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Union Pacific is the parent company of Union Pacific Railroad, which specializes in shipping products across the U.S., especially by rail. The company ships products such as fertilizer and grain products but also finished automobiles and various types of merchandise in special intermodal containers. Union Pacific has a long history, having been founded in 1862 as part of the Pacific Railway Act approved by President Abraham Lincoln, which led to the creation of the first transcontinental railroad. In modern times, the company services 23 western U.S. states, not just with transportation via rail but also intermodal shipments.

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Q4 2024

Union Pacific (UNP): Company Profile, Stock Price, News, Rankings

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Union Pacific

union pacific

Greetings. Welcome to the Union Pacific's 4th Quarter 2024 Earnings Conference Call. At this time, all participants will be in listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.

At this time, it's my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin.

Thank you very much, Rob, and good morning, everyone. Pleased to have you with us this morning. A little bit of winter in some parts of our company, even lots of snow in the southeast part, but love the way the operating team has worked through it and we are in way better shape already. So great recovery by everybody, but lots of hard work by the men and women of Union Pacific. But why don't we get started?

So I'm joined here this morning in Omaha by Chief Financial Officer, Jennifer Heyman our Executive Vice President of Marketing and Sales, Kenny Rucker and our Executive Vice President of Operations, Eric Garinger. Let's dig into 2024. It was a very successful year for the Union Pacific team and we really finished the year on a high note in the 4th quarter to put up an adjusted 58% operating ratio removing the impact of a new regional brake person agreement is really excellent work. It shows that the team is executing our strategy to lead the industry in safety service and operational excellence. Now why don't we move over to discuss the 4th quarter results starting on Slide 3.

This morning Union Pacific reported 2024 4th quarter net income of $1,800,000,000 and earnings per share of $2.91 both 7% improvements. 4th quarter revenue excluding the impact of fuel surcharge grew 4%. Our ability to generate strong volume growth and core pricing gains more than offset an unfavorable business mix. Reported expenses year over year improved 4%, while lower fuel prices led the way the team demonstrated strong productivity utilizing 3% fewer employees to move 5% more volume. This led to operating income growth of 5% and the operating ratio outcome that I mentioned earlier.

This is the result of the team's commitment to build a safer, more durable and more efficient network, just a fantastic way to end 2024. Throughout the year, we built momentum behind our strategy and you see that in the financial results we delivered. While internally, we've already turned the page to work on further improvements in 2025, we need to pause and celebrate the team's success in 2024. We set a goal to achieve industry leading results and when the dust settles, I'm confident that's where we'll be. So with that, I'll let the team walk you through the quarter and the year in more detail and then come back for a wrap up before we go to Q and A.

We'll start with the Q4 and full year financials. Jennifer, it's all yours.

All right. Thank you, Jim, and good morning, everyone. Let's begin with our Q4 income statement on Slide 5. Operating revenue of $6,100,000,000 decreased 1% versus 2023 against strong volume growth, while our 4th quarter freight revenue finished flat at $5,800,000,000 Breaking down the drivers of freight revenue, increased volume in the quarter added 5 25 basis points. Fuel surcharge revenue of $588,000,000 declined 207,000,000 dollars

lower year over year fuel prices reduced freight revenue 4.50 basis points. Similar to our 3rd quarter results, strong core pricing gains were more than offset by business mix, reducing freight revenue 100 points with our 16% intermodal growth driving that mix dynamic. Of significance, our price dollars met the long term commitment of exceeding inflation dollars while also being accretive to 4th quarter operating ratio. Wrapping up the top line, other revenue decreased 7% as a result of lower accessorial revenue from the 2nd quarter intermodal equipment sale and reduced revenue from the ongoing transfer of Metro operations. As a reminder, we see offsets against this revenue decline in operating expense.

Switching to expenses, our appendix slides provide more detail. But let me share some highlights of our strong cost control as total operating expense declined 4% to $3,600,000,000 against a 5% increase in quarterly volume. Looking closer at the expense line, compensation and benefits expense increased 8% compared to Q4 2023 driven by the $40,000,000 break person buyout agreement, which Jim mentioned and wage inflation. This is the 2nd brake person agreement that we have reached in the last couple of years, both of which have enabled more efficient car handling. Quarterly workforce levels decreased 3%.

Our trained service employee workforce was flat against the 5% volume growth as we effectively handled the additional volume. All other workforce areas decreased to 4%. These efforts resulted in record workforce productivity, demonstrating our strategic focus on delivering operational excellence. For 2025, we expect our all in cost per employee to be around 4% as we continue to find ways to be more productive with our workforce through process improvements, technology and investment. Fuel expense decreased 23% on a 24% year over year fall off in fuel prices from $3.16 to $2.41 per gallon.

Our fuel consumption rate improved 1% in the quarter as we more than offset the impact of moving a less fuel efficient business mix. Equipment and other rents expense increased 8% due to inflation and volume related growth in our intermodal business. Finally, other expense declined 22%. As you'll recall in the Q4 of 2023, we highlighted elevated casualty costs due to the catch up of case backlogs. In the Q4 of 2024, we benefited from lower casualty expenses as well as a reduction in bad debt expense.

Operating income improved 5 percent to $2,500,000,000 and was a 4th quarter record. Below the line, other income decreased $40,000,000 on lower real estate gains, while interest expense declined 6% or $19,000,000 as a result of lower average debt levels. Altogether, these results total a record 4th quarter net income of $1,800,000,000 and earnings per share of $2.91 both up 7% versus 2023. Our 4th quarter operating ratio of 58.7% improved 220 basis points year over year. And as Jim noted, when you adjust for the break person agreement, our quarterly OR came in at 58%, a great outcome reflecting very strong quarterly performance by the UP team as we work to safely and efficiently serve our customers.

Moving to Slide 6, let me quickly recap full year 2024. Operating revenue of $24,300,000,000 grew 1% on a 3% volume increase, core pricing gains partially offset by lower fuel surcharge revenue and business mix. Excluding fuel surcharge, our freight revenue grew 4% versus 2023. Operating income totaled $9,700,000,000 a 7% increase and our full year operating ratio of 59.9% improved 240 basis points, both great indicators of how good railroading produces solid operating leverage and cost control. Earnings per share of $11.09 increased 6% versus 2023, while our return on invested capital improved 30 basis points to 15.8%.

Let's turn then to shareholder returns in the balance sheet on Slide 7. Full year 2024 cash from operations totaled $9,300,000,000 up almost $1,000,000,000 from 2023. Our cash flow conversion rate improved to 87 percent and free cash flow increased from $1,500,000,000 to $2,800,000,000 These year over year improvements reflect the change in year over year labor agreement payments as well as the growth in our operating income. We rewarded our shareholders returning $4,700,000,000 in 2024 through dividends and share repurchases. Our adjusted debt to EBITDA ratio finished the year at 2.7 times as we maintain a strong balance sheet and continue to be A rated by our 3 credit agencies.

2024 proves that our strategy of safety, service and operational excellence leading to growth also generates strong cash returns for our shareholders. With that, let me turn it over to Kenny.

Thank you, Jennifer, and good morning. As Jennifer mentioned, we had a strong 4th quarter. Freight revenues totaled $5,800,000,000 for the quarter, which was up 4% excluding fuel surcharges due to increased volume. This also reflected strong core pricing gains as a result of our deliberate focus on maximizing price. Let's jump right in and talk about the key drivers for each of our business groups.

Starting with our bulk segment, revenue for the quarter was down 4% compared to last year on a 4% decrease in volume, while average revenue per car remained flat even with decreased fuel surcharges. Coal continued to experience the same challenges seen throughout the year as demand remained soft due to high inventory levels and the competition from low natural gas prices. Grain volumes increased for the quarter as there was strength in export grain to Mexico coupled with strong UP service during the harvest. Lastly, grain products grew in the 4th quarter as our work to locate renewable diesel plants on our railroad is paying dividends in the form of increased demand for feedstocks and we expect that growth to continue with the start up of 2 new facilities, 1 in Nebraska and 1 in Kansas that came online in the 4th quarter, bringing the current count of UP accessible plants to 15 with more expected this year. Turning to industrial, revenue was up 1% for the quarter as volume remained flat.

Strong core pricing gains were mostly offset by lower fuel surcharges and a negative mix in volume. Business development in our petrochemical and petroleum commodity segments drove growth. Demand improved for our plastics business in both export and domestic markets. However, these gains were offset by softer demand for metals, sand and rock. Premium revenue for the quarter was up 3% on a 13% increase in volume and a 9% decrease in average revenue per car, reflecting increased intermodal shipments and lower fuel surcharges.

Intermodal volumes remained strong due to international West Coast import demand and positive domestic growth driven by business development efforts. International volumes were up 26% in the quarter, outpacing the growth rate of the West Coast imports. By utilizing our buffer resources, which includes people, locomotive and railcars, our operating team efficiently moved the traffic and maintained fluidity in the supply chain. Automotive volumes were flat due to unplanned downtime, partially offset by business development wins with Volkswagen and General Motors. Now let's focus on 2025.

Here are some of the key macroeconomic indicators that we're watching this year on Slide 10. These are S and P Global's forecast from their January report. And you'll notice that it shows a mixed picture for 2025, which is not materially different than what we shared back in September at our Investor Day in Dallas. The forecast for industrial production shows a slight increase, while GDP growth slows from 2024. Housing starts are expected to remain challenged, but with December sharp uptick, we are closely watching the situation.

Now turning to Slide 11. Here is Union Pacific's 2025 outlook as we see it today for the key markets we serve. Starting with bulk, we anticipate coal to continue to decline, though not to the levels we've seen in 2024. We expect coal demand will be met from existing high inventory levels. However, a new contract win with the Lower Colorado River Authority, also known as LCRA will help offset losses from 2025 coal retirements.

While it's premature to predict grain export demand, domestic grain demand is expected to remain steady through the first half of twenty twenty five, driven by strong grain yields from a good harvest in 2024 as well as our efforts to serve both new and expanding facilities. Lastly, we expect continued strength in grain products driven by intense business development and the expanding markets for renewable fuels and the associated feedstocks. We will continue to monitor potential changes in renewable diesel incentives and tax credits. Moving on to industrial. While the forecast for industrial production in 2025 remains muted, our diverse business mix, strong service and robust franchise will help us grow in some markets.

The metals market is expected to remain soft. However, our industrial chemicals and plastics markets will remain favorable based on plant expansions with multiple strategic customers and our strong focus on business development. This strong focus is all about unleashing what's possible by empowering the commercial team. They are leveraging our Gulf Coast franchise and strong service to win. And wrapping up with premium on the intermodal side, we expect growth in domestic intermodal with over the road conversion.

Strong international intermodal volume experienced in 2024 creates tough year over year comparisons for us. Us. And the mix issue continues as international volumes remain strong at the start of the year. Additionally, we're keeping a watchful eye on potential tariff changes that could further impact volume. Even though we are early in the year, we are seeing automotive OEMs curtail production to better manage high inventory.

However, consistent with S and P Global's outlook and our conversations with customers, we expect a positive trend with output increasing as the year progresses. Overall, we anticipate a soft economic environment and face difficult comps in 2025. But I'm excited about onboarding LCR 8, the new coal customer mentioned earlier. And I'm encouraged by the incremental volume we will gain from new and expanding facilities across multiple business segments. In fact, we currently have over 200 track construction projects in progress with a potential revenue of $1,500,000,000 and our business development pipeline is just as strong as it was this time last year.

We continue to invest in intermodal, which Eric will touch on. You heard me discuss new unit train facilities added to our network and we are bullish on industrial development projects in the Gulf Coast with a mix of large and small customers. I'm proud of the commercial team. They continue to hustle and we will maintain our strong pricing posture in 2025. And with that, I'll turn it over to Eric to review our operational performance.

Thank you, Kenny and good morning. Moving to Slide 13. Before diving into our results, I want to express my appreciation to the team for their hard work. Historically, vast surges in volumes such as those we witnessed in 2024 significantly disrupt rail operations. However, the team bucked that trend and was able to improve our service product while also driving growth and network efficiency.

It's proof our relentless focus on operational excellence is working and I'm excited we are carrying that momentum into 2025. Safety also improved in 2024 and continues to be at the forefront of everything we do. For the year, both our derailment and personal injury rates improved significantly, a strong step towards becoming the safest railroad. We remain committed as well to enhancing safety as we strive to send every employee home safe each day. Moving to our results this quarter.

Freight car velocity improved 1% versus last year. A favorable business mix coupled with continued improvements in terminal dwell drove the performance. Notably, 2024 marked an all time record for terminal dwell, a meaningful improvement in our service, which reduces customers' fleet costs through improved cycle times. Exceptional work by the team as they continue our focus on the fundamentals to drive terminal fluidity and capacity for future growth. On the service front, our Intermodal service performance index declined 7 points year over year, while manifest improved 5 points.

Intermodal SPI specifically improved month by month through the quarter as December ended with our 2nd highest level of the year at 97%. The team continued to deploy buffer resources and adjust trip plans to minimize the impact of the quarter's 26% surge in international intermodal shipments. Now let's review our key efficiency metrics on Slide 14. Our full year locomotive productivity metric improved 5% versus 2023, while the deployment of buffer resources to handle higher volume levels drove a 3% decline in our 4th quarter result. Workforce productivity, which includes all employees, improved 6% in both the Q4 and full year versus 2023.

Further, 2024 marked a 4th quarter and full year record for workforce productivity. We continue to remove unneeded work and automate operations while improving the safety of how we work. TrainLink improved 1% versus 2023 marking our 6th consecutive quarter year over year improvement. All in, 2024 set an all time record for TrainLink. We have made great strides in this area.

However, there are still opportunities to adjust the transportation plan and leverage targeted investments as we push to generate mainline capacity in the pursuit of growth. To wrap up, let's review our capital outlook for 2025 on Slide 15. In 2024, we invested approximately $3,400,000,000 across the railroad as we continue to reduce capital intensity while still delivering value to our shareholders. In 2025, we are targeting capital spending of roughly $3,400,000,000 flat versus last year. As always, our first capital dollars will support safe and productive operations as we invest in our infrastructure and renew older assets.

This includes modernizing our locomotive fleet and acquiring freight cars to support replacement and growth opportunities. Also, we will continue to invest in capacity projects that support our growth initiatives, while enhancing productivity. This includes siding construction and extension projects such as those in the Pacific Northwest and the Southwest along our Sunset Route. Furthermore, terminal investments supporting our manifest network such as those in and around our Houston Gulf Coast region aim to improve fluidity and increase capacity. On the intermodal side, we will continue to invest for growth in areas like Kansas City, Inland Empire and Lathrop to name a few.

At the end of the day, it's about ensuring we have the right resources in the right place to support growth and drive efficiencies. Wrapping up, I'm encouraged by the progress we made in 2024, but our work is not yet done. Continuing to focus on the fundamentals of railroading and leveraging new innovative technologies, we will further improve our service product and build a more resilient, efficient network in 2025 and beyond. So with that, I'll turn it back over to Jennifer to lay out our initial financial thoughts for 2025.

Thanks, Eric. If you turn to Slide 17, I do want to start by pointing out that in the appendix, we have a modeling slide that contains several 2025 assumptions that should be helpful in framing our current expectations. And as we talk about the year, all of our guidance is within the context of the 3 year targets we provided at our Investor Day in September. Our team understands those commitments, we are focused on achieving them and our 2025 performance is the first step. As you heard from Kenny, economic indicators for this year are a bit muted and mixed, some growth, some contraction.

Add to that outlook, questions around possible tariffs, interest rates, regulatory changes, etcetera, and our ability to forecast only gets more challenging. As we see the year ahead, there are positives on the volume front. First, we're starting the year with a bang. Volume is growing and the network is running well. Mother Nature has certainly taken a couple of early shots and will likely fire a couple more, but our resiliency is strong as we focus on meeting our customer commitments.

And you heard Kenny talk about how that service product has helped us secure new business for 2025 as well as the continuing pipeline of opportunities that span our entire portfolio. We also acknowledge there are some tough spots, namely from reduced coal demand and the year over year international intermodal comparison we'll face in the second half of twenty twenty five as today's mix impact turns into a volume challenge. So while there are puts and takes on the volume side, we are confident that we will continue to drive operational and financial improvement in 2025. We will achieve that goal by continuing to control the controllable, by generating pricing dollars that are accretive to our operating ratio, gaining further technology productivity through technology and by empowering every UP employee to drive asset efficiency. We expect the combination of our activities to drive volume, price and productivity will deliver earnings per share growth for the full year that is consistent with attaining our 3 year Investor Day CAGR of high single to low double digit growth.

Finally, with the capital allocation, as you heard from Eric, this year we plan to invest $3,400,000,000 back into the railroad. We remain committed to our industry leading dividend payout ratio of around 45% of earnings and we plan to return excess cash to shareholders through share repurchases of $4,000,000,000 to $4,500,000,000 during the year. The team has done an excellent job to position ourselves for whatever environment we face this year. We are on target to achieve our long term goals, while maintaining our industry leading position. We are excited for this New Year and we're ready to deliver.

Thanks, Jennifer. Before we get to your questions and I'm looking forward to the questions, I'd like to summarize what you've heard. First, you heard from Jennifer in the Q4, we leveraged the network to handle volume growth and drive strong quarterly results. Similar to the Q3, our business mix profile presented a margin headwind. So it was imperative that we generated strong productivity and pricing to offset that impact and that's exactly what we did.

Kenny gave an overview of 4th quarter volumes and laid out initial thoughts for 2025. Look, there are a lot of unknowns, but in my 48 years of railroading, I've never entered a year without some economic question mark. It is what it is. As you heard from Kenny, our team will focus on outperforming our markets and generating strong pricing for the value we provide. Importantly, I believe our 2024 performance demonstrates that our strategy to operate with a buffer and connect more closely to our customers is paying dividends, both in terms of meeting our customer commitments and as a direct result winning new business.

Eric provided an update on our progress to improve safety, service and operational excellence. From a safety perspective, we made great strides, but we still have work to do. On the service front, we're showing our customers what's possible while at the same time driving productivity. What's exciting for me is that I know we're not done. There are more opportunities ahead and we have clear line of sight of how we drive further improvements in 2025.

Lastly, you heard from Jennifer, our expectations for the upcoming year. Key for me is that we're on target to achieve the long term guidance that we laid out at the Investor Day in September. We operate the largest, most complex rail network in North America and with it comes challenges and opportunities. The team understands our goal is to deliver what's possible from this franchise. We intend to do that as an industry leader that keeps rates in the bar as we drive value for our shareholders.

Let me finish with one of my favorite quotes from a mentor. It's the fundamentals, stupid. Do what you say and commit to it and deliver. And that's who we are at Union Pacific. And with that, I'll turn it over back to you, Rob, and let's start the questions.

Thank you. We'll now be conducting a question and

you. And our first question today is from Scott Group with Wolfe Research. Please proceed with your questions.

Hey, thanks. Good morning. I just want to start on the guidance. The comment consistent with attaining the long term CAGR that seems carefully chosen language. Just so we're all on the same page, like does that just mean you expect to be in that high single digit to low double digit range on earnings this year?

And then, I just want to understand also, Jennifer, the pricing starting to become accretive to margin, is that does that start right away in Q1? I don't know if there's any sort of Q1 color you want to give us. Thank you.

So let me start, Scott, with the question of where we are. We were clear that we had a 3 year and when we commit just like I said from my favorite quote from a mentor early, we committed and you never know exactly what's going to happen this year. What are tariffs going to do? What are the regulatory changes that the administration is going to put in? But our goal is just as we showed in 2024 with the 7% increase that we think that that's where we're going to be.

We are going to be high single digit, low double digit. Now if there's things outside of our control, then we're going to have to work harder. But this is not a change from what we said before and I would expect that every year we deliver high single digit to low double digits. That's the win for us. So that's what we committed to and that's what we look forward to delivering.

Yes, Scott. So just going back for a second. So Q4 we were accretive. So we actually outperformed ourselves a little bit there because we did not think we would achieve that here in 2024, but we did in the Q4. And so I'm not going to parse out the quarters in 2025, but I don't see us taking a step back and we're going to be accretive throughout 2025.

Our next question is from the line of Jon Serpell with Evercore ISI. Please proceed with your question.

Thank you. Good morning. Eric, in Jennifer's comments at the start, she noted the record workforce productivity, also said all in cost per employee of 4% in 25. Percent, you continue to find ways to be more productive. You've done a lot of volume with a lot less resources.

Is it still a labor productivity or what are some of the other initiatives you're looking at, at 25 to kind of maintain or manage that cost inflation?

Yes. Thank you for the question, John. And let me be clear, there is more opportunity and we're working to capitalize on that. Let's go back to our Investor Day and kind of level set from that perspective. First thing I said at Investor Day was that we focus on productivity because it puts Kenny and the team in the best position to grow in the markets and that's still and will always be true.

The second thing that we focused on was our culture, our mindset here at Union Pacific, which is to be perpetually dissatisfied with ourselves when it comes to productivity, to keep pushing to find additional opportunities. So specifically to your question about what are those opportunities, it's going to be some of the same things you've heard in the past and a lot of new things that I'm excited about. Fundamentals, they always stay true. Those are the things in the past that we continue to focus on. The improvements we made in the Q4 regarding our recrew rate, even moving that just a single point has a significant productivity driver for us.

The work that we did to reduce our people starts in our yards and locals approximately 2% and 4% respectively in the Q4, that's about the technology we're putting in the yards and being able to be even more productive with it. On the technology front, the work that we do and have continued to do and will continue to do on the automation of our terminals and pushing to reduce the well. Then when you get outside of the terminals and the transportation side, you mentioned a couple of them. And the engineering team as they work to continue to automate inspections, maintenance tasks, distribution of materials. And then of course, you have the whole bucket of purchase services and I see great opportunities in that.

And we capitalized on those in 2024, but there's more. When you start to think about the technology we have to automate some of our vans across the system and when you're using 100 of 1000 of van starts per year, a 10% improvement in that is really meaningful for us. So here's the bottom line. There's more than 75 initiatives up against how we think about driving productivity across this company. And I really do mean across the company.

It's not just operating. I'm very confident about our plan in 2025 and I'm encouraged that we'll be telling you about those results as we go through 2025.

Our next question is from the line of Stephanie Moore with Jefferies. Please proceed with your question. Stephanie, perhaps you're on mute. Your line is live for a question.

Sorry, I was on mute. This is Joe Haflinger on for Stephanie Moore. Thanks for taking our questions and congrats on the good results. I wanted to talk about one of the things you mentioned over the last couple of months has been maybe a reduction in regulatory burden. And maybe consistent with what you talked about on the second question here, what are some sort of specific areas maybe that you've seen additional red tape or what areas do you think you guys could particularly benefit if there's reduced regulatory burden on you guys in particular?

I know you guys had mentioned a lot of things on the Investor Day. So would any specific examples that would be very helpful? Thank you.

Well, I think the largest thing is we've applied for a lot of waivers that would help with the technology that we've implemented to make the railroad more efficient, provide better service to our customers. Those are the things that are out there that we hope with the turning of the page and how regulations are being talked about at the federal level that we get those improvements will allow us to be able to provide better service and of course be more productive. So those are just to name a few and there's a lot of waivers that we've applied for that are being outstanding for years now that we're looking forward to it. So I could go on here for about 45 minutes on things that the regulation wise I think would help the industry make us safer, provide better service and be more productive. But that's a good way to look at it as those waivers that we've applied for over the last number of years.

The next question is from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question.

Good morning, Brian. How are you this morning?

Good morning, Jim. Good morning, team. Thanks for taking the question. Doing well, thanks. Hope you are as well.

I wanted to come back to the I guess there's a second break person roles, wanted to hear a little bit more about that because you mentioned there was one earlier. So thanks for pointing that out. And then also, Jennifer, on the comp per employee for the full year, you're still rolling out last we heard still rolling out some of the predictable work schedules for the engineers. So I understand there's still some negotiation going on with the conductors for something similar. So maybe you can just give us a little context in terms of the other break person agreements, how it's different than the first one, Then how you see those other two factors or agreements, I guess, for the engineers and conductors rolling out for the rest of this year and what you expect in the numbers there?

I'll let Eric talk about the break person agreement and what that really does. But just as a reminder, we did one in the Q2 of 2023 and now this one here in the Q4 and we actually have one more region that we're working on there. In terms of the rollout of WorkREST, we continue to roll out on the engineer side and we continue to work with our conductors, Smart TV in terms of coming to an agreement. And that's all really part of the mix as we think about the statement that I made about the all in 4% comp per employee in 2025.

Yes. And Brian, I'll just add to that. If you think about the on the engineer side, there's 28 hubs across Union Pacific and 20 of the 28 already cut over. So we're nearly 75% cut over. Now thinking about the Brake Person, the way to really think about it is you kind of got to go back in time a little bit.

So go back in the days when you had 5 people on every single train. And that's the context you got to think about this break person deal. As the technology has improved over the last 40 years, including the technology that we're still implementing to this day, you just have less demand for some of those 5 people and we've demonstrated that, right? At most, the crew today has 3. That 3rd person is the brake person and we have that in some parts of our railroad.

In Jennifer's prepared comments, she referred to it as a regional brake person agreement and that's because not every single area of the Union Pacific has it. So this is very similar to the first agreement that we reached in almost every single regard and the goal is still the exact same, right. It's to utilize who was in those break person positions as conductors and our normal crew base to be able to provide the service that we sold our customers.

The only thing I'd like to add is the whole discussion about where we are on implementing with Smart and with the BLET. And Eric just said that 20 out of the 28 hubs we've implemented. What you always Brian when you do those things is you make sure that you still end up with the same number of starts per week per employee and that's real important. And I sat down very first few weeks I was here came back to work what 16, 17 months ago and with the union leaders and they committed that it made sense that that goal had to be there. And what we wanted to do was provide that time off and that scheduling, but they also understand because they want us to succeed also is that we have a workforce that works what we expected them to work on a weekly basis.

And what we found results so far is we have to work hard to find ways to make sure that the schedules are set up And we've had a little degradation, but nowhere near as much as some people write about. I'm always surprised when people write about those things without the detail. But at the end of the day, I'm very comfortable that we have figured out a way to move ahead and do this right so that we don't add incremental cost to the company when we provide and the unions have agreed that it is going to be cost neutral for us or start neutral. Wages still went up 4.5%. So the wages are the wages that we've agreed to.

But that's the way to look at it is that we're very comfortable and with Smart, we'll get to the right place that's good for our employees. We want our employees to have regular shifts. I'm one of the guys who's a CEO in this industry that's actually worked on the ground as a locomotive engineer and conductor And to have schedules that help you plan your life so that you can balance the demands of working and also everything else your family and everything else is real important to me. So we'll come to the right place, but we're also being smart about how we get to it. You can't have a deal that's all one-sided.

So I'm looking forward to working with Smart to finalize the deal and working with the BLET to implement the last 8 terminals that we have. But I think it's a real positive for both of us and we'll become it'll help us to become even more efficient in the long run. Because people with schedules will not take as much time off as they did before once they get used to what their work schedule is. So sorry for the long answer, but I just needed to sort of clarify because I know there's some noise out there about what the effect is for us. Okay?

Next question is from the line of Jason Seidl with TD Cowen.

You briefly touched about some of the unknowns that are out there. There's obviously been a lot of talk about potential tariffs with 2 of our largest trading partners, Canada and Mexico. Clearly, you guys have a big position in Mexico with your access to the Mexican interchanges as well as a partial ownership of Feramex. I guess if we do get that tariff on February 1, so

are the expectations on volume? And then I guess what potentially could have an impact if cross border business with you guys would decline because of that?

Let me start and then I'm going to pass it over to Kenny who knows our markets and what the different business mix would be. If something happens south of the border, does it give us more business out of origination in the U. S. I'll leave that to Kenny. But let me talk in general the way I think about this is I have never for all the years I've been railroading and I just hate to say that number because I think it's I've been railroading longer than most people on this call have been alive.

But at the end of the day, I have always there's always something and this is the way I see it. We have the capability at Union Pacific to react to anything that's thrown at us. Good strong balance sheet, real good focused marketing team, operations that's looking to be more efficient. And I look at the entire package. If we get tariffs, but we also get the regulatory changes and we get the tax changes that were talked about by the President with how depreciation is going to work on capital and how our corporate tax rate works that could be a lot of positive.

Now I don't expect any of that. That's not what we planned. We planned for the worst. If something really bad happens, make sure that we are in a good position to handle that. So I think that with the puts and takes of where our business is, we'll deal with it and we're waiting to see what actually happens.

I'm hoping that it's a negotiating position by the President and because I don't think anybody, the consumers in the U. S. Would love to have increase in prices because of dispute unless there's some strategic reason that the President needs to do that for security of the country. But overall, I'm very comfortable that we're going to be in a good position as we move forward and we'll just react on how we see things happening.

Kenny? Jim, I'll tell you, you covered a lot. So all I'll say is and we've seen this before, it's really about being prepared. And what generally happens is maybe the origin location shifts from Asia to Mexico or Canada and that commodity is priced in, that tariff is priced in. But being prepared is the critical thing.

Eric and his team have demonstrated that especially in the second half of this year when we saw what happened on the West Coast. Same is true with exports. We saw that on the grain side where it may shift from PNW or go to the Gulf or go to Mexico. Regardless, it's all about preparedness. And I'm telling you, as we're coming along here from an operating and service perspective, I feel good about our posture going in regardless of what happens.

Union Pacific (UNP) Q4 2024 Earnings Call Transcript

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