increase or to improve quality, making something better. And this application does all of that. So it's up to the STB -- but that's the dictionary word enhanced in what it means. So at the end of the day, that's what we're providing.

And no, we don't have handy a number of how many 4 to 3 or 18 to 17 or 3 to 2. So sorry about that. We just looked at the ones that were truly going to change and go from 2 to 1 because that's a change for them, and we wanted to make them all, which we figured out who they are, and we're working through in detail to try to get that put to bid, okay?

Next question is from the line of Brandon Oglenski with Barclays.

I'm not sure if this is a yes or no question. But can you guys just give us -- sorry about that, but can you give us some context on the historical reason why watershed markets just have been overlooked by the rails and how this really is going to unlock potential in that marketplace?

Mark, do you want to do it or Ed?

Well, I think it's the inefficiencies that Ed can speak to of the short-haul rails involving interchange. Go ahead, Ed.

No, that's exactly right. You look at that band of America's Heartland, 250 miles on each side of the Mississippi River. Typically, what happens is 2 railroads attempt to compete there, often there's an economic mismatch or an asset mismatch, and we end up seeding that freight to an inferior mode like truck.

And this merger is going to eliminate all of that in terms of the friction, the inefficiencies and allow us to deliver exceptional value to customers that, frankly, have been starved of value for a long time.

You bet. Perfect. Thank you very much. Listen, I know we're on the hour, but why don't we take one more? They can wait for me upstairs. It's a room of 30. So who's next?

Next question will be from the line of Ken Hoexter with Bank of America.

Okay. Ken, you get the last one.

Wonderful. Appreciate reading congrats on getting it filed. So just on the committed gateway pricing, if we can delve into that, Jim or Jen for a minute. Just what kind of -- do you have kind of protections for slide back on rates or guarantee of access in the future?

I think that was the issue we heard from some shippers about how things have fallen apart in other mergers in the past, just to keep those competitive terms. And then just more specifically on the Teamsters, was there something specific that they were highlighting? Or are you saying this was just a negotiating point?

Why don't we start with the committed gateway?

Yes. In terms of the committed gateway pricing, so there is, as Kenny mentioned, a lot of detail about that. And if you read Katie Novac's verified statement, you'll get a strong sense of what's behind it, which is very substantial. But it's by the design of how it's been put together that gives more flexibility. And again, this is flexibility that's being given now to shippers who would not otherwise have benefited from the merger.

And we've enhanced it even beyond what we did in the I-5 corridor, which has worked very well. We've seen growth in terms of rail volumes outstrip kind of the overall rail CAGR. So that to me is a strong proof statement that it's worked in the I-5 corridor. But we're letting people CSX, BNSF quote directly to customers, and they can even do it on a long-term contract basis. We're not just limiting them to an annual type of approach.

So there's a lot there, Ken, but we're very confident, and we're committed to it. I think you're maybe referring to some of the noise about rails not living up to their prior merger commitments. I think that is just that noise. I think when you look at the facts around that, you'll see that the rails have upheld their merger commitments. Union Pacific absolutely has done that, and we are absolutely committed to do that. And we've given some things in terms of this application in our commitments to the STB that further enhances that.

You bet. And listen, again, just to summarize on the Teamsters, the latest. We had positive letters from the SMART TD and agreements that we signed. let's put this in the right framework. First of all, we just signed and ratified 5-year deals with both the BMWE and the BLET, and we have every union signed up for 5 years. So we're done with that. And that is a piece in the workplace, salaries set, work conditions set.

So when we came out with the merger, we came out with the merger and agreed, like I said earlier in the call, that we look at the employees that are unionized as our employees. We pay them. We provide to our employees things that no one else does. Every employee at Union Pacific, unionized or not, has the right to go to college, and we will pay for their tuition fees and to go to college. We provide salaries that on average at $160,000 is 40% higher than of the industrial base in the United States of America.

They're good paying jobs, and they deliver for us, and we have no problem paying them that salary, and we have agreements now for 5 years. So what we received on letters, the only -- I understand it's negotiation. I'm a little disappointed that they have some facts that are wrong in there. Union Pacific this year, if everything goes right in the next 2 weeks, we will be the safest railroad for employees coming to work and going home exactly the same as they were.

We've had, Eric, over 20% improvement in both our accident and injury numbers over the last few years and over last year, okay? Norfolk Southern has to be very proud on what they've done, okay, on safety. So for somebody to come out and say that we have a safety, I look at facts. I've always worked with facts. In fact, one of my favorite saying is, I don't really care how you feel. Tell me what the facts are, and then we'll go from there, okay? I'm not into that.

So at the end of the day, we'll deal with the Teamsters as we go through. And I hope that we get to a place where we can formalize this notion that we're backing away from our commitment as they put it in their letter, commitment to our employees, they're dreaming. I don't know who came up with that idea, but they're wrong. So that's why it's an interesting and it is negotiation. They're tough. They're smart. We you quit it.

The Teamsters have been around for a long time, 1.4 million members they cover. O'Brien is smart and the 2 union leaders we have are smart, and they're trying to get a better deal. So we'll sit down with them as we go through and we'll see where we end up. But I had to correct some of the misinformation that they're putting out there because I don't want people to think that we have a basis away. Remember who Union Pacific is and who Norfolk Southern is.

Our basic plan of how we operate is exactly the same. It's all about safety, service, operational excellence will lead to growth, and we'll do the same thing on this right here. Sorry for the long answer on that, Ken, and I apologize, I got some people upstairs. Listen, there's a lot of information out there. Please call in. I'm sure you guys will all love reading through it before the holidays, okay, and get it done.

But wish you all the best over the holiday season. My wife and I and family are going to celebrate Christmas and together. I'm looking forward to it to spend a few days with them, and we're going to go somewhere where there's snow, so we can really enjoy it just like Christmas should be. But all the best to you and your families, health and happiness, and we'll talk to you all, I'm sure, early in January, if not, when we do our quarterly calls.

Thank you very much for taking the time this morning. Thank you all.

Thank you, Mr. Vena. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

All right. We're going to go ahead and get started with the next presentation. It's a pleasure to welcome Union Pacific. We've got a lot of interesting things to talk about here. We've got Jim Vena, CEO; Jennifer Hamann, CFO; and Kenny Rocker, CMO or Head of Marketing. A pleasure to have all 3 of you here. Appreciate the strong presence and participation in our conference.

We'll do this fireside chat like we've been doing. Jim, I don't know if -- or Jennifer, if you have any initial comments you want to make, and then we can dive into things.

Yes, I wouldn't mind. So let's start off with the boiler plate. We're going to say a whole bunch of things, read it all. What's really interesting is we used to be able to put the boiler plate in a couple of lines. But now with the merger, lawyers have got about 4 or 5 pages of it. So if we can go to the next piece, let me know when you've read it. Basically, everything we say is public information and and to be used in the right way. And if you want more detail, please go on our website to make sure that you get updated or get a hold of our IR people and for any detail that you might want to have a question on.

So what I really wanted to start off with is to talk about where we are with the merger application and where we are so far and what the path looks like to completion. Bottom line is before we came to the point that we wanted to make sure internally that we were set and looking for an opportunity to be able to go through a merger, with another railroad, we wanted to make sure that the company was in the right place. And that was really important that financially, we were well set up. And I think Jennifer you can correct me if I'm wrong or touch some of the points. But at the end of the day, I think we're in a good place, correct?

Very good.

That's it, just very good, okay. I was hoping that she talked for a couple of minutes, but that's okay. So we're very good, okay. And that was really important to us is that we have the capability to be able to handle this merger and handle it with the financial resources that Union Pacific has and where we were with debt, amount of free cash flow, the amount of opportunity that we have with who we are. We also needed to make sure that the railroad was operating at a high level, operationally, okay? So that we weren't trying to fix the operation, the basic fundamental of who we are and what we're trying to do at Union Pacific. And I think we've done a really good job. And what we've done is we've changed the culture at Union Pacific. We drive decision-making down now to the lowest level. That's not an easy thing to do, when you've taken decision-making away because you have more information and easier information in the company.

It's really important to be able to try to reverse that because the person at El Paso today has a better picture of what's happening at the U.S.-Mexico border, what the trains look like going across, the amount of traffic that needs to go, what the customers locally. And everything doesn't always operate perfectly. So if there's something that needs to -- a decision made there about how we operate today, they can talk to the customers locally and say, listen, do you mind if we're going to be a few hours later or we need to change the way we service you today so that we can have the least amount of impact. And we're doing that. And we're -- our culture is also now if you make a mistake because you're willing to take ownership and make a decision. Now we don't let them make decisions about what our dividend is going to be, okay? That's a different level. Jennifer won't even let me make that decision, okay, all by myself.

But that's key to who we are. And I think people can see the key metrics that you see outside as far as we've been able to remove touch points on railcars. We've been able to speed up the network. We have more resiliency. If we have something happen, we are able to recover faster. That's all real important and that was important to have in place. So given all that, we found the partner. We found the right partner for us. We found a partner that we think that will allow us to -- have customers be able to move traffic and move their business across the United States of America seamlessly and remove touch points. We remove touch points. We're able to speed up their traffic, their business so that we remove hours and actual fact in some of the days of inventory and expense on their side that they have to do to be able to handle that traffic. So for us, we think we're in the right place. So where are we after we announced. It took a lot of work. It's not simple to go through a merger with a company the size of Norfolk Southern and Union Pacific. It's an $85 billion transaction. But we think -- and we know that it's financially a great move for the new Union Pacific. And we're the new Union Pacific, just because of our heritage since 1862 since tied to Lincoln.

So for us, that's really important. And I think we have a great brand, and that's what we're going to be as we move ahead. That doesn't diminish the brand for Norfolk Southern, and we'll make sure that -- we use it as a piece of our heritage and who we are moving forward because we -- there are some very strong employees at Norfolk Southern. The ones I've met over the years and the ones I've met since the merger announcement, they have strong people that want to win, and that's the culture that we want to have as a culture that we move ahead. So we're moving forward with the application after we -- and I was hoping that at the end of this week, in fact, it looked really good. And then we had one contractor that needed to do some rework on some product and they needed to -- because we want to make sure that, that final product is at the level that is exceptional.

So that when we give it to the STB that they're comfortable that we've answered the questions and giving them the information that they want. So it looks like we're going to be closer to the -- in 2 weeks that we'll have the application go in, looks really good at this point that it does. Am I happy? No. Are we paying this contractor to be able to this economist company to do the work for us? Yes. But I'll tell you, if it was Kenny, he'd be in big trouble, but -- I'm just joking Kenny. But at the end of the day, I think we want to do it right. So expect us to have the merger in and close to the end of the 2 weeks from now that we'll hand it into the STB and we'll start that clock process going.

So that's where we are. We're very comfortable with the railroad, how it is, comfortable with the decision to move ahead. We have a compelling story. And the compelling story is pretty straightforward if you look at it. Is it good for the country? Absolutely. There's no way that the United States of America is the only country in North America that doesn't have a railroad that operates seamlessly across the country to be able to give the shippers, the producers, the industrial base that we have, the capability to move copper from Arizona easily -- easier into the eastern part of the U.S., whether it's lumber from the southeast that can cross the Mississippi, getting into Texas and California seamlessly so that there isn't the handoff that happens with 2 companies.

It's also we're able to sell a product that gets them to market quicker. And by selling that product quicker, we're able to open up more opportunity and more competition for others. We're also in the world economy here. This is not just as simple as looking internally at the United States of America. I was visiting one of the largest soybean crushers. It is the largest one in North America in Mexico. And they said to me, Vena you think that it's -- you think that the issue of competition is the other railroad or the other railroads, it's actually another country. Brazil is trying to get in there to take that soybean that most of them are shipped from the United States of America into Mexico to get crushed. So that's what we're selling, and we're real happy where we are. It's been fun to watch the reaction to tell you the truth. I've sort of enjoyed it. I was sure that it sort of gives me a feel, if it was really as the CEO of a company, if your competitor is doing something that's illogical and will harm their business, then you know what, we're a little self-centered. We would just not say anything. We'd let them do it. But the reason we have so much noise coming from our other partner railroads is they see the advantage. They see the touch point removal. They understand what we're going to be able to offer and they're going, how do we compete against that?

So you either get your game going, which a lot of them have with the new services that they've announced, trying to get ahead of the merger or you need to do something on how you price and how you move things. So that's why the complaints are there. And I'm excited. I really am, and I think the whole team is. Jennifer?

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

So, I'm in the top right. Just -- you can see the numbers. I won't read numbers to you. But what I will do is go from top to bottom as you look at our bulk business, we had a win on the coal side earlier this year, and we've seen natural gas prices favorable, and that's been encouraging for us. Our grain and grain products business. Jim talked about the grain side a little bit earlier. That's been strong, moving quite a bit into Mexico. Our Industrial business, our carload business has also been pretty solid, as you can see. If you look at it, markets like construction have been strong, plastics, industrial chem, our metals business.

And just like what you're seeing out there in the macroeconomic indicators, housing starts are negatively adversely impacting us, but we're keeping an eye on that. Our premium business, think of that as international intermodal, domestic and autos. Domestic has been challenged, negative around 4% to 5% so far. International volumes, we've seen that sequentially go down throughout the year. As you all know, we had a little bit of a surge over the last, call it, 18 months with stop and go with the tariffs. Really excited about our domestic intermodal business, which is -- which has been a positive for us, and we've seen quite a bit of over-the-road conversion. But you know Eric, we're here and Jim, the management team we're coming from a place of strength with such a strong service product that we still are encouraged as we continue to go throughout the quarter.

Yes. So that's a great place to leave off. If you look on the left-hand side of the slide, you see that strong service product depicted there. The network really is running very, very well. In fact, on Monday, we posted a freight car velocity of 245 miles per day -- car miles per day. That's an all-time record. So the team is really humming, high level of service, high level efficiency. And you see it's not just here in this quarter. It's been a track record that we've been building over the last several quarters. Unfortunately, that can't fully overcome what we're seeing in terms of some of the volume challenges that Kenny just referenced, quarter-to-date, down 4%. As we go into December, still have 30 days left to ship, and we'll certainly running as well as we will. We'll be picking up every carload that we can.

But we know that's against a very tough comparison against last year's December. We're also seeing the mix maybe be not quite as favorable as we would have hoped it would have been by this time of the year. Kenny referenced the international intermodal being down. That certainly helps us from a mix standpoint. But where you're seeing some of that growth, coal, rock. Those unfortunately, are some of the lower arc commodities that we move. And then you also have some of the higher arc commodities like lumber, like some of the specialized the food and beverage, those are a bit pressured right now. So mix is slightly unfavorable relative to where we thought it was going to be. The other thing is, obviously, when we talked about this back in October, we do have some merger costs, $30 million to $40 million that will be incurred here in the fourth quarter.

And if you look at our other expense line, probably a little bit of pressure there with a couple of casualty items. So probably a bit of a challenge for us here in the fourth quarter, more so than we would have liked to have in terms of finishing out, what really is otherwise going to be a very strong year for us. 2025 is a year where a lot of first for our company, still leading the industry by the time we get to the end of the year in terms of operating ratio, return on invested capital, embarking on the historic venture of the merger with the Norfolk Southern and really executing on our strategy and on the fundamentals, which has helped position us to be where we're at today. So a little challenge here and there, but very solid performance, great position to be in otherwise.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Okay. So Tom, it's an interesting question to get asked about how you think about pricing. Of course, we want to increase price right? That's just inflation is going up, costs are going up, you need to increase price and you need to increase more business and bring it on. That's what Kenny and the entire team are out there to do every day. Fundamentally, it's a different conversation when you can show the customer that we're moving their railcars faster today with that car velocity so that they need less of a fleet, they need less impactful, less inventory, less all those things that people need. And that helps in the conversation. But we're also cognizant of the fact that you have to look at what the economy is, you can price yourself out of a product by being stupid about how you price because something else will replace it.

So it's complicated. That's what Kenny needs to be able to do. And we need to -- sometimes, we need to look at things a little longer term, Tom. And that's something that railroaders have not done really well is to think about what is it that we're trying to do. If we're trying to build the market, sometimes you have to be smart about it. Now don't get me wrong. This does not stop the pressure that Kenny and the team feel to go out there and price. We expect them with the high service level and what we're able to deliver for our customers, the value that we give that we're looking for increases in prices. And Kenny knows, if not, there's a carwash looking for a new manager, at the end of the day.

I'll be sure about that.

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

8 years.

But how long in marketing?

30 years.

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

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

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

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

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

I think we have to be careful and it is a little nuance about the way we think. And I don't want people to get this wrong impression that we're going to use that as an excuse of what we come up with price. But there is certain markets if you want to grow the market, you need to have a longer-term view of what you want to deliver and you need to be able to understand how you can nurture it and grow it. A lot of the business that we have has been with us for a long time. Whether it's the lumber that comes from the North or the Northwest or the East or the South, right, is there. But there are some markets that we can build on to be able to grow it that you might -- the only way you do it is to get people to transition away from what they're thinking, Tom. It's as simple as that. I'm not talking this as a wholesale change. And it's like that with intermodal. It really is, is that we need to start thinking about how we run it.

Now it's not. I'll give you an example. Remember, in 2019, when I came to UP, we were going by a place in California. And they were trying to -- after -- that was the very first time they went on the train ride with me, and they told me -- they were trying to get me to look out the window on the left-hand side of the railcar. The business car. And I wanted to -- I knew right away, I needed to look to the right. So when I look to the right, there was this thing that looked like a train, 2 locomotives, 4 railcars and an in the train unit, right? So I said to the -- at that point, the guy who is the EVP, I said, was that a train? And he says, yes. And I said, 4 cars, 2 locomotives and then end the train. I said, how many -- how long have we been trying to grow the business? Well, we've been trying to grow the business for years. And I said, that's as big as it gets. Then we're not that stupid. We walk away from that. It just doesn't make sense, handling the regular train, okay? So that's what I'm talking about.

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

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

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

Well, Tom, it's a great question. It's one of the criteria that we have to deal with in the application and then later on when we give more information if required. So it's something that -- so what is enhanced. If you go look in the dictionary right now, enhanced means you improve a product, you give more service and depending on if it's an economic enhancement or a structural enhancement. It's pretty straightforward. And what we've talked about pretty clearly is an enhanced product. An enhanced product is that we will not be one customer that will have less service than they have today. So that's sort of a baseline. So anybody that's going from 2 to 1 because of this. And it's a very small amount because we don't have a lot of overlap. It's an end-to-end and people smile, but out of the 30,000 miles of railroad that we have, it's only a few hundred miles where we overlap with Norfolk Southern, okay? It's very small.

And even in the terminals and everything else, okay? So at the end of the day, and what we're giving the rest is that product that they have today is going to be faster. Everybody wants to talk intermodal, which is real important to us. But intermodal, we're competing against trucks and other railroads, but mostly trucks. That's where the benefit is. And we think that it's underserved for a large piece of the country. both sides of the Mississippi on what can actually move using our intermodal product that we're not doing today because it's going by highway. We're enhancing in the city of Chicago, where you don't have these cross hauls going from railroad to railroad. We will go direct. There's today, on a weekday, there's close to 1,000 movements by truck to go from one railroad to the other. And if you're with the new Union Pacific, those things will be handed off rail to rail not by truck.

So I can keep on going. Let me give you a couple more examples. If you're -- the majority of our business is still okay, manifest. It's still take cars, box cars, flat cars, gondolas, all that. And any time you have to go across the Mississippi to hand off, we'll build blocks in Houston for Philadelphia, we'll build blocks for Atlanta. We'll build blocks for other places where you don't touch that railcar again. So the enhancement is you take 24 to 48 hours. We have the best well in the industry, and we're well over 20 hours on our dwell through a hump yard. And not through dwell. Some people include their trains going by. I wish -- I don't do that. Like I don't count the train that went by, stopped, change crews as part of my dwell. The dwell is actually when we have to handle a car. And at the end of the day, that's enhanced. So I could keep on going. Jennifer, anything you wanted to add?

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

Kenny, anything you want to add on that?

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

And we're keeping gateways open.

Absolutely.

We're not into it. If somebody wants to ship with with the old Norfolk Southern and they want to come West and they want to go to Berkshire on the West side. Northern Santa Fe, but I'm good with that. Go ahead. We'll make the money off of the Norfolk Southern and because at the end of the day, I think railroads in general, have thought about this a little too selfishly. I have no problem. You should always look for the best model to be able to increase the amount of business you have and not always say I want the longest length of haul. I want to go from the southwest to Chicago before I go east if we can cut that off and go differently, we're willing to do that. So New Orleans is going to be an important gateway for us and CSX has got a strong franchise that goes straight across to the East quicker in some areas, and unless they don't want to partner with us, we want to partner with them. I've told them that already, and we want to continue to do that. So that's -- we think that the enhancement piece is the easiest piece of this -- and I'm not sure about trackage rights. Trackage rights the wood, but people talk about trackage rights last time I looked, we don't have a lot of overlap, right? I guess if I -- I guess maybe I should ask for trackage rights to Toronto in Canada because there's only 2 railroads there, give them a third option. I don't think they'd give it to me too easily. So it just doesn't make a particle of sense to me, okay?

And if you want to build in, Tom, we're building into 3 places right now. We're waiting for the STB to give us the decision to build in, in Phoenix. We're building into 2 customers in Texas that the customers we discussed and we see an opportunity to spend our capital to be able to build in so that we gave them optionality in what they originate. Every railroad has that capability to do that.

So why would they look for trackage rights, that's the cheap and easy way to do that. We're in the business world here. We're not Santa Claus to give away trackage rights. I'm just trying to get into the Christmas season or the holiday season.

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

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

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

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

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

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

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

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

It's one of them. You bet.

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

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

It's the ease of doing business scenario, and let's just get in the wait for a minute. If you're a customer, let's just say you're a carload customer coming out of the Gulf into Charlotte or Atlanta. And you've got to put in 2-way bills. You've got to ask for 2 rate requests, then you've got to go out there and try to monitor the 2 lanes. Some people use [indiscernible] some of these other places. Some people have large, what I'll call, back offices, full of FTE for each different railroad that's in place. When we talk to customers, there's a fleet department. And all they do is just manage maintenance and repair, and they've got an insurance policy because the last thing you want to do is shut down a plant.

So you have an insurance policy, of extra cars. So we see tremendous value there. Back to your first question to this whole thing around prices and everything. A lower cost structure will help us get into markets like the water share market. That will help us go in. And when I say watershed, I'm talking the Mississippi, call it, 250 miles out of East or West. So that's the benefit there.

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

Smart guy.