Walter Spracklin: Appreciate it. Thank you.
Operator: Our next question is from the line of Scott Group with Wolfe Research. Please proceed with your question.
Scott Group: Hey, thanks. Good morning, guys. So it seems like you’re framing this as there’s things we can control and things we can’t control. It strikes me that over time, the industry has been able to have some control over price. And you’re talking about inflation up 5% and right now, yield x fuel is only up 1%, right? So it just seems we need more price. Can we get more price? I don’t know. How do we think about that? And then can you just clarify like this international intermodal contract, when did we lose that? Because it sounded like it happened sometime in ’23, but we just – we’re seeing really good intermodal growth. So I’m a little confused with why we’re flagging this is such a big issue right now. Thank you.
Kenny Rocker: Thanks, Scott, I got both of those. Thank you. So first of all, you’re exactly right. Prices are controllable. And let me make this clear. It’s not like we are jumped up here and waited till January 1 to look at price. We’ve been going down this path here for a few months. You’ve heard Jennifer and I say that we have a set amount, call it, almost half that we can touch from a pricing standpoint. Our commercial team has really been very effective sitting down with customers, talking to them about the improved service product, talking to them about our increased inflationary pressures that we saw from the labor side and how Eric is leveraging that to improve the service products that we give them. They’re seeing the same input.
They’re seeing the same increases. I’ve been meeting with customers. And so they know that. So yes, we control a portion of that, and so we’ve been very focused on articulating that story. I think you had a question on the international side. And yes, you’re correct. We lost some of that earlier in the year, last year. The bulk of that will still be working through in 2024.
Jennifer Hamann: But just to your question, Scott, I think what Kenny is talking about with that loss, that kind of goes to our discipline when it comes to price and making sure that the business that’s on our railroad is running at acceptable margins. Sometimes that doesn’t happen and we might lose a piece of business.
Kenny Rocker: Yes. I mean with the service product, when the investments that you heard Eric talk about this morning, the margins have to be acceptable to be on the network.
Jim Vena: Well, I hate to always recap these, and I won’t. But let me recap this, Scott for you. So inflation, when I was – the first call that I had in October, I was pretty clear that we are going to deal with the inflationary pressure that is presented for us that we have to tackle, and we’re doing it two ways. We are dealing with it on a price – from the price side, and we’re also dealing with it on the efficiency side. And I think we have a clear view. This is not a short-term 3 months you can fix it on the price side and even on the efficiency side, we’ve seen improvements in efficiency, and you can see that from the number. And I think there’s more available for us on the efficiency side from how we operate our trains, the fluidity and the terminals, how we use our people, and we did a really good job.
The team did a fantastic job in the fourth quarter, and I expect it to get better as we go through the year. So those two things we’re tackling head on. We’re not being shy about it. We’re being straight. I’ve met with a lot of customers in groups and in small and I’ve been clear about what the pressures are and what we’re going to do about it moving forward. But at the end, we want our customers to win in the marketplace. We want them to win. So we’re being smart about how we price and what level and it’s different for different marketplaces, and that’s how we’re handling it. But I’m excited. I think we overcome this year, by the end of the year, we’ll see ourselves in a different position.
Scott Group: Thank you.
Operator: Our next question is from the line of Tom Wadewitz with UBS. Please proceed with your question.
Tom Wadewitz: Yeah, good morning. So Jim, you’ve seen – you realized a very fast and positive response in terms of the rail network operations since you’ve been at UP. Where do you think you’re at in terms of kind of further improvements? So I don’t know if you want to look at like locomotives, what the active fleet is and where it can go to. Maybe if you could comment a little bit on headcount. I think that the headcount was down pretty meaningfully sequentially. So I guess I’m just trying to get a sense of kind of are we at the stable level now after that really quick improvement? Or our headcount and active locomotive fleet going to have further steps down as we go into ’24?
Jim Vena: Well, listen, thanks for the question. So the way I see it is this. I think there’s more on the railroad to become more efficient. And the concentration is a little different than the last time I was here and a little different than what we just were able to do in the fourth quarter. I think there’s opportunity in speed and car velocity that will help us be able to move the railcars faster, use a few less locomotives and be able to keep the network more fluid. But the real big piece for us and what we’re going to concentrate on, and we think there’s a capability to be much better is how fast we operate our terminals and the fluidity through the terminals to be able to have the products. Now it’s just not in the transportation piece.
We are looking at ways on the engineering side, how we do maintenance, how we do capital work on the mechanical side, how we – what it costs us to perform overhauls, every piece of the network is still there. So I think there’s still more left on that piece to be able to do.
Tom Wadewitz: Can you offer a thought on how that translates to headcount? Do we think headcount goes down further? Or is it kind of stable at current level?
Jim Vena: Well, the challenge we have with headcount is we signed some collective agreements and you live with what was given to you. And some of those collective agreements put pressure on headcount. They put pressure on – from both the time off, the sick benefit time off that we provided. We had some weekends when the football game were on that we have like an extra 15%, 20% people all got sick at the same time. So we need to be able to figure out how to deal with that, and we’ll do that as we move ahead. It must have been a real bad weekend, right? At the same time as one of their playoff games was on. But at the end of the day, those are stumbling – those are blocks that we have to get over this year. And what we showed in the fourth quarter is with all that, all the pluses and all the headwinds we had on headcount, we were able to keep the headcount and reduce it overall in the company.
And there is no reason for us not to continue to do that. We will look for every opportunity. And sorry, I can’t give you a specific number because this is a moving target. As we move ahead, we’re implementing new agreements through this year. So it will be noisy. It won’t be a straight tangent down. The scope won’t be perfect. It will be a little up and down, but I’m very comfortable that we have the programs, the processes in place to be able to correct that and have the way which is less people handling the same amount of business.
