Q4 2022 Union Pacific Corp Earnings Call
Greetings and welcome to the Union Pacific fourth quarter 2022 conference call.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.
It is now my pleasure to introduce your host Mr. Lance Fritz Chairman, President and CEO for Union Pacific.
Mr. Fritz you may now begin.
Thank you, Rob and good morning, and welcome to Union Pacific's fourth quarter earnings Conference call with me today in Omaha, Kenny Rocker Executive Vice President of marketing and sales, Eric Gehringer Executive Vice President operations, and Jennifer him and our Chief Financial Officer, the fourth quarter and 2022 overall were challenging for Union Pacific and our employees.
The lengthy labor negotiations tested our workforce, while customers felt the impact of our service issues. Two things are critically important as we turn the page to 'twenty to 'twenty. Three first is the trend line of improving freight car velocity since late summer, although acknowledging there were bumps along the way.
And second is how we move forward, establishing consistent service for our customers day in and day out and demonstrating to all stakeholders our commitment to excellence.
Now turning to our fourth quarter results. This morning Union Pacific is reporting 2022 fourth quarter net income of $1 $6 billion or $2 67 per share. This compares to fourth quarter 2021 results of $1 $7 billion or $2 66 per share or <unk>.
Fourth quarter operating ratio of 61% deteriorated 360 basis points versus 2021, driven by continued service challenges and the impact from winter weather for the full year reported operating ratio finished at 61% deteriorating 290 basis points.
Given by operational inefficiency inflation and higher fuel prices.
The entire Union Pacific team recognizes that 2022 did not meet expectations.
Crew constraints and critical locations impacted by shifting demand had a real impact on our performance and you'll hear from Eric We are building resiliency into the network through hiring efforts shifting critical resources and better operations to address that shortfall and you're seeing those benefits manifest it and how the network.
Has responded since Thanksgiving through the ups and downs of extreme winter weather.
These challenges aside we achieved volume growth for the year, we demonstrated our commitment to meet customer needs with business development wins that are critical to long term financial success.
The recent Onboarding of Schneider is a great proof statement of delivering on that commitment. We also made.
Significant progress towards our climate goals in 2022, we increased our biofuel blend over four 5% on pace to achieve our 2030 target of 20%. This is a key initiative in achieving our 2030 greenhouse gas emission reduction targets. In addition for a fourth consecutive year we have.
Proved our fuel consumption rate on a year over year basis, lowering at 1% to a no. All time record. This helped our customers avoid $23 4 million metric tons of greenhouse gas emissions by using rail versus truck Union Pacific will continue to be a rail leader in sustainability.
Now, let's start with Kenny for an update on the business environment. Thank you Lance and good morning fourth quarter volume was up 1% compared to 2021 gains in our premium business group were partially offset by a decline in our bulk area. However, freight revenue was up 9% driven by higher fuel surcharges.
Strong price.
Let's take a closer look at each of these business groups.
Starting with bulk revenue for the quarter was up 7% compare the 2021 driven by a 10% increase in average revenue per car, reflecting higher fuel surcharges and solid core pricing gains.
Volume was down 3% year over year.
Grain and grain products volume was down 2% driven by a decrease in export grain shipments. Despite strong market demand, we faced service and weather challenges that slow shuttled cycle times as well as having a tough 2021 comparable.
Fertilizer carloads were down 15% year over year, driven by reduced shipments of potash due to market softness along with another tough comp the 2021's fourth quarter.
Food and refrigerated volume was down 8% due to reduced shipments of finished beverage product and their associated raw materials.
And lastly, coal and renewable carloads remained flat in the quarter as our ability to capture demand from favorable natural gas prices were impacted by weather and service challenges, particularly in late December .
Moving on to industrial.
Industrial revenue was up 5% for the quarter driven by a 5% improvement in average revenue per car due to higher fuel surcharges and core pricing gains somewhat offset by a negative business mix volume for the quarter was flat.
Industrial chemicals, and plastics shipments were down 4% year over year, driven by lower industrial chemical demand.
Metals and minerals volumes continued to deliver robots a year over year growth.
And part of our business development efforts Vale.
Volume was up 8% compared with 2021, primarily driven by an increase in frac sand shipments and growth in construction materials.
Forest products volume declined 17% year over year, driven by weak corrugated box demand.
Softness in the housing market.
Energy and specialized shipments were up 2% compared to 2021, driven by an increased waste and soda ash demand, partially offset by fewer petroleum shipments from regulatory changes in Mexico market.
Turning to premium revenue for the quarter was up 15% on a 3% increase in volume average revenue per car increased 12% due primarily to higher fuel surcharge revenue.
Core pricing gains.
Automotive volume was up 9% driven by strength of named production and inventory replenishment for finished vehicles.
Intermodal volume was up 2% driven by increased international shipments, mainly due to an easier comp in 2021.
Although domestic volumes decreased due to soft market demand declining truck rates and increase over the road capacity the aforementioned negative impact was partially offset with the Schneider conversion in December .
Now as we look ahead to 2023.
You can see the macro indicators that we are watching along with inflation and interest rates and you'll notice that we have some challenges with industrial production import and housing start.
So now moving on the Friday here.
Here is our market outlook for 2023 as we sit here today.
Starting with our bulk commodities, we expect a challenging year, where grain based on drought conditions, which will affect crop availability and new pizza or origin.
However, we expect to see growth in coal, even though natural gas prices have come off their highs low inventories will continue.
Will support continued demand.
We are keeping a close eye on natural gas prices given the price impact of our index based contracts.
In addition, we expect biofuel shipments for renewable diesel to continue to grow due to solid market demand new production facilities coming online and business development wins.
Moving onto industrial forecast for industrial production is to strength slightly in 'twenty 23, and the demand is softening and forest products. However, we expect to see continued strength in metal with new business wins.
And lastly for premium we expect the entire intermodal market to be challenge, both international and domestic by high inventory levels lower truck rates and temporary consumer spending.
We expect to outperform that market, however, through our new business with schneier as well as opportunities to grow with other private asset owners and our strong IMC partners.
We expect automotive growth to be another bright spot in this segment driven by production shrimp and inventory replenishment.
As I wrap up my comments I want to take a moment to express my gratitude to our customers and the operating team over the past month extreme weather events impacted large portions of our network and I want to thank our employees, who safely worked around the clock and harsh conditions to keep the railroad running for our customers.
And with that I'll turn it over to Eric to review our operational performance.
Thanks, Kenny and good morning, starting on slide 10 safety.
Safety is at the foundation of everything we do we have enhanced our training programs and are working to solidify our safety culture through ownership and personal accountability. These efforts drove an 18% improvement in our 2022 full year personal injury safety results, which is at the lowest level in five years, we look to leverage these game.
To improve derailment performance in 2023, while good progress overall, our goal remains returning each employee home safely at the end of the day.
Moving now to slide 11 for a look at our current operational performance our attention throughout 2022 was focused on onboarding the necessary crew resources to operate a fluid network and meet customer demand I would like to thank our partners and work force resources and the operating team for their great work and recruiting and Onboarding new team members.
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We currently have around 600 employees in training as our pipeline is significantly stronger than it was a year ago.
That being said our hiring efforts will continue in 2023, as we backfill for attrition and target locations across the northern region, where crude challenges persist.
In the near term, we will continue to utilize borrow outs to supplement crew shortfalls.
Another key element in increasing fluidity is the reduction of excess inventory, which builds the foundation for a strong and resilient service product I am proud of the progress we made which would have not been accomplished without the dedication and tireless work of the commercial and operating teams.
Mother nature threatened to derail some of that progress in the last weeks of December with Blizzard conditions in extreme cold temperatures across much of the network. However, our team responded and we quickly rebounded demonstrating greater resiliency that we can build on in 2023.
With current freight car velocity around 210 miles per day and trip plan compliance measures demonstrating sequential improvement, we look to maintain that progress as volumes strengthen into 2023.
Now, let's review our key performance metrics for the quarter, starting on slide 12, which continue to trail 2021's results.
Both freight car velocity and manifest and auto trip plan compliance were flat sequentially from last quarter's results.
Importantly, however, intermodal trip plan compliance did improved 11 points sequentially that supply chain congestion alleviated, resulting in less debt containers at the inland ramps near the end of the quarter. We successfully on boarded the Schneider intermodal business and remain actively engaged to manage that transition.
Turning to slide 13 to review our network efficiency metrics, which also like 2021's fourth quarter measures locum.
Locomotive productivity workforce productivity and train length, all declined sequentially driven by lower volumes in the back half of the quarter and winter weather challenges.
Entering 2023, the team remains focused on strengthening the network, while recovering lost productivity.
Moving to slide 14, we continue to exercise discipline in our capital spending while delivering value to our shareholders.
We are targeting 2023 capital spending of $3 $6 billion pending final approval by our board of directors.
While our projected increase from last year, we expect capital spending to remain in line with our long term guidance of less than 15% of revenue.
As always our first capital dollars will support our existing infrastructure. This spending will harden our infrastructure renew older assets and support safe operations.
For 2023 in addition to a higher inflationary environment. The elevated capital spending will be driven by increased locomotive spending of $175 million.
With 430 modernized locomotives currently in the fleet, we will bring the total modernized to over 1000 by the end of 2025. These.
These modernizations not only helped build resiliency into the network through enhanced reliability and productivity, but also further the progress towards our carbon emission reduction goals.
We continued to invest capital for growth on the intermodal front, we are investing in additional capacity at the inland Empire terminal and we will be expanding our footprint in Kansas City and on the capacity side, we will continue to invest in projects like sightings that drives productivity allow us to handle more car loadings and improve our network efficiency.
Yeah.
Wrapping up on slide 15.
We are dedicated to improving our service product in 2023 Slide 15 provides a roadmap of the key activities to achieve that goal.
We demonstrated meaningful improvement in our safety results in 2022 through an enhancement to our safety management systems and continued towards the goal of World class safety.
Additionally, we recognize the importance of quality of life concerns that our agreement professionals voiced we continue to work closely with Union leadership to find win win solutions that enable a strong service product and provide our employees with more consistent work schedules.
As we sustained improved operational performance use our resources more efficiently and reduce variability we will generate productivity at the same time technology enhancements will drive further productivity and support a consistent and reliable service product for our customers with that I will turn it over to Jennifer to review our financial performance.
Thanks, Eric and good morning, let's start with fourth quarter income statement on slide 17 operating revenue in the quarter totaled $6 $2 billion up 8% versus 2021 on a 1% increase in volume.
These gains were more than offset by a 14% increase in operating expense, which totaled $3 $8 billion, excluding the impact of higher fuel prices expenses were up 7% in the quarter operating income of $2 4 billion declined 1% versus 2021.
Other income remained strong up 11% to $92 million driven by higher real estate income and pension benefit, which offset 2021 $36 million gain on the sale of the technology investment.
Interest expense increased 13% as average debt levels increased more than $3 billion year over year.
Net income of $1 $6 billion declined 4%, but when combined with share repurchases resulted in essentially flat earnings per share at $2 67.
Fourth quarter operating ratio of 61% increased 360 basis points, driven by higher inflation and operating costs falling fuel prices during the quarter had a favorable 20 basis point impact looking more closely at fourth quarter revenue Slide 18 provides a breakdown of our freight revenue, which totaled $5 8 billion in the <unk>.
Fourth quarter up 9% compared to 2021.
Volume contributed 75 basis points as fuel prices stayed high year over year fourth quarter fuel surcharge revenue also remained elevated totaling $975 million and increased freight revenue 850 basis points.
Strong core pricing gains that exceeded inflation dollars were more than offset by a negative business mix, resulting in a 25 basis point decline in freight revenue.
Forest product shipments combined with higher international intermodal in rock shipments drove the negative mix.
Turning to slide 19 for a summary of our fourth quarter operating expenses the largest driver of the overall expense increase was again feel up 43% as fuel prices rose 46%.
Batting these higher prices, we continue to drive productivity, improving our fuel consumption rate two points to produce a fourth quarter record.
Our compensation and benefits expense was up 10% versus 2021.
Total fourth quarter workforce levels increased 4%, reflecting our hiring efforts throughout 2022.
Cost per employee grew 6%, primarily driven by wage inflation. In addition cost pressures from network inefficiencies in the form of higher overtime and borrow out cost continued in the quarter.
Purchase services and material expense remained elevated up 18% driven by cost to maintain a larger active locomotive fleet volume related purchase transportation expense at our loop subsidiary and inflation.
Equipment and other rents increased 3% driven by the impact of slower cycle times on car hire expenses.
Other expense was flat in the quarter as higher travel and casualty expenses were offset by a partial insurance recovery related to 2020 one's bridged fire as well as lower state and local taxes.
Looking into 2023, and we have opportunities across the board to improve efficiency and that's job one as we recover our service product, although we still expect to be more than volume variable with our workforce. We will continue to aggressively hire crews and critical locations and to backfill attrition.
For 2023, we expect our all in inflation to be around 4% while cost per employee is expected to increase in the mid single digits as elevated wage inflation is partially offset by productivity.
Depreciation expense should be up around 3% versus 2022 and below the line similar to last year. We expect other income to remain elevated versus historic levels, driven by higher real estate and interest income.
We expect our 2023 annual effective tax rate to be around 24%.
Moving to slide 'twenty with a quick recap of full year 2022 results, which are shown on the slide as reported and include the impact of the third quarter P E B adjustment.
Revenue was up 14% and annual record driven by increased fuel surcharges strong pricing gains and 2% volume growth.
Record operating income increased 6% to $9 9 billion, which.
Which includes a net increase of just under $700 million from fuel surcharges are full year reported operating ratio of 61% deteriorated 290 basis points versus 2021.
Network inefficiencies and inflation were the primary components of the degradation with a P E b adjustment and higher fuel prices impacting the full year operating ratio by 30 basis points and 20 basis points respectively.
Earnings per share finished the year at a record $11 in 'twenty one.
13% increase versus 2021 results.
Our consistent and disciplined approach to deploying capital back into our railroad coupled with volume growth that produced increased operating income drove a 90 basis point improvement in return on invested capital to a record 17, 3%.
Turning to shareholder returns in the balance sheet on slide 21 full year cash from operations increased to over 300 million to $9 $4 billion, a 4% increase from 2021.
The first priority for our cash is capital investment, which finished 2022 and $3 $4 billion or just under 14% of revenue.
Our cash flow conversion rate finished 2022 at 82% and free cash flow totaled $2 $7 billion.
Although a decrease of nearly $800 million versus 2021 that includes and almost $700 million increase in cash capital of more than $350 million increase in dividend payments and $70 million for P. E B back pay settlements.
Our dividend payout ratio for 2022 was around 45% in line with our long term target as we rewarded shareholders with a 10% dividend increase in the second quarter and distributed nearly $3 $2 billion.
We also return cash through strong share repurchases buying back, 5% or $27 million of our common shares at an all in cost of $6 3 billion in total between dividends and share repurchases, we returned $9 $4 billion to our owners in 2022, demonstrating our ongoing commitment to deliver.
Significant shareholder value, we closed out the year and an adjusted debt to EBITDA ratio of two nine times consistent with our resolve to maintain strong investment grade credit ratings as we finished the year a rated by Moody's S&P and Fitch.
Turning now to our view on 2023.
We think about the year ahead in two parts, what we can control and what we cannot we don't control the markets, we serve and as you saw on Kenny slide of economic indicators, it's a mixed bag in terms of expectations we.
We do control the way we compete in those markets with a great Foundation of the <unk> franchise.
Onboarding Schneider is clearly the marquee win for 2023.
And with Kenny's team posting profitable wins across the board we are positioned to further outperform the market.
In 2023 that will be evidenced by carloadings that exceed industrial production.
Another area, where we don't have direct control is the current inflationary environment, which continues to be elevated. However, we know we have it within our control to improve operations as you heard from Eric It's imperative that we improve the reliability of our service product, while regaining lost productivity in.
In addition, as we've demonstrated consistently we expect to generate pricing dollars that exceed inflation dollars in 2023.
Assuming current fuel prices and our thoughts on volume productivity and price, we expect to improve our full year 2023 operating ratio on a year over year basis.
That said there will be a lag to fully offset the impact of inflation on our profitability until we are able to actively touch or reprice our business. While also further improving productivity.
Turning to capital allocation, we continue to make significant investments into our business with an expected 6% increase in capital investments versus 2022 to $3 6 billion.
Growth is the cornerstone to the long term financial success of Union Pacific and we are continuing to invest in opportunities that support that strategy. In addition to the locomotive and intermodal investments. Eric described we also are investing to support carload growth.
The remainder of our capital allocation plans remain unchanged rewarding our owners with an industry, leading dividend payout of around 45% and returning excess cash through share repurchases with our balance sheet currently leveraged at the desired levels. The amount of cash available for repurchases will be less than in prior years and predominantly funded from cash Gen.
<unk> well.
With the new year comes new opportunities and by focusing on what we can control. We are confident in our ability to provide strong value to all of our stakeholders in 2023.
With that I'll turn it back to Lance.
Thank you Jennifer let's wrap up on slide 24, we made great strides on personal safety in 2022, and it's imperative we continue that momentum.
The commitments made by our employees to care for one another has been exceptional resulting in our best employee safety metrics in five years, we look to further translate these gains into better derailment performance in the upcoming year, we understand that safety is about culture and its about engagement listening to and responding to our employees needs and ideas will continue.
New and improve our safety performance.
Our robust hiring pipeline and improving network fluidity strengthened crew availability that leads to a more efficient and better service product that enables us to recapture lost productivity.
Over the past couple of years, we've demonstrated our commitment to customer centered growth as reflected in business development wins and while growth in 2023 may be challenging given the uncertainty of the economic backdrop, we will continue to make strategic capital investments in support of our long term growth objectives, our fundamentals for long term.
Success have not changed powered by our best in the industry employees and franchise a strategy built for profitable growth and a more efficient and reliable service product Union Pacific is poised to do great things in 2023.
And we are ready to prove it so with that let's open up the line for your questions.
Thank you well now be conducting a question and answer session.
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In the interest of time, and so we can accommodate as many analysts as possible. We ask everyone to please limit themselves to one question.
Thank you. Our first question today will be coming from the line of Jon Chapell with Evercore ISI. Please proceed with your question.
Thank you good morning.
Eric kind of bigger picture question for you. If we go back to the Investor Day, and you laid out a multi year productivity improvements with the network. Obviously some of that's been delayed given the macro challenges, but are you confident that you can eventually obtain the aggregate plan over time or does the slower macro backdrop higher labor costs. Some of these recent service challenges weather et cetera.
The total aggregate improvements are reset at a lower level going forward.
Yeah, John Thank you for that question.
If we think about that certainly as we look at the environment right now one lays in front of us.
Maybe over a longer period of time that those actually come to fruition, but everyone. Here remains focused on those commitments and you see that in the activities that we've taken on some of my prepared comments I talked about some of the technology initiatives that are more focused not only on 'twenty three but even beyond that whats sitting in front of US right now is the biggest opportunity.
<unk> is to improve that service product that from it drives out that excess cost when we think about our locomotive and our workforce productivity. That's job number one right now, but we're all still focused on the long term targets that we gave you on the Investor day.
Thank you Eric.
Thanks, John .
The next question comes from the line of Amit.
<unk> with Deutsche Bank. Please proceed with your question.
Thanks, Good morning.
Hey, everyone I just wanted to ask about yield.
Particularly intermodal yields and how we should expect intermodal yields to develop in 2023, excluding the impact of fuel there were some reports in the trade rags back in December that U P is cutting intermodal rates by 3% effective February I just wanted to get maybe this question for Kenny, but just get a little bit more color.
On that specific item and then how you expect overall intermodal yields to trend as the new business comes on thank you.
Yeah, Thanks, a lot Amit.
First of all you know we're in the early stages of bid season.
Call it 10% to 15% you know you heard me call out in my notes, we are seeing some involvement.
They're in the marketplace, we've been encouraged that we're retaining all.
All the business that we're out there competing for I think it's too soon to call out what will happen.
In terms of pricing, but what I will tell you that we do have mechanisms.
For our business to make sure that weekend.
Being competitive in a challenged market like this.
But also a price to the market and make sure that we're.
Capturing some of the upside.
Things get tight throughout the year and Kenny Amit This is lance, but Kenny Youre also remaining confident that as we put our plan together all of that included we're still we see a clear path for pricing ahead of inflation absolutely.
Thank you Steve.
Our next question is from the line of Brendan again skewed with Barclays. Please proceed with your question.
Hey, good morning, everyone and thanks for taking my questions maybe on the back of that answer Jennifer you did talk about you know a lagged ability to recapture some of the cost inflation on the price line. So I was wondering if you could expand on that and maybe also just discuss your fuel surcharge revenue that does appear to be about fuel expense for a certain period.
2022, and the mix impact that Kenny was just speaking about.
That's one.
One question.
But you know.
In terms of the lag part. So so there is is that piece when you think about our contract structure. So in any given year call. It 50%, we're able to touch directly the remainder is longer term contracts and they rollover in some segments over periods of years now those generally have.
Escalators, but there there can be limits on the escalators and those are our lagging as well. So that's what we're referring to them as having a lag impact as well as kind of going back to the first question to Eric It's still very confident in our productivity initiatives, but we did take a step back this year and we have to acknowledge that and it's going to take us a little bit.
Gain that back because the inflation Israel you know that's a real factor that is certainly above what we have seen historically when you think about you know, 4% kind of number for 2020 three.
So that's that piece are you also mentioned fuel surcharge and yes that was a positive contributor to us on an EPS operating income front in 2023, and so depending on what you estimate for fuel prices that could be a headwind for us at some point.
You know overall, we averaged I think $3 65 for the year right now we're paying closer to call. It $3 15, $3 20, so that could certainly be a definite difference when you think about year over year comparisons on the fuel surcharge revenue.
He also asked about the mix our mix I knew there was one more in there.
So from a mix standpoint, yes, I mean fourth quarter mix was certainly a negative when you look at it and one of the things probably that really jumps out at you think about intermodal, but in particular international intermodal and the year over year comparison. When you think about last year International intermodal was down substantially and then we saw it grow here in the fourth.
This year, plus you know forest products some of the industrial segment's a little weaker in the fourth quarter and a higher rock shipments. So instead of that that all in and look there Brandon.
Thank you Jennifer.
Ed.
Our next question comes from the line of Ari Rosa with Credit Suisse. Please proceed with your question.
Great Good morning.
So I wanted to ask about the targets for growth to exceed industrial production I E.
It seems like a little bit of a low bogey given the service improvement that was expected for 2023, given the cost advantages for the railroad and then in particular, the addition of Snyder's intermodal business.
You've obviously seen it a lot of volume in recent years, but I wonder.
Get a little bit more clarity on kind of what that means in terms of that expectation for industrial production or I'm, sorry for growth to exceed industrial production and then over kind of a longer three to five year time horizon, and how youre thinking about the prospects for U P to do.
Grow volumes significantly ahead of kind of economic growth.
Yeah Ali this is lance so I'm I'm going to start I'm going to focus my commentary on 2023, and then I'll turn it over to Kenny to broaden that out.
Clearly what youre seeing from us is that.
A perspective that says there's a lot of uncertainty as we enter 2023, you can see it in some of the macroeconomic indicators that Kenny shared but you can hear it and see it across the board in many markets right now.
And so while we're confident we can outperform industrial production, which is an underlying driver for a fair amount of what we ship are.
Going beyond that and becoming more granular just as it's a little too early in the year given all the uncertainty that we see so hard stop on that.
So lastly, I want to hit hard for those on the.
Call that mindset of this management team and the commercial team.
It's really to drive business development and so that's one thing that we can control there are some markets out there that we really want to go after that we think are right.
Renewable diesel is one of them and we feel good and confident about the wins. There. If you look at finished vehicles are both the finished vehicle side and also the auto parts side is an area that we feel good about there are some expansions that are coming along our line that we won in the Petro Chem area with <unk>.
<unk> industrial Cam and then also we've talked about.
Been very bullish about metals, because we've seen some wins come up there. So I'm very focused on the things we can control and then encourage that.
Car velocity has been improving.
Along the way.
Our next question comes from the line of Tom <unk> with UBS. Please proceed with your question.
Hi, yes, good morning, So I wanted to touch it a little bit on some of the <unk> commentary.
Can you can you say you like kind of broad brush, what you're assuming on intermodal revenue per car in coal revenue per car well you know what are you assuming when you talk about inflation pricing dollars above inflation.
And then maybe if you can just offer a comment on kind of broader pricing is a dynamic changing in rail rail competition. You know you've won a bunch of business over the last I don't know 18 months is that having an effect on the competitive dynamic or would you say things are pretty stable.
So Tom let me take the first part of that question and then I'll, let Kenny address the second part.
We're not going to give comments on directional guidance for RP you for various line items. You know the factors that are going to drive that it's certainly the pricing, but also fuel surcharge and then the mix of the business within that line. So those will all be things that will play into what that that turns out to 2020, let me lead again with something Lance mentioned.
That we felt very confident that we'll be able to price over inflation dollar so I want to say that our.
Our commercial team has done a great job of articulating.
The need to price to the market.
When we talk about price into the market, we've talked about some of those dynamics inflation is one of our customers are facing that too they understand that but we also talked pretty broadly about investment.
When I say investment is part of what I'm talking about is what Eric is doing.
Our capital plan. The other part is making sure that we're resource for him a growth.
But we're dialed in on that we're having those conversations with customers and we articulated them Hey, Tom This is lance.
We've also got to recognize that I think underlying your question certainly in the intermodal space is that the truck market is pretty darn loose right now and certainly it's not as a fruitful of an environment to be pricing and as let's say a year or year and a half ago.
But that doesn't change any of what Kenny just said it just makes the job harder.
So you assume that in your in your pricing guide debt that you have those pressures on intermodal price I guess.
Yeah, all in we understand it and it's assumed in there yes.
Okay. Thank you.
The next question is from the line of Allison <unk> with Wells Fargo. Please proceed with your question.
Hi, good morning.
Wanted to talk on that growth and sort of that service product commentary a lot of investment obviously being put into that productivity and head count and so forth, obviously drive that this year, but as we look.
Has that you know are you thinking through that service product differently in terms of investment whether it's tiny.
Ease of doing business with you or transparency with customers any thoughts there on how that might be evolving over time.
Allison. Thank you for the question. This is Lance again, we are thinking more broadly about what is necessary to support growth in our service product and it takes a lot of different forums I'll start in the intermodal space. We've made investments things called U P go and precision gate.
Technology P. G T allows trucks to essentially enter and exit the ramp without stopping a paperless.
And uses technology and pretty clear if you will the load with machine vision before the truck even even gets there.
T go is a holistic tool that our imc's can use and it can be embedded on their own platforms.
So that once the drivers on our property they know exactly where to go they know exactly.
Where all the facilities are they know a map of the facility and we've done a hell of a job are signing.
Signing and improving the signage.
On our properties. So that's just one example, where if truck drivers if dray drivers have a a better faster experience on our property, we might be able to help them get an extra turn now and then that helps move boxes off our ramp and that's a better service product and the yen.
But why don't I turn it over to Kenny you first and then and then Eric for more detail. Yeah. You know Lance you talked about our premium that working on again, Alison Knowles product show up in terms of inland Empire, and our product and twin cities that we feel very.
I'm encouraged and confident about and filling those.
Areas out and it also shows up in other areas like our investments in GPS our investments and chassis on the carload side, we're really excited.
Excited about what's taking place with Royal powerful your theater across the board both on our carload side and in our intermodal network.
And Allison as we think about consistent and reliable service you know a couple of examples from the operating side that were all involved in as well when I talk about modernizations and improvement in reliability of 50% in those locomotives once modernize it's significant it's meaningful it's less variability that will drive improved service and even as we think.
[noise] about even on our.
Crews and we're talking about how do we approach that differently. When we talk about consistent schedules for our crews were talking about the tradeoffs are the the benefit for us collectively which has improved availability improved availability again reduces variability and drives more consistent and reliable service product.
Great. Thank you.
Thank you Allison.
The next question is from the line of Scott Group with Wolfe Research. Please proceed with your question. Please.
Hey, Thanks, good morning.
If inflation is running around four and price mix is running flat slightly negative right now I guess, how do we get confidence in margin improvement for the year I guess, maybe do you think is at that price mix reaccelerate from here or is it cost getting better just help us sort of get confidence in that.
Margin improvement and then separately any color on this and other revenue and how youre thinking about that for the year.
Yeah, So I'll start with the confidence around the margin improvement and we are confident in our ability to do that certainly there are headwinds and you've just pointed to a couple of them.
But then go back to the things I talked about in terms of how we're looking at the year and the key levers, which as you know our volume price and productivity.
So volume certainly is a wildcard and we'll see how that plays out pricing. We are confident that although it is going to lag a bit we are confident that our price will price dollars will exceed inflation dollars and then the productivity side. We know we have upside there, yes, we're still adding resources and taken.
And steps to heal the network today, but we also know that there is a pipeline of opportunities to improve and we have those identified and we know what actions we need to put up against that to do that and then as you do that and as the network Hills that gives us more opportunities on the volume side are we still know where mix in bulk.
Close today.
So those are opportunities for us to get more leverage across that cost base and then obviously, there's field, which I mentioned before and you know, we'll see how that plays out but right now, we're certainly playing a little bit less call. It 40, or so less than what we were paying them a year ago or what we paid for the full year 2022. So those are all of the.
Things that we're looking at Scott.
And we believe that those combination of factors are setting up in a way that we will be able to drive or improvement.
To your question on other revenues. So I think that's really a question maybe more geared towards asked the soils and what we see playing out there you know as the supply chain has healed as we're seeing a little bit of softness in that intermodal market. We have seen accessorial has come down a bit they were down a little bit for us here in the fourth quarter and that would probably be my ex.
Dictation going into 2023, as well and that's a good thing absolutely we want that fluidity, we want we want the entire network to match the kind of fluidity that we're putting up post Christmas holiday.
They're still in the intermodal supply chain Theres still some some elevated street time for boxes and chassis and that's the last piece that.
Reflects excess inventory, that's going to have to get worked out yet.
Thank you.
Mhm.
Our next question is from the line of body Shimbun with BMO capital markets. Please proceed with your question.
Thank you good morning.
Question on the operating side.
Little bit maybe Jamie if you can help us.
Understand what would it be a unique cost and network congestion point is when we do so we can kind.
Got it.
Hopefully those monthly going forward, but.
One question I got is.
If I look at your operational productivity data.
The fourth quarter and compare that to a couple of years ago. When you were running well.
Locomotive productivity car velocity I was still 13, 14%.
A lower than they were in head count and that kind of 5% higher bulk volume bulk slots do you have now maybe sort of you think too.
Get back to those levels that you've had a couple of years ago like what ought to be released.
Meaning.
I think we need to do to get the network, it's been a lot.
Higher than it has been.
The last few quarters.
Yeah, I wasn't I don't know that I'd totally caught the first part of your question there Friday, but I think you were basically asking to quantify what the congestion costs word in our network for 2022, and we have not quantified that other than you know we when you look at our operating ratio.
And the degradation that we had on a year over year basis, 290 basis points 50 basis points of that was a combination of P. B and feel the rest of that was inflation in congestion in and probably fairly equally weighted between the two so that's how I would think about that.
That is our opportunity certainly and that feeds through all of the lines. It feeds through wage inflation now some of that obviously is real we have the PV. We know that's real but then it's how we use the crews and you've heard US talk about the fact that in 2022, we had higher recreates we have higher borrowing costs.
You know more dead hadn't held away more vans those all inflate those cost categories purchased services as we were putting more locomotives into service that inflated those costs on a year over year basis. In addition to some of just the contract or inflation that we saw as all of our suppliers we're faced with.
Higher inflation and you saw that come through and then on the other line. We know we have opportunities there from a casualty standpoint, you heard us talk about casualty a couple of different times in 2022, and the higher costs that that brought to us. So those are all elements that we are now very much focused on attacking you asked are we right sized yet.
You've heard US say, we still are short cruise and critical locations. We're still hiring yeah. So we still need to bring folks onto our network that does two things that helps us well three things really helps improve our reliability our fluidity. It helps us move more volumes and as we're able to hire folks in those critical locations. We then move.
The people that we have working there in terms of borrow adds back to their home location and that reduces our cost base as well and you can improve your re crew rate. So.
A lot of different moving parts of their body you know our business isn't just one element, but that's how we're looking at it those are the things that impacted us in 2022, and that's what we're looking to do in 2023, Yeah. I think the other part of <unk> question as a structural question like did something structurally changed.
On the five critical resources.
Nothing so.
Structurally changed on line of road and terminal how you achieve freight car utilization, how you treat locomotive utilization.
We probably look at cruise or differently going forward than we did historically.
That means a little bit more on boards. So that we're not staffed at the tight end, we're staffed a bit looser. That's hundreds if not thousands and then also making sure that we have a watch back in place to the extent that we've got counterparties that want to negotiate that so that's probably the only thing and I think that's probably an asterisk as opposed to a.
A major headlines and helps smooth as more volumes you mentioned, that's right sports us for growth.
Thank you.
Mhm.
Our next question comes from the line of Justin Long Stephens. Please proceed with your question.
Thanks, and good morning.
I guess to follow up on that last question. If I just run a quick math. It seems like it was around 120 basis points of headwind to the or last year from congestion. So as you think about kind of recapturing what I'll call lost productivity do you need to see.
The volume growth in order to get that back or can you see improvement in the absence of volume growth and I guess on the cadence of the Oh are Jennifer.
Is it reasonable to say that first half or probably doesn't improve year over year. So this is more back half weighted.
Yeah, Jennifer why don't I start with can you get can you recover productivity without volume growth. The answer is yes.
And we anticipate volume growth as well, which is a tailwind.
So the only thing I'd say in terms of cadence there.
Is.
Really pointing out to the field piece of it and where you saw feel was a bigger headwind to us in the earlier part of the year than the latter part of the year you saw some of the inflation pick up in the latter part of the year. So there's some trade offs there either way that I would just ask you to look at your models pretty closely there because there are differences first half second half in.
2022 that you need to be thinking through there.
Okay. Thank you yep. Thank you Justin.
The next question is from the line of Walter <unk> with RBC capital markets. Please proceed with your question.
Yeah, Thanks, very much and good morning, everyone. So I just want to come back to the to the yield question sorry to two two.
To focus on that but there were and Jennifer you mentioned a number of the key drivers being core price and fuel surcharge mix and so on I'm just I just wanted to make sure that we're understanding the charges that you were levying the congestion side those searchers congest.
Congestion surcharges for lack of a better word that you registered through 2022.
Are they with them going away does not is that about another factor that will weigh against your revenue.
Per carload or or is that just not not meaningful enough to choose to enter into the equation.
Jennifer you want to take that I think you were referencing congestion surcharges I think he's talking about accessorial O N E.
Oh, okay.
You know again, we do expect that they could be less year over year, but I don't see that as a significant driver for us.
Okay fair enough.
And just on the coal side. There is a lot of talk about a deteriorating KOL statistics just understanding your catchment area I know you've got a plus on that outlook, how does that compare with what we're hearing from the EIA and what youre seeing in your catchment areas.
Okay, Yeah, we feel good about.
Being able to move our coal in the east.
Natural gas prices and even the four curve or the rest of the year I'll tell you, there's still quite a bit of low inventories out there. So I can assure you both customers are.
Willing and able to receive that coal demand that's out there.
Okay. Thanks for that.
Yep. Thank you Walter.
The next question is from the line of Bascom measures with Susquehanna. Please proceed with your question.
Lance Thanks for taking my question, it's the chairman of <unk> can you talk a little bit into the longer term transition plan.
What skill sets do you think the board is.
Really focused on for the next leader of the business and any timeline around that as we've seen some of the leadership at the other class ones.
Hard to change. Thank you sure Bascom, so we have not announced.
Any leadership transition or timing.
Hum.
We do periodically as a board review.
What our needs are both the skills matrix of the board and also the skills and development of our leadership team of the management team.
And so yeah board has a strong eye on that knows a on.
On a running basis.
What we're looking for what we're thinking about.
And while we don't have anything announced.
I will make sure and we as a company, we'll make sure that it is a transparent.
When it does occur.
Thank you.
Yep.
The next question is from the line of Jordan <unk> with Goldman Sachs. Please proceed with your question.
Yeah, Hi morning, just sort of.
Curious.
What are the customers I mean, obviously intermodal is a big part of the longer term story and an important near term too, but what are customers telling you in terms of you.
Hey, you know rails have had a tough time service wise, the last year or so.
When when do they can be opened to really trying you guys again in and may be shifting some of that business back from truck and could that happen in an environment, where you know truck rates are so beat up right now as well thanks.
Kenny you want to take that because we are still winning business off a truck.
I mean, we're definitely still winning business from truck and what I would tell you is that.
We haven't seen any large pieces and I said this earlier.
Move away from them.
A lot of that is driven by the economy clearly some of the service challenges. We have we may have seen some lane.
Move adverse via truck or maybe another mode.
But our customers realize that this is a short term phenomenon that we're at and back and we've been very transparent in our investment again in hiring in our investment in our Capex.
So that they can stay with us well.
Well at Kenny sustainability is also been playing a bigger and bigger role in that.
Some of our sophisticated customers, we're helping them understand and they're asking us for greater detail on how how we can be part of their sustainability initiatives and that's driving more look at us as opposed to less look at US. We just joined the Dallas Sustainability Index and that's that's just one marker of many.
<unk>, let's say that we're quite serious and making good progress in those areas I mean, Lance you talked about it a little bit earlier, if you look at our car velocity you know from the summer now we've seen some improvement in the Eric and I were talking about this for a couple of days ago. You know if you look at third quarter to fourth quarter sequentially on our premium network.
That is improving as we on boarded Snyder so that goes up a lot of comfort right mhm.
I'm just trying I just.
Continuing on that I mean, the other side of shares.
West Coast, probably lost to the East coast. This year for myriad of reasons do you think some of that shifts back over the course of 2023.
You know I.
Some of that was really I think labor.
Challenges that you saw in the ports on a little bit of ambiguity on.
What they thought might happen I think as we see that clear up on the on the port that Youll see a little bit more of that volume come back to the West Coast Port again, everything that we're doing all of our investments around.
On Empire.
The G four reload at the Dallas stuff kicks in in Dallas, I'm, telling you we're bullish that make sure. We can make those areas are more competitive for the customers.
Thank you.
Thank you.
The next question is from the line of Cherilyn Medical with TD Securities. Please proceed with your question.
Thanks, very much and good morning.
My question sort of picked up on that last one I did want to ask about the mixed outlook for international intermodal clearly the inventory cycle is the most important factor there. So I'm curious whether implicit in your guidance is the potential for a second half recovery in intermodal and then along with that I would also.
Curious on your thoughts regarding the timing of a labor settlements on the West coast.
And what you thought for that would mean for market share in L. A long beach, which I I think you just addressed.
Let me start Kenny.
And I'll talk to the labor.
Negotiation, that's going on on the West coast.
So that started up I want to say in July of last year.
There has been a negotiation there hasnt been a lot of progress announced publicly but the port.
<unk> directors share with us that they have confidence they're going to reach an agreement that there's.
The temperature is low and there's a line of sight to reach agreement. So from that perspective, I think we're gonna be okay.
We're spending time with customers.
It's a mixed bag when they think some of these inventory issues will get resolved so.
Some are saying Samar Thumber fan you know back half of <unk>.
Third quarter for us, we're not going to try to time that or be so precise timing.
What we're really focused on is making sure that we've got the service product.
Where it should and I just want to double down on what I said sequentially, we're seeing that improvement we've on boarded a large customer and we're walking towards trying to capture that growth when it shows up or when a pop.
Thank you.
Hum.
The next question is from the line of Ravi Shankar with Morgan Stanley . Please proceed with your question.
That's the one everyone. Two part question here I think the quality of life is is a big focus area for you and a lot of your peers.
What does that mean exactly in terms of kind of what are your negotiating it and what you are a prospect that employers are looking for how do we think about that in terms of.
Our cost et cetera, and just also I don't think you said the word 55 or under.
On this call so far and obviously that seems like a fair way of where given where we are macro wise.
What is the path to get there going up given the quality of life, given the kind of CEB inflation everything else kind of is that just going to need like a really big lift from the topline to bridge that gap in the coming years.
Yeah. Thanks for the questions Ravi So I'll start with just a quick comment on quality of life and then maybe Eric you can follow up on what we're negotiating there and then Jennifer you can handle a 55 or so one thing that came out of the P. E. B and is in the tentative agreements that were signed and now agreed to.
Was a directive to negotiate things like unscheduled work going to scheduled work. There there are other things bundled into quality of life issues for our craft employees, but that's a big one but there's a fair amount of our craft employees that are on call. It an unscheduled job and that's the way that.
There's the staffing for the railroad as is handled and so we're actively in those discussions because there is a path forward to be able to create more predictability in that work for those craft professionals I'll, let I'll, let eric kind of get into the detail yeah. So Ravi as one example, we're engaged right now.
Now in a pilot well.
We're focused on some adjustments to the way that we collectively do the work where we actually have a group of people in the state of Kansas that are working in a defined schedule. So to lance's point today, the vast majority of our employee bases on called basis. That's on the T. In one side or the transportation side and this pilot we've carved out.
A handful of people, where they actually are in a specific schedule and what we're watching for is to ensure that the actual days that we have planned for them to have off occur and.
That's translating into more availability on the days in which they are scheduled to work. That's the win win solution that we're looking for and we're focused on and we're working on it for the entire period of this year and I bet. It carries into the next year, because we're putting so much thought into making sure that the net impact is beneficial for both sides.
Yeah, and then Ravi tier three or 55 question I mean, you've heard us talk that that is still our goal and I'll reiterate that again, we have not put a timeline on that because of all the things that you've heard us talk about here today in terms of the challenges that we're facing but that doesn't mean, we can't improve that doesn't mean, we don't have a path to improve in.
The path to get there and relative to the quality of life. It really goes back to what you've heard from both Lance and Eric as we improve crew availability as we improve predictability that improves our service product and improves our ability to grow and with that service product comes further pricing opportunities as well. So it's it's a virtuous circle.
My view and that's how we're going about pursuing those things.
Thank you.
Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, Thanks, good morning.
Maybe wanted to come back to the head count and resources as we're thinking about sort of improving the network efficiency and ultimately getting back up to sort of optimal performance can you give us a sense of sort of how long you think it will take until you get heads just sort of where you think team.
Important.
Central growth that you have.
And maybe you know that a first half second half kind of dynamic as you think about the relative growth in both periods.
Yeah, Chris you broke up a little bit at the end, but what I heard you asking us about.
We're adding head count and resources to support network fluidity, particularly in some part of the network, where we're tight on crews and how long is that going to take is it a first half second half. So we're not putting a fine button on when exactly.
We declare victory what I will say as you look at how we're performing coming into 2023 and the networks fluid.
Still got tight spots in the network that are limiting our ability to grow and ship all the demand like in coal Ah maybe to a lesser extent in rock.
And we're hiring actively in those areas that would support the network for that growth. The pipelines full we've got 600 people in the pipeline and we're graduating something like 150 to 200 a month at this point so you know it.
Kind of.
Fundamentally being pretty well healed is happening this year, it's just hard to say exactly when given that demand could shift around we're still not meeting all demand and the game plan is operated fluid network like we are right now continue to add resources.
To support the demand that wants to ship.
And grow that volume as we're able to.
Thank you.
Yeah.
Is from the line of Ken Extra Bank of America, who assist you with your question.
Hey, good morning.
Thanks for taking the question.
Just John .
Ken maybe if you put a ric can you put a range on the or improvement I know you said, you're just you're looking for improvement given the background issues that you talked about can you clarify how much of that is impacted by service and I guess, you typically see 200 basis points of deterioration from fourth quarter to first quarter is there anything unseasonable or different this year.
You pointed out a couple of things that should look different and then a second one just for a launch something totally different any thoughts on the STB open access mandate anything that you expect out of that or or remediation expectations from see PK issue.
So Ken I'm going to refrain from giving you order of magnitude on an AOR guide or giving you range. It really is just too soon in the year. You know we're sitting here on January 24th to give that to you I I can try but I'm sure I'd be wrong [laughter], So we're going to resist that temptation.
The important thing to think about is we are going to work to improve as fast as we can as hard as we can you've seen us do that and demonstrate that we're not trying to meet or any progress.
Our goal is to deliver that better service being more fluid and with that leverage more volumes across the top line. There are some other things that influence that obviously, when you think about fuel and inflation.
But the team knows what those are and they know how to go about it I'm also not going to give you any guidance relative to sequential and rather we're gonna have normal sequential patterns. You know we had a really hard hit here the end of 2022 with the weather.
It impacted our volumes here at the close of the quarter. We've had some weather here again here and as I started the year. So just hang with US watch the volumes once the service metrics. Those are your best barometer to know how we're operating and how were generating a positive growth and positive financials across the network.
A minute of it it really does all start with our with our service product in terms of the STB and open access Ken.
So that's a pending decision on their part.
Clearly we've fed back for for quite some time now to the STB that are we think open access is a bad idea from the following perspective. It did puts interchange where investment has not occurred.
It would negatively impact the service product for those demanding open access and anyone else writing the trains and the service product that those particular customers are using.
No we've looked at this a lot of ways we.
We don't say Hell no win win allowing access in a certain circumstance makes sense. We've done it we've negotiated it we've done it in short periods to help a customer out but in the broader context of allowing customers to determine where there are interchange points should be we think as Curt.
Currently conceived it's it would be bad for overall service product not better.
Our next question comes from the line of Brian <unk> with Jpmorgan. Please proceed with your question.
Hey, good morning, So a couple of different follow ups. If you don't mind, one just on mix for Jennifer It sounds like the trends impacting the fourth quarter, probably will continue for 2023 I just didnt hear if you confirm that.
Or not and then for Eric.
You're talking about getting to a better spot with head count.
Do you expect any attrition from when all of the back Bay clears as maybe some of the more senior folks.
Take that retire and look for look for something else as that comes up in the next couple of weeks and lastly advance another hot button topic for yesterday embargoes that little hard for us to tell exactly.
Implications of the two day hearing from last month, but it would be great to hear your thoughts on what changes if anything after that.
Very much.
Alright, I'll start with your mix question, Brian . So for 2023, we are expecting to have a negative mix for the year and really it's pretty simple when you think about it with the increased intermodal shipments with the Onboarding of Schneider and then you heard Kelly talk about you know tough grain markets and then also some.
The question marks and toughness that we're expecting on the industrial product side, those things add up to a negative mix for us in 2023.
On the attrition side, we have not seen any attrition post the payment of the P. B.
We continue to watch that very closely and where necessary we will incentivize.
Yeah and.
The last big back pay happened January 13th right. That's good so it's so it's in hand in and to your point, Brian If something occurs we should be seeing that basically right now it should start.
In terms of the STB on a on embargoes. So yeah, we were called in for a two day hearing. The reason is that Union Pacific is historically in 2022 had used embargoes more so than all of our peers. We use it for a very specific reason and we use it as a last resort, but the the <unk>.
And why we use embargoes is either if something has occurred in a network like call. It a winter storm Elliot that really negatively impacted the great Lakes region.
So that we don't get overwhelmed as we're trying to recover from the winter weather will use an embargo in that circumstance to control product flow.
That's not to stop growth, it's basically control product flow. So the network can get its feet back under it. It's worked wonderfully in that area because you can see in our in our car velocity and the overall network fluidity.
We're operating quite well, we will also use embargoes to control excess inventory.
In very targeted circumstances as a last resort, we engage the customers help them understand what we see and what they could do to help control that excess inventory and then as a last resort we would use an embargo.
Vast majority of them are about protecting the serving yards for our customers, that's where cars end up and before the last mile delivery to customers they get.
Inventoried at the serving yard and if a particular customer has way more inventory than that serving yard than what they can handle or what supports their business. It can crowd out the service product for others. So that's that's the reason we were called in as we use those more so than anyone else.
<unk>.
We I'm not sure exactly what's going to come out of that of that hearing what we heard from our customers and through the STB and.
And in continuing conversation with our customers is where they want to they want to know why and how.
To remedy with a lot more granularity so we modified what we communicate to our customers. So that they understand that and our commitment was we're going to pause on the level of embargoes that we've been using so that we can absorb the feedback and make some additional changes in how we approach.
Excess inventory and serving yard excess inventory and engage with customers more effectively on at Kenny Alright, Brian you win the title forgetting the fault of talks I'll make this quick.
Two things one yes, we've had some pretty difficult conversations with customers, but one of the positive that has come out of that is creating tech solutions for them to give them the visibility that lance was talking about weather.
Inventory on our line, they're released right.
Number of cars that are in the Serbian yard.
We've shared that both tech solutions with them here, a couple of weeks ago, and we're working with the customer so that they can integrate that into their supply chain.
Thank you all very much.
Thank you Brian .
Our next question is from the line of Jeff Kauffman with vertical research. Please proceed with your question.
Thank you very much I'll just make this quick because a lot of mine have been answered Kenny.
What do the changes in China with their Covid policy and reopening the economy potentially mean for Union Pacific.
But we'll have we'll have to see what plays out there.
Historically, what we've seen is a little bit of fits and starts.
I think what we'll also be looking at is the inventory levels at least in the near term. It may not have that much of an impact as if.
They start up a little bit later, it may be right in time so.
A lot of uncertainty there are definitely some fits and starts what were really what we really need is the consumer spending and a little bit more demand to be out there more so than the issue though in Asia.
Thank you.
The next question is from the line of David Vernon with Bernstein. Please proceed with your question.
Hey, good morning, guys I wanted to come back to the resource.
Let me quickly here I will try to keep it under one team as opposed to making what are you guys kind of on the table.
What is the exact number ahead, we're looking at.
And if we're thinking about it more.
Resources locomotives.
Service is up a bit.
More resilient, how does that change the dynamic of adding future resources.
I know it won't be one for one but are we looking at are looking at.
Leverage here going forward based on the changes Youre, making resourcing model right now.
Yeah, you were breaking up there quite a bit David but I think what your basic question was what do we expect to hire in 2023 and do we think about hiring in a different cadence maybe versus volumes going forward.
You know in terms of hiring for the year I think we said it would be similar probably to the 2022 levels, but that obviously carries with it some attrition assumptions and what we see happen with volumes and so if we would see a change positive or negative relative to volumes that obviously could impact that.
We're just going to make sure that we have the right crews in place to be able to take advantage of the demand. That's there for US we know we're still not meeting at all today in terms of how we think about hiring I think you've heard Lance and Eric talk about the fact that we would maybe keep our board a little bit.
Larger.
Establish a once if we can and those will be things that can give us all say cushion as you see fluctuations in demand again, we expect to be able to leverage that service reliability into more volumes and better pricing and overall better productivity and so when you think about the bottom line impact of that.
We think it should.
Worst case be neutral, but really be a positive for us in the long term.
I understand the foundation will be will be will be positive in the long term, but.
We are adding more resources.
Makes a lot of volume right now.
Yeah, I mean, you're seeing that through flow through today I would say you know when you've got six 700 people in training today.
You know not out actively moving freight that is that is a headwind that we have in those numbers today that I would say is already there and it's substantial because they're completely unproductive from a moving freight prescribed but we anticipate we need them to both backfill attrition and to support growth.
Alright, thanks for that color guys.
Thank you David.
Thank you. Our final question is from the line of Jason Seidl with Cowen and company. Please proceed with your question.
Thank you operator, the anchorman position I won't make any Ron Burgundy references here I wanted to get back to.
Domestic intermodal guys.
I'm assuming the.
The positive growth outlook is basically the Schneider business and some of the freight that you guys lost last year, that's more of a natural rail slim fit flowing back to the network, but I want to look a little bit longer term sort of as you look to the competitive marketplace with the trucks.
Where do you think.
The visibility needs to be and will rail pulse help you improve that and then where do you think trip plan compliance needs to be and what else do you need to do to get that up there.
Yeah, I'll tell you thanks for that question Jason.
We've been encouraged that the management team with all the investment that we put into the railroad.
The port growth and we've talked about those products here a little bit today.
We do think the inland Empire as transformative for US we do think that the twin cities intermodal facility is transformative for us we.
We do think that the focus on technology, some of which Lance mentioned, a little bit earlier that'll help.
Driver experience with all with ultimately help our customers reduce their costs with their drivers are will have an impact and then Jason everything you just that rail bulk of where our carload business and we've put a lot of.
Focus on making sure we can do ease of business and know exactly what our customers are asking for.
On the performance side from a service product Casey you know we've been very consistent over the last handful of years that our intermodal trip plan compliance starting with an eight eight.
80, 85 is where we want to be but or and we're also very close to our customers over the last two years to continue to make sure that what we're measuring is most reflective of their experience and whats most important to them. So stay tuned because we continue to evolve how we think about customer service in line with the customers' voice.
And is there if you guys get to the 85 or above is that when it starts inflicting in a normalized demand market in terms of getting more freight on the network.
The way to think about that is really when you get to 85, well we're recognizing as we are an outdoor factory. We are 32000 miles, we do deal with winter et cetera, et cetera, there's nobody here that gets to 85 and so as we've done our job, but it's a place to strive to get to get to and then reevaluate even within the challenges of Vietnam.
Outdoor factory with 32000 miles hey, what's the next opportunity still.
Fair enough I appreciate the commentary as always yep.
Thank you Jason.
Thank you at this time, we've reached the end of the question and answer session and I'll turn to Florida, Mr. Lance Fritz for closing comments.
Rob. Thank you very much for your help this morning and thank you all for your questions. We're looking forward to talking with you again in April about our first quarter results until then please take care.
Thank you.
Today's conference you may disconnect your lines at this time, we do thank you for your participation.
Okay.