Union Pacific Morgan Stanley's 14th Annual Laguna Conference

Robbie, listen, thank you very much and good morning, and I've had a chance to say hi and good morning to a number of you. I would rather done that than this. Okay? We could talk personally, but that's okay. Robbie, thanks for inviting me.

Absolutely. What a wonderful place.

I had the team, Diana and Jennifer, out for a run, walk this morning, and I got them to drop down and give me 10 pushups, and I was down there with them. I do not think they will ever do it with me again. So we went down to the beach, went for a walk. Diana was saying, "That is a pretty good pace." Then I said, "Let us drop down and do 10," and we did 10. Then coming back up, we ran up a piece of the hill, and then, "Let us drop down and do five." So that is it, Robbie. You better move the conference. They will not come with me again.

That was our morning. That is how we are off to a start at UP.

I love it. That is the way we should be. Push the heck out of yourself and see what the heck you can do to win. I am not here to be given second place, and I made sure I beat the girls up to the top of the hill. I would have tripped one of them if I thought one of them was going to beat me. So listen, Robbie, cautionary information, typical. We do not want to make forward-looking statements. If you need some more detail, please give us a call. Go online and there is a whole boilerplate now that is a freaking big page long. Go read it and figure out because we do not want to do anything wrong. Right, Jennifer? Absolutely. Okay. Let's talk a little bit about how we are doing in this quarter.

Car loads are up around 5% this quarter, and it is a mix, which is nice. It is not just intermodal and what is happening with fuel prices and everything else. Actually, our industrial month to date, and I am giving you a number that is not public, but it will be public. Now it is 5.2%. It is nice to see a cross-section of business, how we are moving it. Bottom line, I could sit here and talk about the metrics completely, but I am sure all of you guys know what I look at and what is real important. Overall, the metrics at the start of this quarter were a little lower than last year because of incidents and things that we had happen impacting the railroad.

Fundamentally, it was not what we were doing, and it has recovered nicely. We are in the mid-230s again in car velocity, the dwell under 20 hours. We are handling the increase in business without degrading our service product or degrading how we move. I am very happy with that. Listen, we keep on talking operating ratio, and some people misunderstand me when I talk about operating ratio. Absolutely, you want to have the best operating ratio that your railroad can deliver because of revenue, the type of revenue, and the cost structure that you have. I think we figured out a pretty good model to get to be the best in the industry. I think something like 300 or 400 basis points better than our next competitor, and we like that.

It gives us a different starting place when we are looking at how we bring business on, and that is real important to us. We do not lose sight of that, and we will continue to do everything we can to be able to keep it at the right place. I have said this 1,000 times. If you concentrate on a number, then you miss business or you make decisions that are bad for the long term. I am not the CEO of. They did not hire me as the CEO of operating ratio. They hired me as the CEO of Union Pacific, and that is what I do. Okay? Now, we are going to be the best. We want to stay at the top. We want to win, and it is all about how much business we can bring on that is fundamentally strong business for our company, and I like where we are.

Jennifer, any more sort of details?

No, I think you've hit really some of the high points, particularly around the volume side. Only things I'll add is when you look at what's really the driver of the growth, great to see that industrial business, and that's been pretty broad-based across many of the segments within industrial. You've got bulk that's down about 1%. It's pretty similar to what we saw in the second quarter where the low natural gas prices continue to impact the coal demand, but we're seeing very strong demand on the grain side of the world. We look for that to continue. We're getting into the harvest season in the Midwest, and it looks to be a pretty decent harvest in our served territory again. So that's good, and that should give us some sustainability on the grain side.