Union Pacific Corporation (NYSE:UNP) Q2 2023 Earnings Call Transcript

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Lance Fritz : And that’s in a down volume market.

Kenny Rocker: That’s in a down market. And so I will say we’re pumped up about it.

Lance Fritz : That’s good.

Fadi Chamoun : And I’m surprised you didn’t mention intermodal as being one of the opportunities that service gets better. Is this because the truck market competitiveness right now? You need a little bit of support there? Or is there more to it than that?

Kenny Rocker: Okay. Well, you’re going to get me riled up today. So first of all, we talked about a couple of transformative wins that we feel good about. I’ll tell you, as a management team, bringing on Inland Empire, which is a new product, bringing on a new Port Houston service product that Eric has given us with 5 new lanes, bringing on Twin Cities. Absolutely, we feel good about domestic intermodal. At some point, you need demand to be there. What you’re hearing me say is that we’re prepared as that demand comes on. And we’re adding new products, we’re adding new services, we’re adding new customers. We’re excited.

Lance Fritz : Kenny, at the risk of making this drag on too long, you should mention Falcon Premium too.

Kenny Rocker: So let me back up and just say there’s been a lot of debate out there, Lance, in the marketplace. And we feel very good about the service products that we have with Falcon Premium. On a broader sense, there are other Class 1s associated with that. So it’s not just one Class 1. It’s the other Class 1s that we’re interacting with too that we feel good about. We’ve got a shorter route structure. We’ve got a better schedule. We’ve got the relationship with the customers. Eric and his team are continuously improving that service product. So we’re encouraged how that looks in the future.

Operator: The next question is from the line of Amit Mehrotra with Deutsche Bank.

Amit Mehrotra : Lance, congrats all your success. Wish you the best. I guess, Eric and Jennifer, I know borrow-outs have been pretty expensive. And I think last time we checked, you had like 250 borrow-outs in the network. Can you just give us an update on that? It feels like maybe that’s an opportunity over the next six to nine months. And just generally, in terms of nonfuel costs, it feels like the network is running a little bit heavy on nonfuel costs. I know there’s obviously cost inflation and labor inflation, some idiosyncratic things. But as maybe the volume comes back and you can come much more volume-variable, is there an opportunity to kind of hold the line on the nonfuel cost structure given some of the positive things that you can do on the borrow-outs and kind of other cost items that are proving more stubborn right now?

Eric Gehringer : Yes. Thank you for the question. Let’s back up in time, as we came into the year when we think about our first quarter earnings report, we were talking about borrow-outs. In the context of while we were making great progress in our hiring, we still have pockets of the system, specifically about 7 locations, where we were utilizing borrow-outs because of the difficulty to hire. Now in any given year, there’s some level of borrow-outs used even in just dealing with seasonality, for example, the grain harvest that comes in the fall. If you look at the quarter, what we’ve reported is that we’ve taken our borrow-out count down by 50%, approximately. Now that is a process that continues. As we look for volume to continue to grow, we have those as options.

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