Eric Gehringer: I’ll start building up for that. So again, to Jim’s point, when you look at our quarterly performance from a dwell perspective, and we have a 5% improvement in our car dwell during the quarter, that’s a full half of one hour off of every car on the Union Pacific. That’s how we are able to move the cars faster. Now when you think about that going beyond that to Jim’s point on being agile, we took out 4,000 touchpoints just in the first quarter as we looked for more and more ways to be able to modify the transportation plan to move the cars faster. Now, you build off of that and you start to get to the fundamentals of the railroad, the improvements we’ve made in recrew rate, there’s still opportunity there. Certainly, our investments in technology, both with our CO as well as mobile NX, that’s about getting more productive in the yards.
Even when we think about the break person deal that we signed last year that we spoke about working to ensure a capitalize on all those opportunities. We’ve talked about locomotives. 500 are already out. We see more opportunities. You hit your and link to start your question but also sometimes things we don’t talk about our purchase services. We made great progress, as Jennifer reported in the quarter on purchased services. We did that from everything from maximizing the material movement using trains instead of trucks to how many vehicles we have on the railroad. You’ve seen what our headcount has done over the last year. We’ve aligned our fleet from a vehicle perspective to that to about 600 vehicles coming out. So, everything is in play right now, Ken.
We look at it every single day. We work through it every single day. And the biggest thing that we’re looking for is how do we ensure that we make meaningful changes to not only improve our service product, but also make us safe while we drive financial success.
Jim Vena: Ken, anything to add?
Kenny Rocker: I mean we talked about the efficiency. It shows up in audit development that we talked about. It showed up in all these small discrete things like adding more cars right at the customer’s plant and asking for more business by customer, by plant.
Operator: Our next question is from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.
Ravi Shanker: So, the 3.5% price/mix number in 1Q, kind of how do you think about that over the course of the year? And obviously, puts and takes on the macro, truck pricing, et cetera, and some movements in the mix side as well. So how do we think the number evolves?
Jennifer Hamann: So, we’re probably not going to give you a number, Ravi, which isn’t going to surprise you, but I’ll let Kenny talk to the markets. But just from a mix perspective, with intermodal probably staying weeks through most of the year, that probably is going to give us the ability to have some positive mix within our business as we think about that for the rest of the year. Kenny?
Kenny Rocker: Yes. I’ve been very encouraged and proud of the commercial team and the conversations that they’re having with customers on price articulating the inflationary pressures that are there and working with those customers to price to the market, taking a little bit more risk to price that business. And at the end of the day, our service product has improved as you can see in the results, and we’re talking to our customers about that and aligning that with the capital investments we’re making. So, it is not a coincidence or by luck, we are having very deliberate conversations with our customers.
Ravi Shanker: Understood. I guess could you just a super quick follow-up. Kind of I think you had said in other revenue, there was a contract settlement and there’s a claim settlement and other expenses as well? Is that the same one or there are two different ones?
Jennifer Hamann: Those are two different ones, Ravi.
Operator: Our next question is from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question.
Brian Ossenbeck: Just wanted to kind of follow up on that last question from Ravi. In terms of just the mix, it sounds like it’s getting better from here. Maybe Kenny, you can give us some color in terms of the pace of renewals as it was always going to take a bit of time to touch the rest of the business services helping with that momentum. So, it would be helpful to hear that. And then just secondarily, on the labor agreements in coal, like are both of those coal network rightsized the big drop you’ve seen right now, or there’s a little bit more to do. And on the labor side, you obviously had some new agreements to adjust for as well. So just trying to figure out where those three things stand in terms of where they are now and sort of looking at the rest of the year.
Kenny Rocker: Yes, I’ll start off. Thanks for the question. I said that back in January, it’s not like we woke up January 1st and started deciding that we needed to have these deliberate conversations with customers. They started well. early last year. And we’ve shared this, we can touch close to half of our price annually. The other half is in multiyear deals. I touched on it a little bit. about the deliberate conversations that we have and the risk that’s out there. And then I’ll talk about a couple of markets. You look at domestic intermodal, those spot markets, if you look at it, here where we stand today, they are the same that they were from a spot market perspective last year. So, this has been a long time. Same thing on the contracted rate, those contract rates been where they are for a long time over eight months.
And so, the good thing, if you’re an optimist like I am, there — you know you’re at the trough — but the thing you don’t know is when things will improve or get better, and we’re not in a position where we’re going to forecast that they — when that will happen. What I will tell you, and I talked about the product development already, we’re prepared. We’re ready. We’re working with Eric team, and we’re bringing on more volume that comes on. And so, we’ll see what happens there, but I can tell you that we’re prepared and excited.
Eric Gehringer: And Brian, to your question about crews and the coal lines. So, every single week, we review every board across the system. And we’re looking, just as you pointed out, for changes in the market that shows up an increased or reduced demand. We’ve made adjustments. We’ll continue to make adjustments. And it reminds me to make sure that we remind ourselves a year ago, we were talking to all of you about 200, 250 borrow outs across the system. For the third month in a row, we have zero borrow outs across the entire system. Now that doesn’t mean that with some seasonal adjustments to some business-like grain harvest, we might put some out there, but it’s a massive accomplishment and I get the team credit for because they’ve been able to manage the crews in a way that we don’t have any borrow. So, agility all day long.
Operator: Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question.
Jordan Alliger: You’ve alluded to this a few times this morning, but productive cost tech out certainly seemed better than we would have had in our model. particularly in areas such as PT, which you have alluded to as well as the rents — and can you maybe talk to some of the sustainability of the current trend line because it was quite a bit of a delta versus what we’ve seen lately as we move forward from here?
Jennifer Hamann: Yes, Jordan, thanks for that question. So, I think you’re right. You’re hearing a lot of positivity by the team because we know that there are more opportunities. And first, it’s building the momentum, it’s sustaining the momentum and then keeping the cost out. So, if you think about equipment rents, that really is all about continuing to drive the car velocity, continue to drive the cycle time and the dwell that Eric referenced. So, those are directly impacting that line. And then purchased services, certainly, the locomotive fleet is a big part of that. as we continue to use our locomotive fleet more protectively and reduce those numbers, that’s an opportunity to sustain and potentially improve there as well as across the rest of the contract services that we use is we’re being smarter and looking deeper at every dollar that we’re spending.
And that’s been one of Jim’s messages to the team is, when you’re looking at the resources, spend the dollars like your own and make sure that it’s a wise dollar that’s being spent and that you’re getting the appropriate return for it. So, feel good about continuing to make progress.
Operator: Our next question is from the line of Brandon Oglenski with Barclays. Please proceed with your question.
Eric Morgan: This is actually Eric Morgan on for Brandon. I just wanted to ask another one about mix. I appreciate the detail on the impact to yields, but I was just curious if you could speak to any effects on margins just because with coal being down, a big drag on volumes right now in international intermodal as well. Should we be thinking these sort of mix swings helped to drive the strong OR in the quarter? Or is it really just an RPU impact?
Jennifer Hamann: Yes. Thanks for that question. So, mix does help on the RPU. And when we think about mix, there is some different mix in terms of the cost profile that’s behind that. our opportunity and our job is to improve the profitability of every line of business that we have. And so, we are very proud of our manifest franchise. That’s really our sweet spot for sure. But as Eric talked intermodal grain, coal, those are very profitable business for us as well. So, to the extent that we can drive greater train length, So I’m not going to say we’re totally agnostic, but we want to grow, and we want to grow across all lines of business. And so, I think if you see us do that, you’re going to like the margins that come from that.
Jim Vena: You bet. And just to sort of — why don’t I summarize the way I look at the quarter and what we see moving forward. First of all, if you look — if you take a look at our results, our industrial, and that’s what I love about Union Pacific is our industrial originations, the Mexico product that is non-intermodal which gives us a different level of return and price capability is strong. And that’s what we want to see. And that was — that’s what helped us in the first quarter, and I can’t see that changing, except I just don’t know where the macro items are going to be in the short term in the U.S. I was hoping with all the products that we ship and handle for people and consumers that I would have seen an interest rate cut in the next few months and maybe it will happen later on this year.
So an interest rate cut would help us and what people are spending on their homes from lumber and number of products. But if you take a look at where we are and that’s what I like, we leverage that franchise we have in the Gulf in originations in the middle of the heartland of the United States. And we always look for ways to improve our efficiency. We drive better return with whatever price we get out of the international and domestic business. And every time I see a train full of box cars and tank cars, it’s music to my ears when those wheels roll by. So, thank you very much.
Operator: Next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please proceed with your question.
Jeff Kauffman: Congratulations this quarter, a tremendous result. I wanted to take a step back, a question for Kenny. What are you seeing in terms of customer commitments to near-shoring or rebasing manufacturing? And then in terms of coming back to the rail, your service metrics are up. And clearly, there’s a flywheel effect there, but what are your customers telling you they need to see those that maybe took business away before they would bring that business back.
Kenny Rocker: Yes. Thanks for the question. On the nearshoring piece, it’s real. You’ve seen the amount investments that’s there. We’ve got a strong commercial presence that’s there, and you look at the overall rail, I’m talking the rail industry market share into and out of Mexico is still relatively low, if you put it in the mid-teens or so. Our new service product that we have in place that [Hanjin] has been picking up steam and we’ve seen it grow. We’ve seen it grow in that North-South corridor. We’ve seen it grow in the traffic that we put on, the new product that we put on going in the Southeast. So tremendous growth there. There is also a more carload business that will come online and more plants that will come online some of them for some of the autos that are going to come on and some just other what I’ll call just industrial pieces.
We’re set up for that. We’re engaging those customers. Our network strength and franchise gives us an opportunity to move a lot of that, both the feedstocks in the Mexico and the finished product out of Mexico. So, a very strong place for us. The six gateways. We had a great quarter. Coming into and out of Mexico, and we want to build on that. As far as those customers coming back to us, with every month that we are able to sustain, ensure reliable product we’re able to capture a little bit more business, but we’re also able to sit down with them and talk to them about adding the one or two carloads or talk to them about a truck lane piece or talk to them about their rail versus truck by lane percentage. So, the stronger service product is certainly a positive for us and our commercial team has been very aggressive out their hustle and they get every carload.
Operator: Our next question is from the line of Tom Wadewitz with UBS. Please proceed with your question.
