Q2 2020 Union Pacific Corp Earnings Call
Greetings and welcome to the Union Pacific Second quarter 2020 conference call.
At this time all participants are in listen only mode brief question and answer session will follow the formal presentation.
If anyone say should require operate assistance during the conference. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded in the slides for today's presentation are available on Union Pacific's web site.
Now my pleasure to introduce your host Mr. Lance Fritz Chairman, President and CEO for Union Pacific Mr. Fritz you may begin.
Thank you very much Robin and good morning, everybody and welcome to Union Pacific Second quarter earnings Conference call.
With me today in Omaha, practicing safe, social distancing or Jim's Anna Chief Operating Officer Guinea, Rocker Executive Vice President of marketing and sales and Jennifer Hayman Chief Financial Officer.
Before discussing our second quarter results I must first recognized the continued dedication of the women and men of Union Pacific as we navigate the cobot 19 pandemic our employees are protecting themselves and their coworkers in order to provide our customers with a service product that's fluid an uninterrupted.
Our rail network continues to operate at a very high level as we provide a safer more reliable and more efficient service product to our customers as I reflect on what we dealt with and the results for the quarter. The true character organization was revealed and it makes me very proud of the entire Union Pacific team.
Moving onto the second quarter results. This morning Union Pacific is reporting 2022nd quarter net income of $1.1 billion or a $1.67 per share.
This compares to $1.6 billion or $2.22 per share in the second quarter of 2019, reflecting the economic impact to the pandemic and the challenger overcoming a 24% decline in revenue our quarterly operating ratio came in at 61% a 1.4 percentage point.
The increase compared to the second quarter 2019.
Despite the distractions created by the pandemic our employees made progress on safety in the second quarter for the first half from 2020, our employee safety results improved 5% versus 2019, I'm very appreciative of our employees continued focus on safety.
Our second quarter results represent an achievement by the entire U.P. team as we dealt with the challenge. Unlike anything we've seen before the women and men of Union Pacific answered the call to serve our customers and the results provide further confirmation of the transformation. Our company has made through unified plan Twentytwenty.
So with that I'll turn it over to Jim to provide an operations update.
Thank you lots and good morning, everyone. Let me start by echoing Lantus comments on how the U.P. team has performed throughout the pandemic I'm extremely proud of the team's dedication to provide the safe and reliable service product to our customers. Our rail network remains fluid also on the commend the operating department on its performance over the past quarter.
How the team managed through the rapid decline and eventual return.
Volume has been truly remarkable the impact of all the changes we made is evident in our results. This quarter. There remain many more opportunities ahead of us to further improve safety asset utilization and network efficiency.
Turning to slide four led to update you on our key performance indicators.
Driven by continued improvement in asset utilization and fewer car classifications and car touches freight car velocity improved 11% compared to the second quarter 2019.
Freight car terminal dwell improved 16% largely due to improved terminal processes and transportation plan changes to eliminate switches and touch points. We continue to implement changes in order to run a more efficient network that requires fewer locomotives and the second quarter, we achieved a quarterly record in locomotive productivity 12.
Sent improvement versus last year.
Workforce productivity, which includes all employees was flat versus last year, reflecting the impact of the steep decline in volumes in April as we've adjusted resources realized productivity gains and seen volumes increased this metric has rebounded strongly.
In the quarter the productivity improvements were boosted by reducing our trade in engine workforce by 32%, which outpaced volume declines.
Japan compliance improved for both intermodal and manifest in autos during the quarter. This is a direct result of our focus on improving network efficiency and service reliability as part of our operating model. We had a strong first half of the year and we expect to see continued improvements in our service product going forward.
Slide five highlights some of our recent network changes increasing train size remains one of our main areas of focus and we're making excellent progress capital investments to extend sidings allow longer trains the run in both directions and reduce the number of train starts around 40 projects included in the plan and we have made good progress of 16, 15th.
It doesn't put decided to have now been completed through the first half of the year. We plan to have another four completed by the end of this month in.
In addition by putting more product on fewer trades, we have increased train length across our system by 23% over 1600 feet since the fourth quarter 2018 to approximately 8700 feet in the second quarter of 2020. This is a remarkable feat by the team to run longer trains less volume, while also making server.
Scott This indicates that we struck the right balance and prioritize interactions during the quarter.
We are continually modifying our transportation plan, including yard and local service to be more efficient. This contributed to our productivity gains by allowing us to reduce our daily crew starts while continuing to meet customer demands.
We continue to make progress on our redesign of the intermodal network as we've discussed before we're completely redesigning our Chicago operations in the second quarter, we close global three and additional changes will be completed by year end. We're also redesigning the Houston area construction is underway at setting us to consolidate or intermodal facility.
The one location. In addition, we recently initiated construction in Houston, Inglewood yard expand switching capacity capability and improve our ability to run longer trains out of that yard.
Let me wrap up we remain committed to protecting our employees health and safety and providing strong service to our customers.
As customers have resumed operations and volume has been increasing over the past month or so operating team has done a great job a balance in our resources, while also providing superior service to our customers with stored locomotives and railcars strategically placed we've had the resources available when and where we need them. In addition, we are we call. It employs from for a low.
Meat crude demand. However, we are leveraging our efficiencies and not bringing back resources on a one for one basis with volume.
We've made great progress to this point and we will continue the transformer operations in order to.
Further improve safety service asset utilization and network efficiency and with that any it's all yours.
You, Jim and good morning for the second quarter of volume was down 20% as many of our market segment were negatively impacted from coal that pandemic effect on manufacturing and retail sector.
A decrease in volume coupled with a 6% more average revenue per car drove freight revenue to be down 24% in the quarter.
Let's take a closer look at how the second quarter played out for each of our business groups.
Starting with ball revenue for the quarter with down 17% on a 15% decrease in volume.
3% decrease in average revenue per car.
Coal and renewable carloads were down 24% as result of softer market conditions from historically low natural gas prices and soft export demand.
Looking ahead, we expect continued challenges in coal with natural gas futures remain low.
Also weather conditions will continue to be a factor.
Volume from Green in grain products.
Six worth that as a pandemic reduced demand for ethanol and related products.
This was partially offset by increased shipments of export be growing.
Looking for we continue to have a more positive outlook on grain exports due to purchases by China.
In addition, we expect ethanol production to continue as recovery from historical low in the second quarter.
Fertilizer and thoughtful carloads were slightly down 2% driven by a onetime shipment in 2019 related pipe barge capacity due to the flight.
Finally, food and beverage was down 21%, primarily driven by cobot related production challenges.
For import beer and supply chain shift and other food products.
Industrial revenue declined 23% with an 18% decrease in volume.
Average revenue per car also declined 6% due to negative mix and lower warp you thought a lot or charge.
Energy and rationalize decreased 26%.
Primarily driven by reduced petroleum shipment.
Due to low oil prices converging with economic shutdown impact on demand.
The second half of 2020 potential for crude by rail remain largely uncertain.
And we'll all prices remain depressed.
We anticipate continued year over year decline.
Fourth product volumes decreased by 11% Youre lumber shipments were driven by mail curtailment due to a reduction in housing starts.
In addition.
Industrial chemicals, and plastics shipments declined by 10% due to pandemic related impacts on demand.
Industrial chemicals volume had the largest reduction as these carloads or hopefully tied to industrial production.
Metals and minerals volume decreased by 19% due primarily to reduce and shipment from drilling budget reductions associated with the decline in oil prices and a surplus of local fan.
We expect to see continued challenges in fan with oil prices combined with the recent financial risk that frac sand producers are facing coupled with continued in basin supply.
Turning the premium.
Revenue for the quarter was down 33% on a 23% decrease in Boston.
Average revenue per car declined 13% due to a negative mix and traffic.
Automotive volume was down 64% for the quarter.
Both North American plant productions were temporarily suspended during the first several weeks of the quarter, which depressed our automotive shipments Bob the 90%, which was the lowest point during the quarter.
The majority of the manufacturers resume production by mid May and our volume for the last week of the quarter recover within 15%.
2019th bond.
Intermodal volume declined 12% year over year, driven largely by pandemic related items like shelter in place orders, which fourth retailer to temporarily closed.
Softer international and domestic truckload shipment were partially offset by different than park with shipments related to E commerce.
Weekly intermodal volume bottom in mid April down approximately 25% year over year, but our weekly run rate have been improvement since that time.
Looking ahead, there still remains quite a bit of uncertainty of Colby ball.
Local economies reverse recent reopening we remain washable on their impact and supply chain.
As we start off the third quarter, we are encouraged with the rebound in volume driven by our premium business segment, as automotive and intermodal supply chains, restocking inventory and adjust to evolve in demand.
Ecommerce shrimp is likely to continue and volumes will be bolstered by recent business when we.
We will also be watching automotive demand.
And any potential downtime for auto plant retooling as it could pose challenges to our current run rate.
The U.S. light vehicle fail forecasts for 2020 that 13.2 million unit down 22% from 2019.
In addition, we're closely watching unemployment levels and trucking utilization rate as they have a direct impact on demand in a competitive landscape.
While the macro economic for energy and industrial production are forecasted to be negative in the third quarter. We're focused on what we can't control and that.
Same has been able to win new business throughout our premium and manifest network our car velocity improvements allow for better compete with truck and opens new markets for us.
And finally I wanted to take an opportunity to thank our employees for the preventative measure if they are using to face fate and healthy. So we can keep operations running for our customers.
With that I'll turn it over to Gener or.
Talk to you about bar financial performance.
Thank you Kenny and good morning.
As you heard from Lance earlier Union Pacific is reporting second quarter earnings per share of $1.67 and a quarterly operating ratio of 61%.
Looking a little deeper at our second quarter results compared to 2019, there are couple items I'd like to call out.
Last year, we incurred higher weather related expenses that negatively impacted the quarter and second quarter 2020, we received the final insurance recovery of $25 million related to 2019 weather.
Together these items favorably impacted our year over year operating ratio 90 basis points and earnings per share by five cents.
Additionally, you'll recall that we received the payroll Rick payroll tax refunds in second quarter 2019 that added four cents to earnings per share and benefited that been ratio by 70 basis point.
Fuel provided a significant tailwind in the quarter as the year over year fuel price reduction Favourably impacted our quarterly operating ratio 270 basis points and added nine cents earnings per share while today's low fuel prices do provide a short term benefit we prefer the tradeoff of higher prices coupled with increased business looking.
In our core results, we took a step back on our operating ratio in the quarter, which deteriorated 430 basis points with a corresponding reduction and earnings per share of 72 cents. This.
Despite our swift and strong actions to cut costs and drive productivity, we could not fully offset the impact of the steep volume decline we experienced at the start of the second quarter.
Finally, our quarterly results include recognition $69 million related to a real estate sale with the Illinois Tollway well the sale does not impact our quarterly operating ratio. It added seven cents to second quarter EMEA.
So all in really solid results for our railroad despite some extraordinary circumstances.
Looking now at our second quarter income statement 2020, operating revenue totaled $4.2 billion down 24% versus last year on a 20% year over year volume decline.
Demonstrating our ability to adjust cost with volume operating expense decreased 22% to $2.6 billion. These results net operating income of nearly $1.7 billion, a 27% decrease versus 2019.
Other income of 131 million includes the real estate sale I, just mentioned interest expense increased 12% due to increased that levels. While income tax expense was lower down 25% as a result of lower pretax quarterly income.
Net income of $1.1 billion declined 28% versus last year, which when combined with the impact of our share repurchase activity led to a 25% decrease in earnings per share to $1.67.
Taking a more close look at second quarter revenue Slide 15 provides a breakdown of our freight revenue, which totaled $4 billion down 24% versus last year.
Although the revenue decline was primarily driven by the 20% reduction in volume the combination of price and mix negatively impacted revenue by about two and a quarter point.
The results of our pricing actions were positive in the quarter and continue to yield dollars in excess of inflation. However, those gains were more than offset by negative business mix related to steep declines in second quarter automotive sand increment volume.
In addition, a 43% decrease in diesel fuel prices in the quarter versus last year, partially offset by the roughly two month lag in our fuel surcharge recovery programs impact in freight revenue by two and a quarter point.
Now, let's move to slide 16, which provides a summary of our second quarter operating expenses.
As you saw in Kennedy's Carloading chart, we experienced a pretty dramatic change in our business line through the quarter dipping as low as 120007 day carloads in April and then, peaking near 150000 to close the quarter in the face of the volume decline, we reacted quickly to manage costs and adjust resources, while still providing.
Our customers with an excellent service product.
As a result of these efforts second quarter expenses were around 85% volume variable on a fuel adjusted basis, a strong achievement for the entire U.P. team, especially when you consider that we exited the quarter more rightsized than we entered it.
In terms of the different expense line compensation and benefits expense decreased 21% year over year, primarily as a result of workforce reductions and productivity initiative.
Second quarter workforce levels declined 22% or about 8600 full time equivalents versus last year and sequentially decreased 11%.
As Jim mentioned earlier, our train and engine workforce was more than volume variable down, 32% or management engineering and mechanical work forces together decreased 17%.
Fuel expense decreased 56% as a result of the significantly lower diesel fuel prices and lower volumes in the quarter, while our consumption rate was basically flat year over year.
Purchased services and materials expense fell 23% in the quarter as we used our locomotive fleet more productively, enabling us to storm or locomotives and maintain a smaller active fleet. In addition, our loop subsidiary incurred lestrange expense as a result of auto plant shutdowns and lower intermodal volume.
Women and other rents declined 19% led by car hire savings and lower lease expense for both locomotives and freight cars, we're continuing to use freight cars more productively as evidenced by our gains in freight car velocity and terminal dwell.
Other expense was only down 5% in the quarter, reflecting the somewhat fixed cost nature of this expense line, although we benefited from running a safer railroad in the second quarter and saw reduce business travel expense those savings were partially offset by lease impairments lower equity income from our ethics investment and increases in state and local taxes.
Which makes up the majority of this cost category.
Insurance recovery I mentioned earlier is also reflected in these results.
Looking now at productivity, we generated strong net productivity totaling approximately $185 million in the second quarter.
As Jim mentioned earlier, the operating departments continued progress on train length initiatives balanced with an improved service product was especially impressive this quarter given the severe volume decline.
And while we have already achieved the low end of the full year productivity range provided back in April we do expect the pace of our productivity efforts to moderate some against the tougher second half comparison, we had a tailwind from weather events in the first half of 2019, which contrasts sharply with last year's strong second half productivity of 360 million.
Colors. Nonetheless, our commitment to continued productivity is unwavering and we now expect to exceed $500 million for full year 2020.
Moving onto cash and liquidity as we've discussed previously Union Pacific strong balance sheet, our ability to generate cash and available liquidity enabled us to navigate the pandemic business fall off and remain in a position of strength.
Cash from operations in the first half of 2020 increased 13% versus 2000 $19 billion to $4.4 billion free cash flow after capital investments totaled nearly $2.8 billion, resulting in a 107% cash conversion rate, which was helped a bit by first half income tax payment deferrals.
We finished the quarter and an adjusted debt to EBITDA ratio of 2.9 times as we continue to main strong investment grade credit ratings from both standard and Poor's and Moody's.
Cash on hand at the end of the quarter was $2.7 billion. Now this balance is more than we would typically hold and includes $300 million of short term borrowing completed earlier in the second quarter to bolster our liquidity as well as the nearly 600 million in deferred tax payments I just referenced.
Finally in the second quarter, we return value to our shareholders through our industry, leading quarterly dividend payout and remain committed to providing strong cash returns to our owners.
Turning now to our second half outlook.
Although some items are more certain today than when we reported first quarter earnings back in April there are still many unknowns.
Just turn can you talk with some optimism about our second half 2020 business volumes, which are foundational to our guidance update.
Assuming we maintain a consistent volume trend and we do not experience a second wave that economic shutdown, we expect our full year volumes to be down 10% or so as I pointed out earlier, we expect productivity to exceed $500 million for full year 2020, and with regard to pricing our long standing guidance is unchanged we expect the.
Total dollars generated from our pricing actions to exceed rail inflation costs. Although we are facing a very competitive marketplace. Today, we're committed to making sure each piece of business. We move is earning an adequate return.
Together, our expectations from volume price and productivity should produce year over year operating ratio improvement on a full year basis in 2020, well the year certainly isn't playing out the way we had an earlier anticipated. We're very pleased by both our ability to manage costs in the downturn as well as how we are now handling increased freight demand without.
Adding back costs on a one for one basis in terms of cash generation and capital allocation. We are more bullish on both given our current outlook full year capital expenditures will likely come in a little more than $2.9 billion. As we continue to make good progress on our renewal and productivity investments we plan to maintain the dividend, but we are.
Still pause as to share repurchases, we all see the news of KOVA cases spiking in various parts of the U.S. and globally. So we plan to stay in a conservative posture for now.
Longer term, our guidance of capital expenditures below 15% of revenue and dividend payout ratio of 40% to 45% of earnings and ultimately a 55% operating ratio remain intact now before I turn it back to Lance I would like to thank the exceptional employees of Union Pacific who continue to meet the service needs of our customers during this pending.
They are leading the charge daily towards our collective goal about getting the safest most efficient and most reliable railroad in North America.
I will turn it back Glenn.
Thank you Jennifer our first priority has been and will always be safety. We made good progress on safety in the first half the year and I expect continued improvement in the second half.
From a service in efficiency perspective, we took another step forward toward our strategic priority of operational excellence.
Experience for the past three to six months has validated why we are transforming our company through the unified plan 2020, our ability to be nimble and flexible and adjusting our resources to a rapid severe decline in volume while also improving our service product demonstrates the strength of our service model.
As we continue to navigate the uncertainty caused by the coven 19 pandemic our optimism for the future is unchanged Union Pacific is well positioned for a future of long term growth and excellent returns with that let's open up the line for your questions.
Thank you.
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Thank you in the first question is from Chris Wetherbee with Citi.
Hey, great. Thank you.
Jim maybe a sort of bigger picture question. When you think about what you've been through in terms of a very rapid decline in volume and then kind of a bounce back as we seek year you clearly made some strong efforts to control cost and sort of right size the network to a degree.
Do you think this sort of.
I guess improves the potential of the business as you look forward to other lessons learned from here structurally that I think will potentially benefit and when you think out to 2021, if you to allow me yes.
I guess, maybe how should we be thinking about incremental margins has that changed any of that Matt change based on what you guys have done so far.
Why don't I just started with the Christmas I. Appreciate the question. So I think key to look at is.
You always learn something and when you.
I've been railroad for a long time I've seen drop and business. This was a big drop the good part about it was as we were set up in the right way we were productive before we had already started in a lot of things from the engineering mechanical operations local service.
Five hump yard shutdown touch point jobs. So we have done lots to be able to be ready for any action that was going to happen and we took the right actions that this quarter and you can see it in the key performance metrics.
Those are productivity numbers those are not against the so we were able to across more than what the business level changed on us what we learned was.
I knew it.
The team knows that there is more there so what we what we figured out was we can do more with less and even more than we thought so across the spectrum and how we look at it was always balanced growth. This is rule importantly, you heard can you talk about this it's about service to we did not take and make all the cuts just sold a week.
The drop our costs down an impact our sort of our service because we want to win in the marketplace and Kenny us optimistic that we're headed in the right way there.
As regards a your incremental margin question for next year, Chris of course, we don't guide on incremental margin, but we do remain optimistic about in a world, where we get volume growing we're going to generate productivity. We've got a pricing structure that works that should generate improved margins.
Got it thank you very much appreciate it.
The next questions from the line of Ken Hoexter with Bank of America.
Great Good morning.
Let them or Gen. Gen. You just mentioned kind of some increased competition and that given the truck market is getting tighter and prices seem to be going up there are you referring more to rail to rail pricing competition, maybe just give a little bit of thoughts on pricing you mentioned kind of pricing moving above inflation, maybe walk through a little bit more of the mix impact.
Given the.
ARX were down about 6% give us some insight into the market. Thanks.
Yes, Ken let me start and then I'm going to turn it over the coming to talk little bit about what he sees in the pricing world. When we're talking about at very competitive market. It reflects both are still a relatively loose, but tightening truck capacity market and strong competition from from our.
Our rail competitors. So that's a level set we're talking both worlds.
From the standpoint, a mix bear in mind, we mentioned that but.
The automotive business is very good high arc business and a in the first half of the quarter literally went to about zero, Kenny mentioned, 90% off but that all by itself as a significant mix impact.
And can you want to talk about the pricing dynamics.
Ken first of all thanks for the question and I just want it.
Really I don't rate something that Jennifer mentioned, which is one we have a positive pricing.
Resolve them that we're going to exceed the cost of inflation. So.
Critical we just kind of take that off the table, but as you look at the dynamics in the marketplace I'll tell you.
It was challenging to really.
Alright.
But help US is that we have a very strong service product when you can walk in and talk to your customers about.
No I'm, we're moving cost from their side it will move in a fair.
Delivering on time getting the equipment on time, you're able to go in and half from really talk conversation to fill the price for the service that you're delivering on the left that.
The last this point I do want to just talk about the automotive network coming back up.
You know if you look at the data points out there the inventory are the lowest that they've been in the last nine year. So we know the dealerships neither replenish we've been talking to our OEM customer than we'd expect retooling throughout the rest of the quarter, but maybe not as deep as what we thought it.
Be or what we've seen in the path.
Keep an eye on the fleet sale.
Looking for it we feel pretty optimistic I feel pretty optimistic about how things are shaping up.
Thanks for the such appreciate.
Yes.
The next question is from the line of Tom Wadewitz, Yes.
Yes. Good morning wanted to see if you could talk a little bit more about some of the.
Changes in the network and.
You think about.
Like I guess schedule in train starts and train length or kind of a good one to think about in terms of operating leverage so Jim if you can offer some thoughts on like you know what was the reduction in train starts and how much of the consolidation can persist as you go forward and you just show operating leverage in kind of walk.
As volume comes back.
That's a great question I love the question because that's exactly what we're trying to do so we came in with the productivity gains before the pandemic hit.
Well, we were able to do as we accelerated it and if you take a look at the metrics underneath the productivity metrics by having a phrase that are longer we were able to how we love starts. So the starts are like two to three times better than what they would we're on a flat basis. So that's important.
Yes, the touches of the cars whole change in network of having less touch points was able to be able to take cost. So we spent a lot of time.
Before the pandemic and during the pandemic, though we assign the way we did local service not the lessen the amount of service, we provided customers, but be smart about how we serviced as it was when they released the cars and we looked at our network and that made a huge impact. So that's that's what we continue to do a Dom and.
The way I see it going forward, what's left someone's going to asked me. The question. The muzzle answer it will save a question is is there is opportunity across the board in operations still isn't as easy as walking in like I did the first day of Pine Bluff and said, we're shutting that down after I was here for two weeks no.
I don't think but I've got my eye on a couple of yards that needs to be tuned up even though they don't tune up there will be gone, but other than that I'm very happy with where we are and we've got productivity across the board has Jennifer said on the 500 million. So hopefully I answered your questions.
I guess just to be clear, though to the extent the you consolidate business differently with it but you know trained schedule and you did before you don't have to change that as volume comes back you can kind of keep that base and just run run longer trains is that fair, yes, Sir.
Our trains the this morning I look at it every morning, or we're running over 9000 feet. So we might ended up of 87, but business coming back and were put more of that business on the same cranes, we idled they're running.
Great. Thank you.
Welcome.
The next question is coming from the line of Brandon Oglenski with Barclays.
Hey, good morning, everyone and I guess.
Jim or last fall from that questionnaire there's.
Maybe not quite intuitive to us as we look from the outside in that train length going higher necessarily equates to better service for the customer. So can you help us understand how these structural changes in costs outcomes and efficiency actually result, and better customer outcomes here.
Yes, So let me start and then I'll turn it over to Jim what one of the most astounding things to me I've been with our railroad for 20 years now and I was responsible for our operations for a bit of it.
And if I look year over year, Jim mentioned this art our train starts the number of trains on our network at any given time or about a third leg.
Which is much more than what you see in volume and and how that translates into a service product is there's less network congestion on average anywhere you look less meets passes et cetera. So that allows each train more free running time and it really makes the network a little easier to two.
Dispatch and that translates into a service product.
You bet and how does how do you does the customer look at it.
Service that we sell and we provide is what we sold to the customer. So if we agreed that we're going to move X amount of tons in a month or we need to run.
We have a service product our intermodal service product that premium product is as good as anybody we come out of that a west coast headed towards a Texas and we get in there faster than anybody so that's where we measure ourselves against what does that the customer wants they want reliability, they want consistency and they want to save on their assets a lot of.
I'm older cars, and if we can turn them faster for them and not just over the road, but we turned them faster within the yard and are.
We're over 90% on our first my last mile being able to spot the cars. When we said that we were going to be there to give them service. So the customer wins now what the longer trains do.
We're not going to run longer trains just to run longer trains you want to be more productive, but you also have to build the schedule. So that the railcars move from origin destination and I'll give you. An example, instead of running five trains so between L.A. in Chicago, We run three we meet the schedules, we tell them when the.
Gates's and we build out in otherwise I'll be honest, we could be running them even bigger if we did not take into account what the customer perspective was but we're not done with that I think and as we get closer I know the so long answer was important as we get closer with the customer we understand better and they understand what.
We can deliver they'll work with us to say when do you really need those containers. When do you really need those railcars in the won't be as much buffer built into into it and they trust that we're going to deliver they'll be able to save even more costs on their side and so very excited about that and that's the cool part about this was the time now the next month as well.
Transition in the next step of of improving this place and making it the best operating railroad in North America.
Long answer I apologize, but those important to get it out.
Appreciate it guys. Thank you.
The next question comes in Atlanta, Ravi Shanker with Morgan Stanley.
Thanks, Good morning, everyone.
Last question on near Shoring can you help us understand what kind of conversations you're having with your customers. On this topic is this something that they think is like real an eminent or something that's in very early stages and kind of takes years to play out and how does how is that likely the impact union.
Thank you both in terms of maybe some headwinds and international intermodal, but maybe deal wins and other domestic books.
Yes. Thank you for the question Ravi's, So let me start and I want Kennedy to help me with some of the detail.
Many of our customers are discouraged by the impact to their supply chains during the during the cold pandemic.
It started with a hard shutdown in parts of China that really impacted inbound onto the onto the west coast and ended up with the United States, taking shutdowns that impacted other parts of the supply chain and then some disconnects between ourselves and U_s_m_c eight countries. So.
So without a doubt most of our customers on the margin or at least thinking about what to do in their supply chains in some of them are talking about readjusting to bring some of that back near shore. It's early innings. So I can't really point to any substantial investment that's occurred at this point and.
Time, Oh in terms of executing on that but I do know theres planting in place and the net effect for us is going to be maybe a an impact on inbound intermodal imports, but candidly I would I think I would prefer having that manufacturing occur near shore gives us.
And better opportunity for inbound and outbound and typically in a part of our commodities that are a bit higher arc Ken.
Lance you're exactly right Robbie thing for the question.
We haven't seen any customers make any really concrete bets yet on near shoring I will tell you we feel good about the service product and the interchange points that we have coming out of Mexico. The one thing that a number of both of rolling Harped on a day as our premium in our intermodal network and what out too.
Are you is that our manifest in that work our Carlo network benefit from a stronger service product and so a lot of these short term short haul.
Lanes were able to compete in because we do have a lower cost structure and car velocity.
Much longer now and so as you think about near shoring it becomes more of a sweet spot for and we'll be prepared board if it comes on.
Very good thank you.
Next question is from the line of Scott Group with Wolfe Research.
Hey, Thanks morning, guys. So I wanted to ask you Jim headcount down about I guess, 30% in two years, but that's if you. If you look at its pretty similar to what with other rails that have done PSR and because volumes are down so much over that period, we haven't actually gotten much workforce.
Productivity, yet so I guess my question is do using head count needs to move up much at all as volumes are recovering here.
Well, Scott, you're a little bit like Walter tough marker I thought we were pretty good when when we dropped 32% and TV and why in the quarter versus the drop in business, but I understand what you're saying I think.
Your slides, that's flat workforce productivity, yeah, and that's the entire company and you'll see it improve as the business comes back to the the numerator at the top when you drop that kind of miles sort of hurts, yet, but I'm not here to argue about what the stat is this the way I see it I think we can be more productive in the entire company.
Meaning that we need less people in as we transition we're not hiring.
Okay. The normal attrition rate. The goes out is going to go out. So our plan is in operations on the rest of the company that we're going to be more productive and I think it operations you will continue to see us be more productive in.
So we havent, even tackled yet as much as we should at our engineering side and we've done a lot of work on the mechanical side, we've done a lot of work on the on the operation side on the transportation side, but I think theres more there and listen I see the same numbers you Scott I would have loved that number to be with a bit drop in business not be flat flat was a pretty tough.
Thing for us to do.
Business comes back we're going to have less people to run the operate the railroad and be still safe and efficient so I'm looking forward to it.
Okay. Thanks, and then Jennifer can I, just a few one real quick.
I would tell you can ask the fall below [laughter] reiterate and we have said I think pretty clearly genset incented I, we won't bring people back on a one for one with with the business levels and we're already doing that today.
Okay.
Thank you Jennifer just doesn't for any perspective on on on mix or like yields the ex fuel I've never been so bad this quarter, but last quarter. There were the best in five years. So the yields are obviously volatile quarter to quarter reserve I know, it's tough to forecast, but any thoughts on how to think about mix.
And what you see so far in the third quarter.
No I mean, you're right. It is very tough to forecast I mean, we've tried to give everyone a little bit more information on that with they are 10 data that we're now providing and hopefully that that's helpful. But you guys know where our business is has the highest arc I mean autos as you've heard us reference already today it wasn't really a big factor in yields and the mic.
The impact in the second quarter.
Certainly that has come back here.
In the third quarter and so we'll continue to watch that we don't see crude oil coming back that was another impact to Nick sand that has has been a.
Headwind for us as well and that's another one that's probably not going to change so keep those things in mind and then just watch how the rest of the business plays out.
Thanks, so much for the time I appreciate it.
The next question comes from Atlanta.
<unk> with Deutsche Bank.
Thanks, Hi, everybody.
Just wanted to ask questions. There were some reports towards the end of June.
Let me shortages on the West Coast. Because you are you didn't have enough locomotives are cars.
Contracts it kind of a surge E commerce volumes I know those reports can sometimes not necessarily capture the whole stories I wanted to ask you about it in terms of you know your readiness for minutes from an asset side to handle the sequential higher volumes and then I think Kenny I think you mentioned market share wins on the E Commerce I'm guessing that's yes.
But I'm not sure I'm sure you're not going to comment on that but hopefully you can comment on that just talk about as much as you can about the market share when and what the.
You know whether that's when we when we should see that and what the what the context of that those ones were thank you.
Thanks for the question, though we do not have an equipment shortage. We had the we have cars parked in places I want the for train ride and we had cars parked in places that I never thought that I would ever see cars part they were park Devry, we're ready to go and we had them close on hand locomotives. We have locomotives we have more locomotive.
Stored than we have operating so we could double the business and well quite we could probably triple the business and use the locomotives that we got stored so we have lots of locomotives people wise, we were real smart about it and the return when we called people back.
People are returning hits in the low ninetys that people were accepted to come back to work, which is fantastic. So we're not having the worry about having to retrain people and we still have a lot of people furloughed. So given all that what it is was some noise in.
One week, it's X and then the next week you want to do X plus 40% than somebody says we're short of cars are shorter people nobody can crank up a railroad run in 2000 different movements with all over the place in one week. So if somebody thought that was equipment shortage of people. The answer is no. It's just.
It was nowhere I was going to flow trains one way.
And the and have all the dead has an extra costs. We took it on a systematic basis. We're fluid now the railroads running smoothly and we're always going to have that a little bit of a lag I mean, that's the way the railroad somebody else might have done a differently I would not have changed anything idea. When we started back up in the business came back.
So.
A lot for that portion of it.
Just want to talk about the network birth, and just say what that rail siding extensions.
It's made us more reliable our reflect on our Alain call It southern California into the East coast source out the.
As Jeff a sweet spot for us, we put more and more volume on there we've opened up the part when I talk about.
Making the pie larger I'm talking about truck so yeah.
We have align ourselves with a number of.
Commerce and winter.
We've been able to win business and those market.
We feel very bullish about the when they are coming on now we're expecting more we see that those wins and the parcel.
In the domestic and we've got a nice win on the international intermodal side. So I tell you.
I haven't been.
Bullish about it as I am today, and we've got a great leader and Jason halfway done up that area and Jim and his team are ready for it.
Okay that sounds really great.
So my follow up question very quickly Jennifer.
The volume guidance for this year, you're obviously, assuming you know just higher absolute revenue level.
Well since the second quarter was.
Not really that far Greg given how about the second quarter was but you know like like some other rail you also had the opportunity of Colgate to really.
Some of the structural cost reductions so if you're getting several several several hundred million dollars more revenue in the third quarter and fourth quarter relative to second quarter.
I, just I'm not going out incremental margin question, because I know, that's where I'm going to get but the question I'm going to ask is is that just help us qualitatively think about what incremental costs to come back service that I was just talking about.
Yes, absolutely fuel and some par hyare are we talking about more people like what needs to happen to service.
$700 million more revenue in the next quarter or this quarter or other.
Well I think you kind of answered your own question, a little that I mean again, we want the things on a one for one basis, but at some point you will need to add train starts as the volume grows and there's people associated with that Theres locomotive Theres freight cars car hire and you're going to burn a little more Phil I'm, saying, you're going to have all of those things well.
We'll be part of it to move additional revenue our task and we feel very confident about is that we'll be able to do that.
In a more efficient way as the volumes come back and we look forward to that because volume is definitely the friend of a railroad so.
I think I'll leave it at that okay.
Thank you very much.
Thank you and me.
The next question comes from the line of Brian Ossenbeck with JP Morgan.
Hey, good morning, Thanks for taking the question because this one's for Jim and Jennifer you are now that volumes are off the trough here. If you. If you assessed the level of excess locomotives in cars on the network. At this point can you rationalize that a bit in any significant way our their leases to return foreign cars get rid of.
The more maintenance shops consolidate.
I guess for Jennifer when when you go for that math is large enough to parents most of them. So you can put out group accounting and don't get hit by those depreciation studies.
We often see a couple of years down the road.
Well listen the appreciated Brian nice the thought give this morning.
End of the day, we've identified whats excess we always want to keep a buffer.
So we work very close hand in hand, with Juniper and a whole group. The say these are excess well can you do about it so I'll, let Jennifer answer. The next question I think if it was people to one of the purchase locomotives that the right price, we're not going to give them away, but at the right price, we would be more than willing to do that Jennifer yeah. I mean, I think we've had a bit of a for sale sign up.
For locomotives for a little while now, but there's not much of a market, particularly you know with the covet impact the volumes and then really the whole.
Rail network going through similar activities with PSR. So when they look at what locomotives. We think are most likely to bring back into service and make adjustments as needed that's kind of continual activity for the team and if theres anything that we would do that.
Terrific and entry, we'd certainly talk to folks about it but we feel pretty good where we're at right now.
Not just the whole rationalization of the railroad what we've been able to identify in Chicago, when we consolidate and at the end of the year, we're going to have a or new facility expanded facility at Gtwoe opened up we have a facility a g. one that's pretty close to downtown Chicago that becomes excess property on the sell side excess property.
Also in other locations. So all those are available to Jennifer routine to go out there and see we can monetize and bring some more value to this company. So I'm very excited and its latent capacity to grow into as well absolutely.
Right. Okay. Thank you could have done.
Thanks, Brian.
The next question comes from the line of Justin long with Stephens.
Thanks, and good morning.
So I wanted to ask about that volume guidance for a decline of 10% 2020 can you talk about what that assumes for the pace of the recovery in the back half of the year, just generally and then.
Looking about the quarterly cadence.
Volumes.
Even if it's just directionally I mean is your expectation that we could remain in that down double digit range and the third quarter and and then see an improvement in the fourth is the comp fees or is there any color around that quarterly cadence you can provide.
Yeah, Justin Thanks for the question this is lance.
So our our full year guidance of down 10%. If you do the math that says the back half is gonna be somewhere in the call it 910% down how it breaks out quarter to quarter is something that is very difficult to estimate right now.
Kenny has done a good job of sharing with you all.
The confidence he is growing and building as wins are starting to show up on the railroad you know, it's it's one thing to secure a domestic intermodal win in March and then in the second quarter nothing shipped and now as retail is starting to restock, we'll start seeing some of those shipments occur.
So, it's a little bit difficult to parse it out exactly for you. So I want to attempt to do that but your your math broadly is right in the in the second half you know you're gonna have to being that down nine or 10% to hit down 10% and we're growing our optimism here in the near term.
Okay, and just to clarify that down 10% is that a reference to Archie ends or carloads.
Oh, that's a volume number that's a carload number okay.
Just wanted to clarify that point, thanks for the time.
Sure. Thanks, Justin.
The next question is turned in line of Allison Landry with credit Suisse.
Thanks, Good morning, Jim.
Clearly it sounds like there's still a lot less due in part about reducing touch points and making structural changes train to dine and just the overall network, but even with the changes that you've made so far it would seem that you still haven't realized the full margin benefit given belief volume for last several quarters out.
To give extensive that volume backdrop cooperative in 2021, and maybe 2022, how quickly do you think you can get to the 55 long term all our target.
Well you did Allison I. Appreciate the question we have a goal of 55 and you'll never hear me say a number on purpose because I'm just not I like the deliberate.
But you structurally youre, absolutely correct candy and his team bring the business back, which we see some wins and we see some optimism from Kenny we grow this company, which I think we can with the service product we have.
I just stay tuned I think it's gonna look pretty good so I appreciate the question.
Yes.
I've been here because.
Oh I said.
[laughter].
But on Jan I was it's going to say, we need all three levers you know and that you've heard us very consistently we need kinane team to bring in the volume and the price and then we've got the productivity that certainly Jim and operating group are responsible for a big portion of that but it's a whole team effort in terms of driving productivity and.
Building on that good service products Allison I think all that together yeah. Allison I think she was worried I was going to use the word blow by.
Mr. I did I was not going to use that today okay.
Thank you very much.
Our next question is from the line of Bascome majors with Susquehanna.
Yes. Thanks for taking my question just a follow up on that Jim you're a year and a half dish into the job now clearly you didn't have to go back to work. It seems you took this because you saw tremendous opportunity at U.P.
Among other rail.
Yeah. When all is said and done in the World is back to some semblance of normal do you think you P. has the potential to have the Bash operating margin returns at any other north American railroads or is the jury's still out on that one thank you.
Basketball I appreciate that you're absolutely right I came because I thought the great company, Great network, Great group of people and that one last one I've talked when I when I joined the whole team wants the wind and I'll tell you. It's a great team and it doesn't matter whether I'm here are not I'll be honest we're building. It so we have strengthened the.
Long term and yes. This railroad has the capability to be the best.
Margin railroad in North America lowest operating costs Barr Nunn so.
My job is to make sure that we get there and we deliver and have the right strength behind one whenever I leave that the team they don't even mismatch, but they get better than when I was here and I didnt.
Watch them from my rocking chair went on 90 years old and enjoy it.
That's because this is lance I'll bring us back to something Weve historically talked about all the time and that is.
The we're building this better operating model. This service excellence operational excellence on a franchise that's the best than the industry. You know, we've we've got a wonderful Gulf Coast franchise, we've got great East West quarters, We've got a great.
Hi, five corridor, we service, Mexico, better and to a greater extent than anyone else in the industry.
We are we are set for a very bright future.
I appreciate that from both of you maybe to follow up slightly on kind of the same thing I know you've already been.
Asked about a timeline to 55 and I guess, that's understandable I think rob rolled that out each one of these 16, so it's been out there for awhile, but.
Earlier, this year and clearly a lot change since January you suggested there might be some kind of investor event.
Sketch out China, how you expect to get or where you expect to go over the next couple of years.
Sometime later this year clearly a lot changed since then but I'm curious either Lancer, Jim when you think you might be in a position to kind of share or what you're managing too.
Over the next two or three years. Thank you Thats great question Bascome and you got it exactly right I think it's a opportune time to start talking to or have a concentrated moment, where we speak to our investors about the game plan looking forward.
In a holistic way and we would have loved to have done that this fall lets just not going to work with covance. So stay tuned we haven't announced anything but I would imagine there will be sometime in the first half of next year presuming that we can do it safely and and in a manner that protects everybody's health.
We really like to do something like that in person and being able to get the team together it's important for.
You all can see the team the management team below who you normally talk to and I think a in person, it's the best way to do that.
Thanks, everyone really appreciate the color there yep. Thank you.
The next question comes from the line of Jason Seidl with Cowen.
Thanks, operator, good morning, everybody I Trust you all are well.
How are you thinking about sort of that post labor day peak season, especially as we've seen a much much stronger July in a rebound assuming that we don't have anymore step backs in the reopening of our country I loved your thoughts on that and do you think it'll be a strong enough environment to push through Pcs and surcharge.
Okay.
Well I'll start from the back first the I'd say.
Premature right now so talk about a surcharge.
Obviously, the demand is picking up what I would tell you that our volumes or or really increasing each week they are pretty strong.
All the dynamic show that we're going to have a pretty solid.
Peak season warehouses.
Warehouse inventory normalized so.
Have a lot of product in storage.
E Commerce is pretty strong.
Retail has been improving sequentially each month.
So it looks to me barring any type of you know second wave that we're going to being a really good position the have a really solid peak season.
Just knock on wood for you there.
[laughter] My out my follow up question I can able to stick with you here I think you mentioned.
That that some of the beer shipments were down in the quarter. We were hearing there was a lot of sort of out of stocks. If you will heading into July for us.
[music].
Is that fixing itself on the beverage side as we move to sort of the next beverage holiday a fuel and labor day.
It is.
Again, Jason.
The run rate on our beer shipments are improving each week, what we saw in the second quarter was cobot related.
Downtime production downtime.
That's behind US now and so we feel really good about those shipments heading into the holiday.
Perfect counting everyone else appreciate the times always.
Awesome.
Our next questions from the line of Walter Spracklin with RBC capital markets.
Yes, thanks, very much good morning, everyone.
So I was wondering if I could direct his question then Jim and Jim If you could go back in and draw a parallel if it exists between how your operating versus your competitor appear sure railroad versus a non Pos are and how similar that was when you were operating CN versus she p. before.
Hunter I mean, obviously CNN some structural advantages from a cost perspective that allowed it to.
When in the marketplace more often than not.
You see the same parallel here with weak Burlington, Northern and do you notice that the the PSR versus non PSR effect.
Particularly when you're competing for new business.
Well, what Walter listen that's a tricky question I don't I don't talk about how somebody else's operating what I want to be able to do is operated be the best operator in the in the industry. So we have a better chance. The when there are certain markets that are a competitor on a rail side is going to win because they have a better network in that piece and let them when.
In that and then we have a great network and we're going to win but.
Bottom line is if you can have a lower cost structure. What it does is it opens you up for a new truck opportunity. It opens you up for more fluidity, because the customer sees a how you're able to move more product with less railcars for them and you win on a head to head and it gives you some pricing advantage in some areas.
And Ken has been real clear, we're all about making sure that we are we price ahead of what inflation is real cost inflation, we're going to do that so that's the that's where you want to win I think you win by having the most efficient railroad and you win in the number of lanes not just one.
Maybe if I could by then.
Let me add on to that this is Ken It real quick first of all we've got a really strong competitor.
In the way and lot of respect their our commercial team is really focused on opening up new markets and making the pie larger and we've talked about that a little bit on the call today I talked about a lot of a business that were when in the short.
Short haul business that in the path because we didn't have the car velocity or the reliability or the lower cost structure, we weren't able to compete with the trucks on and then I've also talk about a lot of these long haul lanes that we're opening up in the market phone. So our our team focuses ROI on expanding the part.
And when I say that clearly looking at the truck market.
Can you just you just answered my follow up thanks, guys.
[laughter] Walter I will either have a good ones.
Your next question this from the line of David Vernon with Bernstein.
David the out there.
It appears to be lost Dave its line move on our next question that will come from Atlanta, John Chapelle with Evercore.
Thank you good morning, everybody morning I'm.
First the average revenue per car is concerned and I understand the mix and the fuel surcharge, but if you look at the segment by segment breakdown, the some pretty big declines in like metals, and coal and obviously food and refrigerated. So just as we think about the 10% carload guidance for the full year in one Q revenue was better by 400 basis points versus carloads in Twoq.
As worse by 40 basis points, how do we think about the revenue versus the carload into second half of the year with that 10% carload guidance.
Yes, so let's talk a little bit more broadly and then Jennifer will bring it down to you for.
Specific commentary on the guidance he's looking for.
John when we're thinking about the volume looking forward there is still going to be weak spots for us Kenny mentioned them Frac sand is likely still to be week coal is you know who knows what it will do but it's not terribly strong.
You, probably got some weakness and some of the and industrial.
Products areas that are oriented towards.
Shale related plays but absent those setting them aside most everything else should be showing improvement certainly from the second quarter and so when you think about it like that and your first and foremost take automotive finished vehicles high arc business off the table has a substantial headwind.
The big headwinds really come off the table, there's still a little bit of headwind and in Frac sand.
Maybe a few others, but to that point theres tailwinds that are going to start showing up like in automotive.
Yeah, and I would just add to that I mean, so when you're talking about arc, obviously, that's going to be driven by by by the business mix and when you look at I'll take it up a step from where you were talking to it you know through our three groups you've got industrial that is our highest our business.
You've got the bulk what is next and then the premium which has the lowest arc and so if you think about it just in terms of kind of those broad segments, you're hearing us talk about being able to drive significant growth on on the the premium side of the business audits as part of that.
And then the industrial piece, that's where we're still seeing in a negative.
Production forecasts for third quarter, So I would think about it kind of those broad economic things and don't forget about fuel. Obviously, you know fuel surcharge is part of arc fuel prices were significantly a part of the impact there in terms of the second quarter and we're not looking for fuel prices to increase it really change pretty dramatically going.
Okay. The Threeq, you said that year over year impact is going to be there as well.
Okay. That's very helpful. Thanks, Jennifer.
One is instructive.
Thanks.
The next question is coming from the line of David Ross with Stifel.
Yes, good morning, everyone I'm, just wanted to get a little bit dirty and talk about coal.
Is it 50% lower from here in a few years is there a scenario you can see where it's higher.
How do structurally think about.
Coal business and anything that you can do to mitigate the slide that we've seen.
Denny.
Thanks for the question David It's.
We're gonna have challenges here in the near term and long term instance, structural decline.
Obviously, there are some ends and now with you know what happened with low natural gas.
We're staying very close to our customers and make sure weekend.
The competitive with them.
With each deal that comes out.
But overall, we're just trying to backfill where we can because we do know that over time, it's going to continue to leak.
And no scenario, where it doesn't leak.
We don't see that I think theres, a scenario, where we try to slow down the flow.
So that it's not a steep slope but.
We'd expect it will continue to just gradually decline.
Thank you.
<unk>.
The next question comes from the line of David Vernon Bernstein.
Hey, guys, sorry about that the joys of work from home and needed lines.
Well I wanted to ask a question about.
Picture returns if you look at all a couple of years you guys have done a great job.
Offsetting the headwinds from asset turnover through the margin expansion and a lower tax rates it kind of stabilized other return profile. The business as we look ahead, what can you guys do they kind of six that revenue.
Asset turnover question.
We talk a lot about service getting better and taking revenue from truck is that going to be enough to get the the assets are moving into right direction as you kind of gets or whatever stable level or you're going to be out.
Yeah, that's a great question, David and and I'll start by saying, we do believe that the new service product the lower cost structure opening up markets to us and.
Ken is a commercial team putting more of their posture on their front foot from a sales and business development perspective, all of that combined to two definitely give us a better opportunity to get to get asset utilization up.
I feel pretty good about that I think theres plenty of opportunity I look at our served markets, which are very broad we touch a lot of the economy and.
Absent this immediate cobot impact in the behavioral changes that are in the near term over the longer term I think the the.
Argument for the United States and for North America is still pretty darn strong.
That doesn't mean, we're not looking at other things you know, we're always looking at ways to be more important to our customers to serve them better to play a different role in the supply chain if it makes sense.
But I think our core business has a really good opportunity to to continue generating both good margin and good ROI C.
Do you think you need to find it invest more in some of that that collaborative supply chain kind of resource within the company to total locked up times, where do you think you've got the right level of Oh, It's kinda commercial focus on that I know if you look back and look at you know scions transition from the hunters, where the highway to the to the kindler.
Unclear World of quote you is that something that that that is in the past for for the company is I think you're going to be putting some effort into in the coming years.
I think what we're focused on is making sure Kenny has got the right culture and team members. So that business development happens at the pace and magnitude that we think we should be capable of I believe we are in process. There that might take some investments we've talked a little bit about it and there they're small costs and.
Spent large impact like Salesforce pros as a pricing tool tableau is a analytical tool others.
We talk about our APC dies and making customers.
More value and be stickier with us and that's a manifestation of our net control investment.
Oh, we talk about product development, and making sure that we're doing what we need to do to serve the parts of the market that are now open to us but in addition to that kind of getting that your your question.
I wouldn't be surprised if there are other investments we make that look more like the activity loop does where you're providing ancillary services from the railroad, but they are primary services to a customer and it makes us a more valuable supplier makes us stickier and open up opens up even more mark.
It's for US I think you're you're definitely onto something there David and it'll be part of the conversation we talk about where.
At a moment in time, having an analyst day.
Alright.
Thank you very much the time.
Thank you.
Thank you we have time for one additional question, which is coming from Atlanta, Jordan Alan shirt with Goldman Sachs.
Hi, Thanks question intermodal question with all the service improvements that you've made in intermodal and planned compliance going up.
Yeah.
Required to really accelerate truck conversions the price gap between.
Rail and truck has narrowed and and what do you think the gas needs to be to really.
Push the truck conversion thesis forward. Thanks.
Yeah, Thanks, a lot Jordan.
First of all we're nowhere near the levels that we enjoy.
In 2018, the backup of 2018, where there are some pretty large gap.
When we look at the forecast.
We certainly expect that the truck utilization and those rates will improve my employee.
Well in the 2021.
Which will which will put us in a better positioned to not only win more business, but get a little bit more more margin on that business, having said that we certainly arent waiting around for something to happen or we're going after it right now we feel good about the wins that we've made that we know will show up here.
Sure.
In the near term Aneth broadly across the intermodal network if not you if they international not just the domestic if it's pretty broad it the parcel off so.
We feel like we're capturing those wins right now and we're excited to see them come on an onboard over the next several weeks.
We expect to continue to grab more share in Jordan, Let me put a little exclamation point on that for Kenny So during the past.
Domestic intermodal bid season, which happened that you know call. It starting late last year, but really at the heart of it was April March February this year little bit of May that's right in the heart of the worst decline in volumes across the network not just us but.
Trucks, so trucks were loose pricing was tough in that environment. Kenny team grew share of wins now it didnt ship, it's starting to ship now that's why Kenny is a confident in a manner. He is on our domestic intermodal product, but for me that's approved statement that we don't.
I have to wait for the gap between rail and truck to get better our service product our ability to price and earn a margin in today's environment is such where we have an ability to penetrate against truck right now.
Right.
Thank you very much.
You're welcome Thanks for your question.
Thank you at this time on their tone, there will eventually mr. Lance Fritz for closing comments.
And thank you Rob again, and thank you all for your questions and for joining US. This morning on our call. We look forward to talking with you again in October to discuss our third quarter 2020 results until then I wish you all good health take care and enjoy the rest of your day.
Thank you everyone. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.