CSX at J.P. Morgan Conference: Strategic Growth Amid Challenges

On Tuesday, 11 March 2025, CSX Corporation (NASDAQ: CSX) presented at the J.P. Morgan Industrials Conference 2025, outlining its strategic initiatives and addressing both opportunities and challenges. The company emphasized productivity improvements and infrastructure projects while navigating headwinds such as export coal prices and potential tariffs.

Key Takeaways

• CSX projects low to mid-single-digit volume growth for 2025, despite weather and market challenges.
• The Howard Street Tunnel project is expected to significantly boost intermodal volumes upon completion.
• Union Pacific and C. H. Robinson also shared positive performance metrics and strategic plans.

Financial Results

CSX reported stable volume trends for January and February, with March expected to meet projections. The company anticipates a low to mid-single-digit increase in overall volume for the year. However, it faces a $350 million headwind due to factors such as export coal prices and network disruptions. In pricing, $1.5 billion of the merchandise portfolio has been repriced, with only 5% falling below expectations. Domestic coal volumes are expected to decline more than export coal.

Operational Updates

The $500 million Howard Street Tunnel project, with CSX investing $140 million, aims to enhance double-stack capabilities in the Northeast, potentially increasing intermodal volume by 75,000 to 125,000 loads by late 2025 or early 2026. Productivity initiatives have led to 1,000 fewer crew starts per week and maintained flat purchase services costs over two years, contributing to $45 million in fuel efficiency savings last year. CSX also highlighted its network flexibility, allowing daily train start adjustments based on market conditions and tariffs. The company has nearly 600 active industrial development projects, up from over 550.

Future Outlook

CSX maintains its full-year guidance for volume growth and expects minimal revenue loss from the Howard Street Tunnel project, with customer solutions in place. The company sees further growth opportunities beyond the direct impact of the tunnel project.

Conclusion

For a deeper understanding of CSX’s strategic direction and performance metrics, readers are encouraged to review the full transcript below.

Full transcript - J.P. Morgan Industrials Conference 2025:

Brian Austin Picker, JPMorgan Analyst, JPMorgan: right. Good morning, everybody. Thanks for joining us here on the first day, first presentation of the JPMorgan Industrials Conference and the Transportation Track. So I’m Brian Austin Picker cover transports for JPMorgan. Very happy to start off with CSX.

We have Sean Pelkey here, the CFO Matt Korn, Head of Iron Strategy and Room as well. So we’re going to pass it over to Sean. He’s got a few slides that I believe are posted. He’s going to give us a little bit of intro, then we’ll jump into Q and A. If you got any questions in the room, we should have a few mics here as well.

So guys, thanks very much for coming and kicking us off here. Sean, turn over to you.

Sean Pelkey, CFO, CSX: Thanks, Brian, and appreciate you guys having us here so early, but happy to kick things off. What I wanted to do is just kind of give you a sense of how the year has been trending so far, a couple of months in for CSX. And before I get into those details, of course, we’ve got our forward looking disclosures related to any comments I’ll make during the presentation. On Slide three here, if we look sort of how January and February trended relative to normal historical averages, what we’ve got there in those blue ranges is January and February volume relative to the Q4 average volume. The range that we’ve seen over the last nine years and the little diamond shows you where we fell in 2025.

The gray shaded area gives you a sense of what the mean has been over that time frame. And coming out of the gates in January, you can see actually held up okay even though we navigated through some difficult weather. The market that was off the most in January was auto. We saw production go up get off to a very slow start. Inventories were high going into the New Year.

Coal was off a little bit as well, mainly both producer issues as well as weather. But in total, volumes were about what we would have expected in terms of normal seasonality. Similar story in February, I would say the one big difference, of course, being the auto market did recover in February, and then I would say the weather had more significant impacts in merchandise. Through both months, intermodal was a little higher than normal seasonality, which was nice to see. Hard to say how much of that might be pulled forward from tariff impacts and whatnot.

The other thing I would say here is that even though total volumes were in line with what we would have normally expected on a seasonal trend basis, they were not what we expected coming into the year. So we are a little bit off our own plan through January and February. March, of course, is a really important month. We’re a little over a week and a half into March, and we’re actually trending fairly well in March, pretty close to what we would have expected across the board. When we get into the details kind of around individual markets, I won’t go through every single one of those.

But like I said, intermodal is off to a pretty good start, both on the domestic as well as the international side for different reasons, but both are up more than 2% on a year to date basis. Ag is up as well. That’s really been driven by demand for feed grain. Export has been a headwind in some of the other markets within ag, but overall ag has been good. Auto was off to a slow start, it has picked back up.

Domestic and export coal, I would say going into the year, we thought export coal would grow, domestic coal would be down. Still expect overall coal to be down, I should say. Domestic with some plant closures, export with some production issues that will linger here through the first half. Metals is one that’s down year over year. We’re cycling some comps from last year that will start to fade, and we actually think metals may have a little bit of momentum given the tariff trade.

Now, you get off to a relatively slow start and you start questioning and saying, hey, what do we have built in, in terms of productivity initiatives? How do we make sure that we’re managing our costs well while also leaving the door open to capture growth as the markets begin to normalize hopefully later into the year, in particular, the truckload market. But, you know, Mike, Corey’s been with us now for a year and a half. He has brought in a fresh perspective. He’s brought in some leaders that he’s worked with across the industry for a number of years and, you know, worked very closely with my finance team to go through line by line every single one of the budgets within the operating departments.

I would say where where Mike has brought a tremendous amount of value is envisioning what the idealized train plan looks like that achieves that balance of cost efficiency as well as service to the customer. And if you look at kind of where our service metrics have been, the one that has been as stable as it can be is our delivery of service to the customer, which has been right around 95% plus or minus a couple percentage points. And we’ve done that while making significant reductions to the number of road starts that we’re running. Now part of that is volume with coal volumes down, but there’s a significant amount of reengineering of the network. The Cumberland Yard, which we can talk about later, has been a big driver of that.

And you can see there about 1,000 fewer, crew starts a week.

Unidentified speaker: Just to give

Sean Pelkey, CFO, CSX: you some perspective, that’s around one the cost that we can manage kind of most directly are the purchase services costs. And if you look at how well CSX has done over the last two years on that line item, we’ve been able to offset all of our inflation and essentially hold those costs flat on a two year basis. There are a lot of initiatives that go into that. Certainly, keeping a very close eye on locomotive utilization and productivity is an important driver there. We last month hit our highest horsepower per trailing ton that we’ve seen since 2016.

So definitely headed in the right direction there and more initiatives to come. I did also want to take a moment just to talk about Howard Street because it’s a significant project that just began in earnest February 1. When we originally started talking about Howard Street, I mean, I should say, we’ve been talking about Howard Street my entire career, twenty years. And forever, it was Howard Street is the bottleneck in the network. It will never be fixed.

And then, you know, five or six years ago, we started to envision a world where we could double stack clear the Howard Street tunnel, which would open up the New England area, in the Northeast to us to be able to double stack and create tremendous capacity for CSX. The problem was to to think about shutting down that tunnel for an extended period of time would have significant customer disruption. We didn’t see a way of being able to do it. So what we were going to do was do a three year plan where we would run trains for twelve hours a day. And the other twelve hours, the team would come in.

They would basically pick up a 12 foot section of track, take it out. If you see that crane with that giant piece of concrete, they would lay that in, which would go under, where the existing ballast and track was. They would lay the ballast and track back on, do all of that within a twelve hour period, start running trains again, and repeat every single day for three years. When Mike came in, he challenged the team to find a way to do a full shutdown of the tunnel knowing that that kind of disruption, was going to be probably more impactful to the customer for three years, and there were things that were going to go wrong. There were going to be days when we just didn’t weren’t able to get the track time.

So we came up with a plan to do this in six to eight months with a full shutdown. Part of that plan included, the redesign of Cumberland Yard that Mike talked about at our investor day last year, which is now complete and has, almost doubled the processing capacity of that yard, taking a lot of the pressure out of, that that Baltimore area and allowing us to reroute a significant number of trains around the tunnel. In fact, 10% of our trains would have run through that tunnel. They’re being rerouted today, about 15% when you include what we’re doing on the Blue Ridge. It’s a big project.

It’s about $500,000,000 CSX’s commitment is about $140,000,000 The other $360,000,000 is funded through partnerships with federal and state local governments. So and in fact, CSX’s capital, we’ve already spent about half of it even before beginning construction in earnest in terms of clearance work that’s been done around the tunnel. So we’re getting closer and closer to the finish line as we speak. And what it’ll do for us really is kind of open up well, my arrows aren’t on the screen, but hopefully they’re on the slide on the website. But there’s some nice arrows that show you the flows and everything.

Basically, the punchline is the merchandise traffic is gonna go across from Willard directly to Baltimore, given the work that we’ve done at Cumberland. And the intermodal trains are gonna have a faster high speed route through, New England and down into Philadelphia and Baltimore. What that does for us, it allows us to consolidate trains, reduce crew starts, reduce costs on crews and locomotives. It also allows us to grow into the opportunity, into the capacity. We’ve got, we think, an opportunity to increase intermodal volume anywhere from 75,000 to 125,000 loads once the project is complete.

So very, very significant benefits and we will start to see that at the end of this year going into 2026.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Thanks very much. I don’t know what happened to the errors there, but I think we can envision it nonetheless. So a lot of good detail to start off, Sean, I think just to focus a little bit more on the near term for the time being. So you’ve got the $350,000,000 headwind that you laid out in the last earnings call.

We’re pretty clear about what that meant, but obviously it’s been a tough start for the network and for the industry on a weather basis as well here. So any more specific thoughts you can offer at least how the year has started, particularly the first quarter, which we know is always tough for the rail industry, but specifically to you guys here.

Sean Pelkey, CFO, CSX: Yes. One of the things we said on the January call is that Q1 was going to be trough earnings for us. I think that’s still what we have line of sight to. In terms of the $350,000,000 of headwinds, that’s primarily related to export coal price and fuel price as well as roughly $10,000,000 a month of costs associated with network disruptions as we shut down the Howard Street Tunnel and reroute around the Blue Ridge as that reconstruction takes place. That number is pretty similar to what it was going into the year.

Met coal prices have been fairly steady, down a little bit, but I would say we expect a little bit of recovery from where we are right now over the balance of the year. So no change to that per se. On the volume side, off to a little bit of a slower start than we expected in January and February. March is holding in okay. So not really ready to kind of change anything in terms of the full year guide.

Still expect low to mid single digit volume growth in total.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: And when we talk about all the uncertainty that’s out there from the tariff headlines, I mean, I don’t know if any have come across this morning as we’re speaking, but it’s hard for the network and for customers to adapt to that. So what have your conversations been with folks as you’ve gone through this the first couple of months of the year? And you had the slide with autos having a little bit of volatility off to a slow start in the January timeframe. Was that related to kind of the stop and start of the tariffs? I’d love to hear just how you and Mike are planning to with the customers to adjust to that because it’s a bit of a whiplash.

Sean Pelkey, CFO, CSX: Yes. Well, let me start more broadly and then we can talk about auto. So just in overall in terms of tone around tariffs, I think everybody all of the customers are saying something very similar, which is we’re watching this very closely. We’re very curious about what happens. We’re trying to make contingency plans.

But in terms of the actions that are being taken to date and how it’s impacting our volumes year to date, I don’t think we’re seeing anything all that significant. You could debate maybe there’s a little bit of pull forward on the intermodal side. There are isolated examples of fertilizer from Canada that isn’t moving today that was previously because of the potential threat of tariffs. We’re not talking about big numbers, big dollars right now. I think that those impacts will be felt if and when certain tariffs go into effect.

And we’ve got markets that could benefit as well when you think about metals in particular. We saw that back in 2018, a positive uplift in terms of domestic metals production that favored CSX. There is capacity to ramp up production in the metal space. And so there’s some positives as well. In terms of autos, I don’t think January had anything to do with tariffs.

I think it was largely a little bit too much inventory on the ground going into the year, retooling of plants that took a little longer shutdowns than they normally would have. When we think about the network impacts and how we manage through that, I think talking to Mike about this, I think it’s something they keep an eye on every single day. And as changes occur and we’ve had a couple of fits and starts with auto tariffs on, off, on, off, the team’s been at the ready. They adjust the train start plan daily based on what’s happening. We can reduce starts very, very quickly.

We get immediate benefits from that because unlike unlike other crafts and other areas of the company, when we don’t run trains, the crews don’t get paid. So there are benefits. There are carrying costs, of course, of having those crews. But, you know, the network is flexible enough to be able to adjust the train plan on a daily basis. And you think about that road crew start slide that I showed, that didn’t all happen in a day.

That was going in and making planned changes gradually over a period of months to see how the network would react. Are we able to still make our connections? And there are areas where we’ve unwound some of the changes that we’ve made to be adaptable and make sure that the customer is receiving the level of service that we would want them to receive.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So when you think about the commodities or end markets that could be exposed to the tariffs as they’re written, which is a big if, or how that changes or if it changes. What are some of the ones you’re more focused? You mentioned metals potentially a bit of an uplift. What are some of the top five ones that you’re focused on? I would imagine maybe a little bit of a concern from a retaliatory perspective on China for maybe export ag and coal, but what are the ones that I guess you and Kevin are focused on from an end market perspective?

Sean Pelkey, CFO, CSX: Yes. If we start with China, we really don’t have any export grain exposure to China per se. Most of the grain that we export goes to South America. And in fact, our export grain is a very small percentage of our total ag and food volumes and has already been impacted by a strong Brazilian crop. So our export ag is down quite a bit to start the year and probably expect it to be.

But again, it’s not a significant part of what we do, much, much bigger for the Western Roads. In terms of exposure to export coal, it’s a very small portion of our export coal does go to China, so but there is some percentage that does. That could be impacted. And I think the expectation is if we see that happen and U. S.

Tons are not going to China, there will be a displacement effect. The amount of demand for export coal out of The U. S. Should remain fairly constant and will just change destination. So we may have more that goes to India as an example, if that were to happen.

When we think about Canada and Mexico, specifically, about 10% of our volume is cross border between Canada and Mexico and The U. S, a little bit more exposure to Canada actually than Mexico. And that transborder traffic to and from Canada is sort of diversified across a number of merchandise markets. You think about fertilizers, forest products, chemicals, metals. And then in terms of Mexico, we do have some exposure to auto.

So certainly would expect if we see an impact there that auto volumes would be impacted. Now, there is capacity opportunity at U. S. Owned plants as well, particularly with the big three, whether they can ramp that quickly, how long the tariffs last, all of that kind of remains to be seen. But there is the ability to produce more at some of The U.

S. Plants.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: One other big wildcard we’re watching for the time being is just the potential to levy some fees on the China vessels coming into The U. S. And obviously not a direct impact, but certainly a pretty big indirect one I would expect if that were to happen. So when you speak to your ocean carriers and everybody else in that supply chain, do they have a read on what that might do? And then how would that affect the CSX network?

Sean Pelkey, CFO, CSX: Yes. So it’s a big one. First, I would say when we talk to our international partners on the international steamship line, we’re off to a pretty good start. And I think there’s good line of sight to that continuing at least through the first half of the year, so regardless of what happens around tariffs and everything else. So, feel good about that market as we speak.

That being said, certainly, this potential port fee that could come into play would be a significant disruptive impact not only across international intermodal. You think about export coal as an example, there are Chinese built chips that serve the Port Of Baltimore and Newport News as well that could be impacted. It would be significant in terms of the supply chain impacts. I think everybody is speculating at this point. Certainly, there are some numbers out there in terms of the dollar impact on the cost to land that freight here in The U.

S. That we think would drive behavior changes, some of which would benefit us. If there’s more consolidation at ports that we serve and there’s more volume that wants to come into those ports, that’s a good thing. We can be a part of the solution for that. But it could also result in more congestion as well, which could have significant disruptive effects and of course lead to higher inflation.

So that’s a it’s a watch item for us. I think like everything, we’re not going to change our network plan or our projections just yet until we see how things play out.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So on the met coal and I guess export met coal specifically last year, you had some closures, you had a shiploader break, you had obviously the bridge collapse, so tough year last year. It sounds like the first quarter is maybe off to a little bit of a soft start, but is there you’ve already talked about the headwinds year over year. So is there room just to have a little bit of an improvement just because last year was so difficult?

Sean Pelkey, CFO, CSX: Yes. So on the export side, off to a slower start than we had hoped with both weather producer issues and then we had another mine catch fire. That mine is likely going to be out through the first half of the year. We had another one last year that that, had a more significant fire event. That one may be out, you know, towards through most of this year.

So that will help us in terms of comps for 2026. But there is, I think demand has remained relatively steady for export coal as well, which I think is the good news. And the issues that we had at Curtis Bay and with the Key Bridge last year should provide a little bit of a year over year uplift as we get a little bit later into the year. So I would say, when you think about overall coal volumes, we would expect domestic to be down a little bit more than export or certainly that’s what we expected going into the year. The domestic picture has gotten a little bit better, particularly with a really cold winter, which has helped stockpile levels.

Those have been worked down and we actually have a number of customers that are looking at adding additional sets and haven’t necessarily seen a lot of that benefit just yet. But I think as we get into March and certainly into the spring, into the shoulder season here, we’ll start to see some rebuilding of stockpiles. So Q1 coal volumes will probably be the worst in terms of year over year.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Can you talk a little bit about the domestic market for intermodal and the truck conversion because it’s more of a theme and it sounds like it’s actually getting some momentum. Maybe it’s the service product you guys have had out there for a while. But what’s driving that? And I guess kind of more importantly, how do you think it can stick? Because it’s you said it’s a pretty weak truck market.

So the fact that we’re seeing it now is worth the question.

Sean Pelkey, CFO, CSX: Yes. Well, in terms of truck conversions, it’s not just intermodal, it’s not just domestic intermodal, it’s across merchandise as well. I think the team tracked over 100 different projects last year that led to truckload conversions. Now many of those are small, $1,000,000 or less, but there’s some larger ones as well. And I think it’s a combination of running a stable consistent service for a number of years now, really since 2022, and doing that in a way where we’re communicating differently with the customer, being much more proactive when things are not running well to let them know when freight may be delayed and when to expect it.

We’ve invested heavily into the technology platforms that interface with our customers And that provides them greater visibility and line of sight into what’s happening with their freight, which doesn’t go unappreciated. I think the collaboration between operations and sales and marketing also goes a long way. There’s much less casting blame and deflection going on as there has been historically not just at CSX but across the rail industry sort of this natural tension between operations and sales and marketing. I think they’re working together in partnership and responding to each other’s concerns. And that goes a long way with the customer.

So we are seeing a lot of success there, and I think it will continue. I think you sort of hit the nail on the head there that the truckload market we’re going on three years now where it’s been challenging. And as we start to see a turn there, I think there’s some volume that we’ve already won that we’ll there’s an opportunity to ramp it up and win even more of that share as that price dynamic between rail and truck widens.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: And on the domestic side, in particular with early start of bid season here or early in the bid season rather, how do you feel that your channel partners are faring? Anything you can do to help them? I’m sure the service product communication are helping, but what’s the sense as we get underway here for bid season for that group in particular?

Sean Pelkey, CFO, CSX: Yes. It’s less bad than it’s been the last couple of years, let’s say. I think we’re seeing on the UMAX side, we’re seeing pricing. That’s our joint owned product between us and Union Pacific. We’re seeing pricing flat to up a little bit, which is encouraging.

We have not seen that for a couple of years now. And that the pricing on the UMAX product tends to be much more sensitive to what’s happening in the truckload space than the rest of our domestic volume. So that’s encouraging. Our truckload volume in domestic intermodal with our partners is actually up on a year to date basis. So that’s encouraging.

So I think it’s less bad. I think there’s been a little bit of inflection in terms of the pricing, probably not what many had hoped going into the year. But we are seeing some BCOs that want to line up multiyear deals, which is also encouraging in terms of what they’re thinking coming out of exiting bid season here in 2025.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: With all the stuff that’s happened over the last couple of years with the ports and the labor uncertainty, I would assume that we get a little bit of a share shift back to the Gulf Coast and to the East Coast, but clearly you can handle TransCon and interchange anyway. So what are you guys planning for? What do you see right now? And I guess ultimately how would that impact the network if we were to see sort of a normalization or reversion of that shares?

Sean Pelkey, CFO, CSX: Yes. I mean, certainly, the East Coast ports have been investing. They’re continuing to invest in capacity. And so naturally, we’ll see growth at the East Coast ports, whether it’s share shift back from West to East or whether it’s growth in total with the disproportionate share landing on the East. I’m not sure, maybe a combination of the two.

But CSX is relatively indifferent, right? If it lands West and it’s coming inland to the consumption markets along the I-ninety 5 Corridor, landing on the West Coast is probably better for us. If it’s going into the Midwest, we’re relatively indifferent. So and we’ve seen a tremendous amount of inland port activity and growth over the last couple of years and CSX has been a big beneficiary of that. We were just at a groundbreaking for the inland port that’s going in, in Montgomery.

There’s been billions of dollars of private investment in and around that domestic terminal. And in the next couple of years, we’ll see that open and CSX will be a big beneficiary of that as well. Those are short haul moves that essentially take that volume off of the truck and onto the rail, but they’re quite profitable. A lot of the costs are borne by the terminal operators. And so the contribution margin on that is actually quite healthy.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Maybe you can talk a little bit about the industrial development pipeline. You guys have been pretty vocal about that adding a point or two of growth per year over the years you talked about at the Investor Day. Has any of that really shifted or changed given all the uncertainty here or those are just long lead projects that take time anyway?

Sean Pelkey, CFO, CSX: Yes. Well, I think one thing that’s encouraging is the phones are still ringing. There’s still activity going on. There’s still interest. In fact, I think if you were to ask the industrial development team, they’d tell you they’ve probably seen a 15% to 20% increase in terms of total call volume coming into this year versus last year.

So the inquiries are out there. Is there a little bit of hesitance to actually put new capital into the ground given uncertainty around where things play out from a tariff and policy standpoint. I think that would be fair to say, yes. But it’s not stopping the amount of activity that’s going on in the background. We now have almost 600 active projects.

I think last year at the Investor Day, we said, what, over 500, almost five fifty. We’re now at 600. So the pipeline is growing. That gives us a lot of confidence as we go into the next couple of years. Industrial development projects, both new and expansion of existing facilities added about 1% to our merchandise growth last year.

That’ll be similar this year and ramps up as we get into ’twenty six and ’twenty seven to the point where it’s likely accretive to the tune of one to two percentage points of total volume. So we have line of sight. The projects that are being developed are not slowing down, and we’re excited about where the future takes us.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So cargo theft isn’t something we really talk about on earnings calls.

Jennifer Heyman, CFO, Union Pacific: But the

Brian Austin Picker, JPMorgan Analyst, JPMorgan: more we talk to shippers and go to these conferences, it comes up almost all the time. It’s getting more coverage in the press as well. So how do you think about that at CSX? How does the industry address that? And is this really as big of a concern as it seems to be when it comes from a shipper perspective?

Sean Pelkey, CFO, CSX: Yes. There’s been cargo theft forever, right? Ever since freight has been moving by truck, by rail, by buggy, there’s been there’s been the issue of cargo theft. So this is not something new. It’s something that we’ve been dealing with for almost two hundred years, all of our existence.

And yet at the same time, clearly, it’s an issue that needs attention that must be dealt with. It’s a supply chain issue. This is not just about railroads. Everyone is impacted here. The rails put some numbers together through the AR that indicated it’s over a $100,000,000 a year program problem for the rail industry.

CSX is a part of that. We’ve got our proportionate share of that. There are years when it’s a little bit more and years when it’s a little bit less. I don’t think there’s a sharp trend upwards, but there but it’s not going down either. So, I think the bigger issue is the confidence that shippers need to have in the ability to get their freight to destination.

And so, you know, I think what the industry is looking for from a supply chain perspective is the ability to coordinate a little bit better with law enforcement and do a better job of of prosecuting because there’s a number of times where we see repeat offenders. And, you know, the the stick needs to be there in order to make sure that, you know, there’s there’s enough of a threat not to continue to to come back to the well. So, you know, we’re we’re optimistic that we get some traction there. I know there’s a bill that’s being floated. So, that that would certainly be helpful.

CSX does have its own police force as do all the railroads, and they do a tremendous job. We try to strategically position them in places where it’s needed. We’ve invested in a lot of technology, particularly around facilities that have higher value freight. But it’s something we’ve got to watch out for.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So you mentioned some of the productivity initiatives earlier and Cumberland Yard. And how are those progressing so far? I think we heard a lot of them at the Investor Day. One of them was pretty interesting as well is just the real time visibility I think Mike was talking about into the network. So that sounds like it’s a pretty big initiative.

So anything else that gets you excited as you look forward to the rest of the year here?

Sean Pelkey, CFO, CSX: Yes. I mean, you talked to Mike. There there’s always there’s always new ideas and new opportunity. And I think, you know, again, it’s that it’s that collaboration between his team and the finance team looking at every single line item where we spend dollars. And some of them some of them are large, like crew starts and network planning.

And when you make reductions to to the crew plan, you save crew dollars, you save fuel dollars, locomotive dollars. It’s it’s big. But there’s a lot of things that are not as big that are still important initiatives that we’ve got to look at, you know, things like how much money are we spending on on freight, shipping parts to mechanical facilities, how much money are we spending on vehicles and maintenance related to that, any outside or third party spend, you know, everything in that purchase services and other bucket that’s flexible. Locomotive utilization, fuel productivity, we delivered over $45,000,000 of fuel efficiency last year. We’re off to a good start again this year with year over year gains.

So, you know, it’s it’s broad based. We’ve got scorecards that have over a hundred different initiatives that we’re working on right now. And, you know, the idea here is not to I always tell people, you know, if you if you don’t do something this year that you normally spend a million dollars on and then you do it next year, that’s a 2,000,000 year over year swing. That’s not what we’re looking for. Right?

We’re looking for you to take that million dollar spend, make it $750,000 and keep it there. Right? How do we get more efficient in the dollars that we are spending? How do we get better utilization out of our assets? And there’s a lot of ideas.

I think there’s a lot of opportunity out there still to be had. And certainly, growing into the capacity that we have also generates productivity. Filling up trains that are running at 75%, eighty % capacity today gives us tremendous incremental margins, which is a big part of the story over the next couple of years.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Maybe just give a little bit of color on pricing and how it’s flowing throughout the start of the year. Obviously, the truck market is not really helping

Unidentified speaker: too

Brian Austin Picker, JPMorgan Analyst, JPMorgan: much, but I imagine a better service product can also help move the needle a little bit on that as well. And then on the other side, you did talk about costs, about the productivity, about the crew starts coming down. So maybe just thoughts on general inflation and how that started to begin the year relative to where you thought it would be?

Sean Pelkey, CFO, CSX: Yes. Well, let me start on the cost side. We got a pretty good read going into the year in terms of where inflation is going to come in. And I think we’ll be on the purchase services side generally in line with what you’re seeing in terms of CPI, PPI. So that has come down and maybe it’s not back to the 2% level, but call it 2.5%, three % is kind of what we’re seeing across that area.

And then in terms of labor, we know what the wage inflation is going to be. We’ve got some about half of our workforce already has signed agreements that will go into effect July 1. So 4.25% wage inflation. Health and welfare is actually deflationary. So all in labor inflation will be less than 4% this year.

So clear line of sight in terms of where the bogey is there and what we’ve got to try to offset. On the price side, I think we’re off to a fairly decent start. You know, what I’m always looking at is the dollars of price relative to the dollars of inflation and are we seeing drop through that helps drive operating income growth. We’ve seen that every year for the last decade and we expect to see it again this year. Through February, we’ve repriced about $1,500,000,000 of the merchandise portfolio.

Only about 5% of that has come in below plan. So, that’s very encouraging to start the year. We’re not on flip side, I don’t want to get you too excited. We’re not blowing the plan out of the water, but we are definitely ahead of where we expected to be coming into the year. Conversations are constructive and the goal is to optimize bottom line profit through a combination of price and volume gains and truckload conversions.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. So 5% below plan, but still above expectations?

Sean Pelkey, CFO, CSX: Only 5% of the renewals came in below. 95% are on or above plan.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Yes. Okay. Maybe we can wrap up just with a little bit on the Howard Street Tunnel because like you said, we’ve heard about it for quite some time.

Unidentified speaker: And

Brian Austin Picker, JPMorgan Analyst, JPMorgan: then at the Investor Day, it’s all pulled forward in a pretty accelerated fashion. So you did outline some of the, I guess, engineering that you had to go through, but the train starts coming down, the rerouting. You’ve laid out the cost, but what are you going to do in terms of like the revenue side? Is there going to be a disruption on service? Like maybe explain that a little bit more.

And then you did give some opportunities, but like is there a bigger market we should be thinking about that now that when that’s done, that’s now available to CSX as it hasn’t been in the past?

Sean Pelkey, CFO, CSX: Yes. So let me start just sort of say every train, every customer that’s impacted, we have a solution for. Those solutions are higher costs than they were previously. Some include, you know, a little bit of trucking as well in order to get the freight where it needs to be, but we are preserving the service to the customer. We expect very minimal revenue loss as a result of all of this.

Now it’s hard to tell, you know, from a network perspective as as we digest challenges like the weather we had in January and February. We have impacted two of our major two of our four major North South routes across the network. And when you do that, even if you have a plan for how you reroute around that, the recoverability of the network is hampered. It is challenged. And we’ve seen that play itself out over the first couple of months of the year.

That has an impact on costs. That has an impact on likely on perishable revenue. A lot of what we move is able to be made up, but some of it isn’t. And customers don’t always tell us when they divert that traffic. So there probably is a little bit of a hidden cost on the revenue side that we don’t see in terms of missed opportunity because of the challenged recoverability with those two routes out.

And we did not plan to have the Blue Ridge out at the same time as the Howard Street that happened, you know, once we had already made the decision to move forward with Howard Street. But, you know, I think that this is part of what makes us optimistic about 2026 and beyond is when we look at what the network will will, you know, be able to handle in terms of the amount of capacity we’re creating, not just through the Howard Street project and and shoring up the Blue Ridge subdivision, but projects like Cumberland, we’ve got a few others in the works that we’re working on this year as we speak. And Mike’s coming up with new ideas every time he goes out to the field in order to, you know, get more efficient direct routing that saves on costs and improves the service to the customer. So there’s opportunity out there, certainly beyond the 75,000 to 125,000 loads just directly due to the Howard Street Tunnel as we think about gaining capacity across the network. And I think that’s what’s exciting.

And that combined with the industrial development activity that we’re seeing across the network gives us good line of sight, tariffs or not, to seeing some growth and being able to deliver it over the course of the next couple of years.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay.

Unidentified speaker: Well, that’s

Brian Austin Picker, JPMorgan Analyst, JPMorgan: a good place to wrap up. Since we’re out of time, we probably should anyway. But thanks very much, Sean, for kicking us off here. We appreciate you being here.

Sean Pelkey, CFO, CSX: Thank you.

Unidentified speaker: Okay. Okay. Okay. Okay.

Sean Pelkey, CFO, CSX: Okay.

Unidentified speaker: And Okay. You Okay. Okay. Okay. Okay.

Okay.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Thanks very much for joining us here. We’ll kick off our second session here of the day with Union Pacific. So again, I’m Brian Ossimek, who cover transports for JPMorgan. Very happy to have Jennifer Heyman, CFO Eric Erringer, the EVP of Operations here to keep things rolling.

So Jennifer’s got some slides she’s going to go through with a few opening comments. So turn it over to her and then we’ll jump into Q and A.

Jennifer Heyman, CFO, Union Pacific: All right.

Unidentified speaker: Thanks very

Brian Austin Picker, JPMorgan Analyst, JPMorgan: much for being here.

Jennifer Heyman, CFO, Union Pacific: No. Thank you, Brian. Thanks for the invitation. Thanks for all of you who are here with us in New York and those that are joining us online. We will be making some forward looking statements today.

Those statements are subject to risks and uncertainties. So please refer to the UP website and SEC filings for more information. Thought I’d start out today with what really is the foundation for UP, our franchise. We truly believe it’s the best franchise in North America. It’s the largest, 33,000 route miles across 23 states, giving us really broad access to diverse customers, diverse markets.

And what we have been focused on as a company over, call it, the last twenty months or so since Jim came on board is unlocking the full potential of that franchise. And our methodology or our strategy for doing that is pretty simple. It’s focusing on safety, service, and operational excellence, really the fundamentals of railroading. And we believe if we do that right and do that excellently day in and day out, that’s gonna allow us to grow our business. And we look at 2024 as a proof statement for the success of that strategy that it’s the right strategy for us.

We grew our volumes 3%. EPS was up 6%. We improved our operating ratio almost 2.5 points, improved ROIC. And we’re leading the industry in both of those metrics, which that’s a goal of ours. We believe we should be the industry leader.

We want to be the industry leader in safety as well. We’re still working on that. But again, that’s kind of the backdrop from which we’re looking at ourselves right now. And obviously, moving into 2025, we want to take that success from 2024 and build on that. So if you see the volumes there on the slide for twenty twenty four first quarter, quarter to date were up eight percent.

So strong growth to start the year. You see the variety and again the diversity of our business mix there just looking at that with bulk up to our industrial segment flat and then premium up 15%. The story there really continues to be the same thing that we experienced in the second half of twenty twenty four, very strong growth on the international intermodal side. In fact, international intermodal volumes are up a little bit over 30% right now. So continuing some of the strength we saw last year.

Obviously, question marks about how long that’s going to continue. Is there some pull forward there? May very well be. We certainly know in the second half of the year, it’s going to be a very tough comparison. You know, our volumes were up 30 plus percent in the second half of twenty twenty four.

We don’t expect that for for 2025. Really, our goal is with Eric and his team and Kenny and the great service product that they’re providing, we want to try to retain, some of that business. If you look further into intermodal, our domestic volumes are actually up here in the quarter. They’re up about 6% right now. So I think that’s attributable in part to the international intermodal, some of the translating that’s happening as well as some new business wins, which we’ll talk about in a minute.

And then the other part of premium, though, that I should mention is our automotive piece. Finished vehicles and parts are actually down about 7% to start the quarter. So, you’ve seen some production callbacks. It’s just been a little bit of an anemic start to the year on the auto side. And then going back to bulk, grain, grain products continues to be a growth engine for us, very strong pull through there.

And then I should highlight one thing that might surprise some people, coal. Our coal volume is actually up about 1% here in the quarter. And that’s really about higher natural gas prices making some of our plants a bit more competitive there. Last thing I’ll say before I turn it over to Eric is just a reminder that 2024 was a leap year. So we do lose a day here in 2025 year over year, and it’s worth about 25,000 carloads to us.

So just a little reminder there. And with that, Eric, I’ll turn it over to you to talk about the network.

Eric Erringer, EVP of Operations, Union Pacific: Perfect. So you recall in our Q4 earnings and talked about the momentum that we were carrying out of the fourth quarter that really had built all the way through 2024. I’m very pleased to tell you today that we have carried that momentum and it shows in our results that you can see here. Most importantly, then, after safety is our freight car velocity. As a reminder, this is the best measure of fluidity on the railroad.

Two seventeen miles per day through February, ’7 percent improvement. What that is allowing us to do is to support the growth that Jennifer mentioned, and it’s also delivering exceptional service. You can see those in our manifest and intermodal SPIs. One thing I do want to point out about the SPI metric is remember, we rebase that every single year. The math is pick the best month that you’ve ever accomplished in the last three years and compare yourself to that.

So with every year as we get better, the goal actually becomes even more difficult. So it’s an even stronger complement to the collective team at Union Pacific that we’re operating at this level. If you then transition and you think through, okay, what’s driving that freight car velocity? It’s the bottom right. It’s the 7% improvement in dwell.

And let’s level set on that. 2024 was the best full year performance in the history of Union Pacific for dwell. And you can see we’ve added 7% on top of that all the way through February. Why is that important? Number one, it’s fundamentally how we deliver our service product, right?

Improved well drives car velocity. Car velocity provides the fluidity that we need. In addition, we’re turning our customers’ assets faster. That’s what’s allowing us to do two things for them. One, to be able to support the growth they have and also to be conscious of the fact that they can be capital intensive like we are.

And so the faster we turn those cars, the less they need to invest in their asset base. On the locomotive productivity side, at 133 through February, ’1 percent improvement. Now you look at that, the biggest most important thing about that is when Jennifer was talking about the volume increases we’ve seen on the international and our model side, 30%, right? That one number right there tells you that as we think about being able to onboard volume, some of which even we didn’t know ahead of time that we were going to onboard, we’re being very judicious in how we think about assets on the railroad. That means that we’re taking that roughly 500 at the ready locomotives that we’ve staged across the system and we’re injecting them as we need them.

That can be for volume and it also can be for weather. Now weather has certainly visited us this year and we’ve weathered it quite well as measured by everything that you see on this chart. And then finally on workforce productivity, off to just a super strong start at 9% improvement. As a reminder, this is a measure of workforce productivity that encompasses every employee at Union Pacific. One of the biggest drivers that is resulting there is our continued work on train length.

As you’ll see, as we close out the quarter, we’ve had a very strong start on train length, and I still see more opportunities for that. Now let’s talk about what really is going to continue to drive our service product, continue to drive our productivity. This is really the epicenter, right, and it’s technology. I’m very proud of what we have as a collective portfolio across the board and it’s all departments. Today, obviously, we’re going to focus on the ones that deliver service and deliver productivity.

Adaptive transportation planning. We haven’t talked very much publicly about this. We launched it last year. We’re about six months into its development. The best way to think about this is kind of imagine whatever your favorite navigation app is on your phone like Waze.

If you think about what you’re doing on that, right, you’re sitting here in New York, you’re saying, I want to go to Boston, you put it in, it calculates how long it’s going to take you and it gives you the route. But as you’re driving to Boston, the world around you changes, right? Could be a car accident, could be a storm, etcetera. And as a result, that app adjusts. Adaptive transportation planning is the exact same thing.

Now, we’ve always had a version of this. It’s what’s inside what we call CatX, which is how we dispatch the railroad. But in CatX, it looks at like 10 or 20 mile sections of the railroad. And inside that, it considers everything that’s happening. How many trains do I have?

Which ones have most preference? Which ones are going which way? But we don’t have a tool yet that looks at the whole 33,000 miles and optimizes. That’s what this is. We’re already implementing it and it’s going to come in modules.

So just like some of the other initiatives we’ve taken on in the past, you’ll see us be able to continue to layer value over and over again with that. And what most important for us on the service side is whether you’re talking about mix changes, storm events or some other type of variability event, we can now get the transportation plan changes we need in a matter of seconds and minutes instead of today. In some cases, it can take us multiple days to be able to adjust. So again, whether you’re talking about service or productivity, it’s a big driver there. Terminal command center is really a visualization tool combined with an optimization tool.

And this is for our frontline leaders in our terminals. If you think about everything that happens on the railroad, whether you’re talking about manifest, intermodal or auto ramps, it all starts in the terminals. What this tool allows our frontline leaders to do is to see with even better visibility what’s in their yard from from a to z. And what I mean by that is, it can look at every single track, how long have the cars been dwelling in there, how do I wanna optimize the way that I actually bring in cars from the receiving to be able to switch them, which tracks do I want to pull first as I’m building outbound trains? And on and on it goes.

It’s a phenomenal tool. We’re just starting to scratch the surface on its value proposition, but we expect that it’s going to have a large value proposition for us. Train control and emerging tech is really about safety that as we work to become even more safe, we also become more consistent in our service product and we become more productive. We believe that in our hearts, those three things are linked together. So what this is is a very vast portfolio that focuses on things like how do we help people have to not walk as far, and how do we handle material better, and how do we handle trains better.

Those are the three biggest risks on the railroad that’s inherent to what we do. So you’ve seen us talk in the past about Switch Pro NX or we before we called it Mobile NX. This allows an operator in the terminal to be able to handle cars and takes their walking from six miles down to one mile. It also improves the dwell in those terminals by up to 20%. In the case of material handling, it’s the automation of our engineering equipment that removes the need to physically have to handle things like ties and move to automated distribution.

And then of course on the train handling side, it’s our precision train builder that we talk about consistently and we always are going to talk about it because it’s the best tool, it’s proprietary to Union Pacific and it’s in large part what’s allowed us to reduce our DRAM on the mainline while we’ve still been able to grow train length. And then on the customer interface, this is a portfolio of initiatives that really focus on as the customer is engaging with Union Pacific even beyond our APIs, what do we need to be able to provide them and what frequency we do provide them and what manner do we need to provide it to them that’s easiest for them to understand the things like where are their cars, their estimated arrival times, being able to handle if they have a claim of some sort, if they have a question, being able to handle in the most efficient fashion. So again, whether you’re talking about safety, service or productivity, we have the best portfolio of technology initiatives, I believe, in the industry.

Jennifer Heyman, CFO, Union Pacific: So and with that, obviously, the the strategy is to take those three fundamentals of railroading and translate them into growth. And so I’ll wrap things up with a couple, growth stories for us. And the first two really are centered around that service product. And I think sometimes it’s maybe hard for people to conceptualize how does better service actually drive growth. And I think these are two really good examples of that.

The first one’s with our ethanol business, where many of those customers, most of those customers either own or lease their railcars. So to the extent that we can drive productivity, speed their cycle times, that’s real real savings for those customers. And so last year, we took about a day and a half out of the cycle time for some of our ethanol customers. That allowed us to win new business, gain market share, and it added about 9,000 carloads to the railroad in 2024. Similarly, we’ve talked about a new coal contract that we won here in 2025.

Now that business doesn’t start on us until April, but cycle time was part of of what helped drive that business win as well. We had and provided, faster cycle times than did the competition, and that allowed us to pick up that business. That’s gonna add about a train a day to us, from a coal perspective starting again here in April. And then the other two examples really get into business development. And we talked about this quite a bit at our investor day.

We’d know that we need to work directly with our customers, addressing them at the project level to be able to bring new business onto the railroad. And so a couple wins here. One is with, Norfolk Crush. It’s a soybean processing plant in Northeastern Nebraska. They made the decision to construct their plant on the UP rail lines in part because we worked with them to offer them both unit train service as well as manifest service so that we could, again, meet the needs that they had.

And it’s a great opportunity for us because it gives us both an inbound load in terms of the soybeans as well as the outbound loads in terms of the processed oils. Again, that’s about a 9,000 annual carload lift for us. And then the last one was with Uber Freight. So this is a direct off the truck onto a rail conversion, 6,000 trucks, that we picked up here. And again, it’s the service product that we’re providing to the customers, the value that we’re providing them, the consistency Eric mentioned, the SPI, and really proving on a consistent basis to our customers that that we’re able to be there with them and support their growth initiatives.

And really, you know, that’s that’s the end game for us is with the execution of our strategy using that to drive growth on the railroad. Growth across a very efficient network can be a beautiful thing from a profitability standpoint, and it lets us drive strong returns for our shareholders. So with that, we’ll open it up for your questions.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Great. Thanks very much. That was a very helpful start in terms of growth and technology, both very important for the railroad going in the future. But just to start a little bit more in the near term, obviously, weather wasn’t that great in the first quarter.

First quarter OR is never the best for anybody really throughout the year for the most part. Can you give us a little more color? Maybe you can put some specific thoughts on just how the first quarter is shaping up in particular?

Jennifer Heyman, CFO, Union Pacific: Yes. So to your point about seasonality, it is a part of our business certainly. First quarter, you generally have less car loadings. You generally have the tougher operating conditions. And historically, I would say that shows up in, call it, a 0.5 to two points sequential degradation in your operating ratio.

This year, our carloads have been strong or staying strong decently, up 8% year to date. So that’s a positive. The mix continues to be on the unfavorable side of the ledger when you see that most of that growth is continuing to come from international intermodal. Although I think we did a nice job in the fourth quarter showing that that can still be good profitable business for us. And hopefully, that helps to allay some of the investor concerns about the fact, can you both grow intermodal and improve your margins?

And the answer to that is yes, you can do both. So weather wise, February was certainly tougher for us, but I don’t think Eric would say that that was unseasonably so.

Eric Erringer, EVP of Operations, Union Pacific: No, I think you’re exactly right.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Well, obviously, other big topic is tariffs. So a couple of questions on that. How would you characterize conversations with shippers and customers at this point? And I guess, Eric, for you in particular, have you seen any impact to the start and stop with the auto in particular?

And how do you just in general think about planning for some of the volatility and working through that with the network?

Jennifer Heyman, CFO, Union Pacific: Yes. So I’ll start and then turn it over to Eric. So in talking with our customers, you know, I think everybody’s in the same place a little bit in terms of there’s uncertainty and they’re unsure what’s the next move that they need to make or that will potentially be made relative to tariffs. And for our customers and for ourselves, it all comes back to what is the consumer going to do. Is the consumer going to stay engaged or is the consumer going to pull back?

I was listening to some news this morning and small business consumer confidence hit, I think, a four month low in the most recent survey. So that’s concerning. And obviously, that’s something that we’re watching very closely. We need to stay very aligned with our customers to understand what their plans are. But I think everyone’s, I don’t want to say frozen, but people are unwilling to make big bets one way or the other right now in terms of they don’t want to pull back because there isn’t a tariff yet in many cases.

Now Wednesday, I think some of that changes for steel and aluminum. But then at the same time, people aren’t willing to really step out and make big investments. And so that’s the landscape that we’re dealing with right now. And hopefully, we get some certainty here soon so that then people can really start to make those investment choices and move forward.

Eric Erringer, EVP of Operations, Union Pacific: And then as far as reacting to the uncertainty, that’s a playbook we know quite well. When you’re thinking about it, especially from a productivity perspective, the first place you’re going to start as you get clarity towards what’s the outcome is we start looking at our transportation plan. We start fundamentally redefining where we’re going to run certain trains, how many of those are we going to run. And then that really starts to trickle down through the matrix of the rest of the organization. So that then goes into how many people do we need to hire.

Already this year, we have made some adjustments to our hiring plan. They’ve been small adjustments, but appropriate adjustments. Then we look at how many locomotives do we need to have in the active fleet, and we just keep working all the way through that. So our ability to respond to those types of things, we’re very good at it. We’ve demonstrated that in the

Brian Austin Picker, JPMorgan Analyst, JPMorgan: past. So in terms of the commodities or maybe end markets that you’re focused on from a potential impact of tariffs, which are the ones that are maybe the top five or three from your perspective? I think autos and lumber, obviously, we saw the retaliatory tariffs last time that impacted export ag. So those are the top three in my mind. Are there any others that you would sort of put on that list as well?

Jennifer Heyman, CFO, Union Pacific: No. I mean, you certainly hit my top three, Brian. And automotive clearly is at the top of the list when you look at flows into and out of Mexico as well as into and out of Canada. Parts are going north south and finished vehicles primarily coming out of Mexico. So like I said, those volumes are down 7% to start the year.

So it’s a little bit of a weaker market anyway, setting tariffs aside. So certainly, if you put an added cost to that, that would be concerning for us. Again, lumber, housing has been down. So that’s been a bit of an anemic market for us as well in ’twenty four and starting out 2025. So if there’s a further shock or further cost to that, that’s going to be concerning.

The retaliatory tariffs on grain southbound into Mexico, would certainly be the other piece that comes to my mind. And then you have intermodal flows just north south as well. So, really watching all of those things. And that’s where, again, staying close with our customers, understanding what their plans are so that we can make adjustments and support them if they look to be changing their supply chains. Because if ultimately that’s where this takes us, then we want to be working with them very closely as they’re looking to maybe put more operations in The United States.

We want to make sure that they have an opportunity to do that, that Union Pacific can serve them.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: One other potential big supply chain change could come about if they put in the fees for the vessels tied to China either flagged or built during the backlog. So from what I’ve heard, that would create a lot of potential grouping at larger ports, potentially big ones that you serve. Yeah. So I don’t know what you’re hearing from your ocean carrier partners, the international folks, from that perspective. And then, Eric, that would probably put some strain on the network.

Clearly, you’re up 30% international and mobile. You can handle a good amount. But just wanted to see how far along that thought process was and how you’re viewing that potentially if it were to come to pass.

Jennifer Heyman, CFO, Union Pacific: Yes. I mean, again, you hit it on the head. I think it does lend preference then to the larger ports. And then that’s where we really like the diversity of our franchise. We serve large ports and small ports.

And so that may concentrate traffic a bit. But that’s where the agility that Eric and his team demonstrated last year with responding to that very strong international intermodal growth and handling it while improving our service product, I think, will certainly come into play again.

Eric Erringer, EVP of Operations, Union Pacific: I think you’re exactly right. And you also see we’re making investments even in the L. A. Basin, right? So in Lend Empire, we have been able to add another 70,000 lifts last year.

We’re going to add in even more than that this year. So and if you think about really the whole intermodal network in total over the last handful of years, we’ve added in almost 1,000,000 lifts across our network. So we’ve been building in this capacity and we’ll be able to handle that volume. And periods where we start to see challenges, it usually comes down to, okay, how do I just simply shift some of the resources down to that part of the railroad to be able to handle

Brian Austin Picker, JPMorgan Analyst, JPMorgan: it? So we’re starting to hear more about truckload conversion in general across the industry, but in particular for UP. And it’s my perspective that’s been a pretty significant change over the last couple of years. What’s causing that? I know there’s internal focus probably as part of that.

New partners perhaps with Uber Freight seems like another one. But maybe you can characterize what’s driving some of that and where are these customers coming from? Are these people who trust the service? Are these new to rails? Is it a mix of all the above?

Jennifer Heyman, CFO, Union Pacific: Yeah. I would say it’s a mix of all the above. So certainly one of the the first places that we’re looking to grow our share is with existing customers because generally speaking, our existing customers don’t literally put all the all their eggs in one basket. They’re going to ship with ourselves. They may ship with another railroad even out of the same plant, or they may be dividing that traffic between rail and truck.

And so some of our first conversations are, how can we shift more of that business to us? Talk to them and share with them the cost savings that we’re we’re hopefully driving for them, the improved service that Eric and his team are giving them, and then talking to them about where those opportunities are. And certainly, when you’re providing that really strong service product, that’s a much easier conversation and we’re having customers that are being much more open. They’re opening their transportation book to us and saying, okay, here’s some different lanes. Let’s talk about what you can do.

And so those are obviously great conversations to have. The other piece certainly is then with newer customers. We did add a couple large IMCs to our stable here a couple of years ago. We did that at a time that the truck market was starting to go down. So we believe we really haven’t seen the full benefit to our network yet of those significant contract wins.

So we’re working very closely with those partners to to help, them grow their businesses on the intermodal side. And then just working, you hear us talk about customer vision. You saw Eric, you know, talk about the different things that we’re doing from a technology standpoint. All of those things are geared towards making it easier for customers to do business with us, giving them greater visibility, to the traffic when it’s on our lines, and then obviously backing that up with a very strong service product. We know we can be a more economical, safer option for our customers.

And as we’re proving that day in and day out, we’re gaining confidence in that consumer base and they’re giving us more business.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So Eric, when you’re dealing with the big surge coming out of the West Coast in one particular product line, I guess, how are you thinking about network balance going back in the other direction? Is that a challenge now? Are you being able to handle it? Are you able to find different ways to do matchbacks and possibly exports? Because it does seem like this is going to be a good problem to have at least for the first half and maybe even further than that.

Eric Erringer, EVP of Operations, Union Pacific: Yes. So Kenny and I work as a teams together because we believe this is a critical initiative for us. We’ve demonstrated progress certainly over the last many years. As you said, your Matchbacks biggest opportunity is always going to continue to be things like our G4 Ag facility. But in addition to that, not a lot of people know this.

For example, we ship a lot of hay west. So we have hay farmers in Arizona that we do matchbacks into the L. A. Basin as well. So Kenny and the team are constantly looking for any opportunity and every opportunity they can to be able to fill those containers on their westbound moves.

And what’s beautiful for operating it is we’re going to take that box back anyways. So we don’t have to make complex transportation plans to make that happen. So it’s one of those wonderful scenarios where everybody wins. We’re able to be consistent and reliable with it. The customer has the means to be able to send it back West.

And of course, Kenny gets revenue and price as he does it.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So one thing we don’t really talk too much about in these earnings calls, but the AR says it’s a $100,000,000 a year problem would be cargo theft. So we hear that a lot more from shippers and there’s always been this sort of challenge. So maybe it’s a little bit elevated relative to the past years. But how does that come up in your conversations with BCOs and shippers? And is there anything in particular that you’re doing differently to address that risk this year?

Eric Erringer, EVP of Operations, Union Pacific: Well, it certainly has been coming up more with shippers. And I would say that dates back all the way to really COVID. To your point, we’ve seen it not necessarily go back to the levels that it was in COVID. We’ve done a lot of different things, especially over the last two, two point five years. And this is a this is an industry problem, not just a Union Pacific problem.

So in no particular order, the first thing that you want to do is obviously you want to follow-up and your partnerships with those entities that we operate in. So right out of the bat, we’ve been able to partner with some of our customers who’ve actually partnered with us in additional security efforts, largely boots on the ground having special agents or the equivalent there. We’ve also partnered with the state and federal entity. And that partnership takes a couple of different forms, from a strategic perspective, takes the form of task force that we, BN and others are part of. But then very more tactically, it involves having agents on the ground.

So we’ve added in about 50 additional agents just to the L. A. Basin. In addition to that, we’ve also continued our infrastructure investment, largely in the form of additional fencing around our terminals and around those sections of our main lines where we build trains. So it’s tens of millions of dollars that we’re investing just in the L.

A. Basin on an annual basis. Now the partnership that’s most new and that we’re most optimistic about is if we look politically inside the L. A. Basin, we’ve seen a significant increase in the willingness to prosecute those that try to vandalize our trains or other trains.

That is a critical step here, period. So doing a lot of different things, our customers expect us to do those things and we’re partnering with them to make sure that we can ensure we have consistent reliable service.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So Jennifer, you mentioned one of our favorite topics, mix, earlier. Price mix, I think, was a little bit of a drag in the fourth quarter. It feels like maybe it will still be a little bit in the first quarter, but price is accretive to margin percent this year. So maybe you can give us a little more context in terms of how the force card is tracking in that regard. And then maybe just the bigger cost profile as well.

You probably have some pretty good visibility to where those are those bigger buckets are heading this year, in particular, on the labor side.

Jennifer Heyman, CFO, Union Pacific: Yes. So I’ll start with the price versus inflation. So you’re right. We have long talked about and and delivered price dollars that are in excess of our inflation dollars. That’s that’s table stakes for us.

As inflation really kicked up in the, call it, 2022, ’20 ’20 ’3 time frame, those price dollars, while still above the inflation dollars, weren’t accretive to our margins. We changed that in the fourth quarter. And we have said going forward in 2025 and beyond, we expect our pricing to be accretive to our margins. So I think that’s a very positive step, positive statement forward. We know that has to be part of our overall profitability story.

When we look at what’s happening with inflation overall, it’s still high historically. I think we said from a wage inflation standpoint, it’s about 4% overall. Total inflation for us is about 3.5% this year. And when we talk about inflation, we do exclude fuel from that because we have the fuel surcharges that cover that separately. So think about that as all of our costs, ex fuel.

I would say we feel fairly confident that those are going to stay. Obviously, we’re in the midst of labor negotiations right now. Having those talks, those are continuing. And, you know, we have separated ourselves from the national bargaining this year because we want to be very specific in working directly with our unions to make sure not only do we reach good wage and benefit packages with them and we want to reward our employees. In fact, we’re happy for Union Pacific’s employees to be some of the highest paid in the rail industry.

But we want to make sure that we also are able to work with them in a productive manner in a way that supports the service product that our customers need. And so it’s important for us to be able to achieve some of that through this round of bargaining as well.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: And just the pricing environment in general, I think at least you guys have been a little more specific in terms of what percentage contracts are renewal from the longer term perspective. So how is that going? Considering we still have a fairly soft truck market, but obviously the service product has improved for you guys pretty significantly and consistently. So is that helping a little bit on the negotiations in that regard?

Jennifer Heyman, CFO, Union Pacific: Yes. A strong service product doesn’t just bring new business to us. It also helps us support the value proposition that we’re providing to our customers. And even going back to the ethanol example I used where we’re taking cycle time out, again, that’s productivity savings for the customer. And so as part of us being able to provide them with that, then we’re looking to share with some of that productivity savings in the form of a little bit higher price for ourselves.

And those conversations have been productive, and we feel very confident in our ability to do that. Again, we want to make sure that we’re providing that service product that we guaranteed them and that we brought them onto the railroad with. And by doing that, that supports our price efforts.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So maybe we can wrap up with a little bit more of the growth and investment viewpoint here. So some of the other rails are putting more dollars into the ground. Obviously, we’ve got industrial development pipeline. But in particular, you’re looking at like BN has a few large projects out west. Is that something you feel like you need to bring to the market in a similar fashion?

Are there other things you feel like are better solutions? You mentioned 1,000,000 lifts over the last year. So can you really I guess the question really is can you still grow the way you want to and support the customers without making significant multibillion dollar investments? Like how do you try to solve for that?

Jennifer Heyman, CFO, Union Pacific: Yes. So I think first of all, if there was the right investment opportunity, we would certainly make that to grow with our customers. And and that’s a conversation that we’re having with them all the time. I think right now our pipeline is, call it, 200 or so different projects that we think will bring about a billion and a half dollars worth of revenue onto, the Union Pacific. Some of that involves a little bit of investment for UP.

Some of that is more customer investment. But that’s the pipeline that we have in front of us right now. The thing that I think is important to note is we are investing for growth. So of the $3,400,000,000 that we’re investing this year, that we invested last year, call it $2,000,000,000 of that is for maintaining our infrastructure. But the other dollars, the other $1,400,000,000 is for locomotive modernization, so that supports growth.

It’s for new freight cars. It’s technology investments. It’s capacity, some of the intermodal capacity Eric talked about. It’s siting extensions. So all of those things are there to support growth.

I think we’re doing it at a very capital efficient way though because we’re looking at our network differently today than we used to. And instead of going out greenfield and building a new intermodal facility that might cost half a billion to a billion dollars Mhmm. We’re making investments in places like the Inland Empire, which was our West Colton switching facility. And we’re transforming that over time, building it as we need it for the capacity, to support the intermodal growth that’s there. We’ve done that in the Twin Cities.

We’re doing that right now. In Kansas City, we’ve got a pop up ramp that we’ve put in Phoenix. So when you’re doing it brownfield instead of greenfield, it’s a much more capital efficient way to do that. And I could say the same about our locomotive fleet. We have locomotives that we can bring back into service.

You have to put some more money into that to refurbish the locomotive, but that’s a much more capital efficient way than having to go out and buy new. And so the investment dollars are there. It’s supporting the customer growth. And I think you’re seeing that in our results.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Well, we are out of time. But really appreciate you guys being here. And thanks very much for the update.

Jennifer Heyman, CFO, Union Pacific: All right. Thanks, Brian.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: All right. Take care.

Unidentified speaker: Okay. Okay. Okay. You Okay. Okay.

Okay. Okay. Okay. Okay. You

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. We’re going to get started with the next presentation in Q and A. So again, I’m Brian Ossipeka, Cover, Transports and Logistics for JPMorgan here. Very excited to have C. H.

Robinson. We’ve got Dave Boseman, President and CEO Damon Lee, CFO and Chuck Ives from Investor Relations. So I’m going to just give it over to Dave just briefly here to make some intro comments and then we’ll get to some Q and A. We’ve got a big list, but if anybody wants to raise their hand and join in, we can try to get you Mike as well. So thanks very much for coming guys.

Dave, I’ll turn it over to you.

Dave Boseman, President and CEO, C. H. Robinson: Yes. Thanks, Thanks, Brian. First of all, thanks for having us and congratulations on this conference. I think you guys went from six fifty to almost nine fifty this year. So a really big step up in attendance and glad to be here.

A couple of things for us just to start off. There’s a lot going on in the world right now and certainly in the markets. And I think we’re obviously right on the coal face is what I’d like to say with that. But I would also say that it’s times like this and others that are really the value prop for C. H.

Robinson. We help customers deal with disruption and things that are happening. And this is not the first time we’ve dealt with disruption, whether it’s been port strikes or tariffs or anything like that. We deal with over 85,000 customers and we guide them through a lot of that. And so right now, we have a balance sheet that helps our customers.

We feel really good about where we are and our uncertainty is going to happen. But at the end of the day, we’ll get through this like we have in the past, and I think our customers feel good about that. So if you guys saw our Investor Day, we remain committed, really solid plan on where we are, and Damon will go into that as we talk. Strong inclinations going out to 2026, and we still feel really good about that marketplace. And at the end of the day, we lean on higher highs and higher lows.

And it doesn’t matter where the market is. We’re into our thirty seventh month of this kind of freight pullback, freight recession, on an eighteen to twenty four month normal cycle. So it’s not normal. This is abnormal. But at the end of the day, I think with our asset light model and how we’re doing it, we have the flexibility and the agility to deal with that.

And we feel really good about that and look forward to talking about it.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: All right. Thanks very much. So maybe we can start there with sort of the current state of the North American freight market from your guys’ perspective. Any signs of life in the spot truckload market? Is this mostly weather, which I feel like we did this same thing last year.

The market improved, people thought it was turning and then it was weather. So seasonality is a good thing to have back, but it doesn’t feel like we’re necessarily off to the races or in inflection at this point. But curious to see what you guys are seeing.

Dave Boseman, President and CEO, C. H. Robinson: Yes. I’ll start. You can jump in, Damian. First of all, I would say that there’s no material change yet, right, on what we’re seeing. You’re right to call out.

There’s seasonality. We saw that in Q4. That’s normal seasonality. But we haven’t seen it where it’s been steady and starting to go. Now a couple of things that we watch and we continue to watch, and there are some things that you guys should hear too.

When it comes to capacity, that continues to burn down. We like that. It’s still burning at somewhat of a slow rate, but it’s starting to burn down. And that will eventually get back to normal levels. But because you just can’t continue to hold these type of prices and costs that’s happening.

That’s just not sustainable in the long run. So we do see that happening. Ultimately, it’s got to be a balance still. It’s got to be demand plus capacity. And we’ve not yet seen that full demand yet that would give you that feeling of things just being totally right.

I don’t know if you want to add.

Unidentified speaker: Yes, I’ll just add to that. So we did see truckload spot rates increase in December and January. We believe that was certainly on the back of seasonality and weather because when the weather abated and the seasonality was over, we saw the rates come right back down again. And so rates are right now below certainly rates are not sustainable where they’re at today. So we still believe rates will increase throughout ’twenty five, but we have not seen a sign of any structural change in rates thus far this year coming out of Q4 and into Q1.

I would say there is one bright spot, which is when we do have seasonality and we do have weather events, we are seeing tension in the carrier capacity market. So that’s a good sign that at least some of that excess is starting to, starting to leave the system. So I think that’s kind of a first indicator of, okay, there is some tension when there’s irregularity in the marketplace. So now we just need more of that base capacity to exit the market. We believe it will.

It’s just as Dave mentioned, it’s going at a slow pace.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So Damon, on that point with renewals, it’s hard to judge just by one customer, one anecdote because everybody’s got a different base that they’re starting from. But what’s sort of the range of renewals? You mentioned they’re expecting to go up throughout the year. Consensus still seems to be the back half recovery, which should be third year in a row. But obviously, you’re off to a little bit of a slower start, at least from our discussions.

But wanted to see if you guys had a different perspective here to begin the year.

Unidentified speaker: Yes. So as it relates to volume, as you know, we don’t guide. What I would say is just echo what Dave has said, right, which is it’s still a very tough market. And so therefore, Robinson’s strategy, I think different than Robinson’s strategy in the past has been not going to try to predict where the market is going to go and let that facilitate my success, right? So we’ve coined the phrase higher highs and higher lows, right?

And that’s really how we drive the company now, how we drive our operating model, how we’ve pegged our strategic initiatives, which is we’re going to outperform the market from a volume perspective regardless of what cycle it’s in, regardless of from a volume perspective regardless of what cycle it’s in, regardless of what level it’s at. That’s boded well for us over the course of 2024. And certainly, to that point, as as Dave mentioned, we’re we’re in a extremely prolonged freight recession. I think the recession has been predicted ended probably five or six times now in that thirty seven months. So it’s kind of a fool’s errand to predict when it’s it’s gonna revert.

So what we are doing at Robinson is we’ve got, a number of scenarios that we’ve planned out, right, that says, okay, if the market does this, we’re gonna react this way. And so we feel like we’re in a very good shape, better than we’ve ever been, to not just deal with the market when it does inflect or if it continues to bounce along the bottom like it has, we’re still going to deliver the industry leading performance that we’ve been delivering in 2024 regardless of market conditions. So I’d say to your point, you know, early early twenty twenty five, I think it is starting off slower than what most people expected coming into 2025. But I feel like Robinson is prepared regardless of what the market does.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Maybe this is a question you ask when you’ve been in a long trough in our freight market. But I do wonder if anything has changed from a market structure perspective over the last couple of years. I mean, you’ve got more private fleets, you’ve got greater visibility in tech tools, you’ve got trailer pools. So from your perspective, is any of that stuff maybe causing a longer and more extended trough here at this point just because there’s perhaps more capacity than there was ever before or availability of capacity?

Dave Boseman, President and CEO, C. H. Robinson: Yes. I think a couple of things on the capacity. Number one, during the pandemic, the amount of capacity that was infused into the system was the highest. As you know, it was the highest amount of capacity that was put in. On the backside of that and burning that down, people can forget like what happened there.

Some pretty good profits made in ’twenty one and really assets along with recovery assets as well as far as pandemic relief and things like that. All of that just added up to carriers being able to pay off assets and that slowed down the exit of this as well. Trailer pools continue to be out there, and that kind of lengthens the carriers to be able to stay in the marketplace. So there’s just been a number of different things. The banks really did not want to be in the used truck market.

And so when it comes to trucks having to redo deals, we coined the term zombie trucks that are kind of out there. But there’s just a lot of hang on capacity because of just a number of factors. We’re starting to see that continue to break down. It was burning down at about 4%. That went up to about 6%.

And so that’s going to get its way down to where it needs to be. I’m pretty confident of that overall.

Unidentified speaker: No, I think you said it well, Dave. I would just add that certainly everything of what Dave just went through actually fits the Robinson business model very well. I mean, what we’re seeing from a capacity perspective is certainly more flexibility, more agility is desired in the marketplace, both from assets and brokers. And I think Robinson has a very good mix of certainly being the leading broker in the industry in our asset light business model, which commands higher than average returns throughout all the cycles. But with that, our strategy in showing up more like an asset allows us to take advantage of some of those market structural changes that you mentioned.

So I think our business model, I think our business strategy fits very well to where those market dynamics are going.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So you mentioned showing up like an asset carrier theme from the Investor Day. So what does that mean? And I guess where do you sort of draw the line between owning more? And it does seem like there’s going to be more of a hybrid model just in general over time with assets getting more asset light and vice versa. So how do you view that within Robinson and sort of if there’s a line that you would draw in terms of like what you would or wouldn’t own?

Dave Boseman, President and CEO, C. H. Robinson: Well, first of all, we feel good about the asset light model. We do, and it’s helped us out. It’s allowed us to have a P and L on the balance sheet that’s in the black and allowed us to invest in really times like this. We’re able to invest and I think that separates us from a lot of the marketplace to do that and we’ll continue to do that investment. The, when we start to look at showing up like an asset, we look at it as our total addressable market.

You’re talking about a $400,000,000,000 TAM. And in doing that, some of that would not for a for hire brokerage, you really would not get access to some of that TAM unless you showed up like an asset. So for us, it’s our drop trailer. And to put some numbers on this, when we say drop trailer, our drop trailer business represents about 15% to 20% of our NAST volume. So that’s pretty significant of where we are.

And that allows us to be able to get in bids and really go for volume that normally would have been just shut out in just a traditional brokerage model. LTL consolidation, warehousing, that’s another showing up like an asset. That’s significant service that our customers like, that they want and that we’re really good at, right, with LTL. And Brian, you noticed, we’ve said this before. I mean, our LTL business is a $3,000,000,000 LTL business.

That usually stops people because that’s a pretty big scale that we’re dealing with. So there are a number of things that we do that will be part of our strategy as we continue to move forward and show up like that asset to get, part of that TAM. And Damon and I watched that on how much. So for example, trailers. We own over 2,000 trailers, but we have access to over 10,000 trailers.

Now we’re going to have a strict ROI type of process that we go through on how many more we would add to that. It’s strictly around that return on the other invested dollars.

Unidentified speaker: No, I think it’s exactly right. So certainly you mentioned what draws the line. It certainly is the ROI expectations of would we invest in more assets. And certainly as Dave mentioned, we already own a lot of assets today. I know it’s always a fun fact that a lot of people forget about Robinson.

But the optionality to partner assets is really a differentiator for us. But I think what we’ve proved out over time is certainly as we continue to grow, I will certainly add more and more assets. But I think that ROI expectation will always show up as the asset light model is still superior. And I think that will end up being that range in which we plan as far as how many incremental assets we had.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So when you think about the current conversations with customers, how would you characterize that? Obviously, there’s a lot of noise, there’s a lot of headlines, there’s a lot of back and forth. Any short term changes that people are making at this point? Are they making longer term changes? Like, I’m sure it differs by customer and by day, but how would you overall characterize those conversations right now?

Dave Boseman, President and CEO, C. H. Robinson: Well, you’re right. It’s a lot going on with customers right now on what they’re thinking. Listen, we at Robinson, we know we have the largest data set in the industry and we’re and we have over 85,000 customers. So we see a wide variety of what customers are doing. And it’s a mix, Brian.

Number one, we have some customers that are very strategic on how they’re doing this. They’re sitting back and they want to be calm, be wise in how they’re doing it. We have some customers that are somewhat reacting to some of the things that’s happening. But with them, they’re having to do a bit of a pause because things are changing somewhat rapidly. I would call it sawtooth.

And a lot of customers don’t like that. If you’re dealing with, for example, a potential 25% tariff coming out of Mexico, well, we’re right in the middle of all of that. We do one out of 10 shipments coming from Mexico to The U. S. We touch those, we move those.

If and we’ve had customers, we’ve seen customers do this, hold a bit on some of their shipments because they don’t know if a 25% tariff is going to be relieved or not. And so we’ve had to kind of deal with them in that. In the same way, coming from Canada Inn, we’re a significant player when it comes to moving that product. And so we’re just we’re dealing with those customers on that front and just kind of guiding them, and it is a mix. From a from a pricing strategy, we’ve had some customers that like to be, strategic, and we work with them around potential price increases and have that conversation.

And we have others that are more transactional when it comes to pricing, and we have a way of dealing with that as well through revenue management. And the operating model has really helped on that. I don’t know if you would add any.

Unidentified speaker: I’ll just you covered the short term well, Dave. I’ll just speak a little bit to the long term. I don’t think what we’re coining kind of tariffs two point zero has necessarily facilitated long term strategies yet. I think as Dave said, I think many customers are trying to see if this is transitory and are the tariffs going to stick or they just leverage to drive some other policy for the administration. I would tell you, if you go all the way back to the pandemic, I think the customers that were strategic, the customers that used the pandemic as an opportunity to get more strategic about supply chain to build resiliency and optionality into their supply chain.

I think those are the customers that are benefiting now because even though it’s a different disruption, it’s still a disruption, right? And as Dave mentioned, I think you’ve got a section of customers that went through the pandemic, went through some of the disruptions in the Red Sea, went through tariffs one point zero and said, okay, I’m not going to be caught flat footed on this again. And they put a lot of actions in play partnered with us on optionality going forward. So I think those customers right now have optionality that others don’t. As Dave mentioned, there’s also a section of customers that operate more transactionally kind of viewed the pandemic as a one time event, didn’t invest a lot in strategic capability of their supply chain.

Now they’re kind of wondering what do I do, right, because transactional doesn’t work when you don’t know what tomorrow is going to bring from a tariff perspective. So as Dave mentioned, I think it’s somewhat bifurcated in our customer space, but I don’t think long term structural changes have occurred due to tariff two point zero. I think they really occurred from the pandemic forward with all the disruptions we’ve incurred the last several years.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Interesting. Okay. Well, two questions maybe more specific to forwarding. In terms of the first one, just the de minimis exemption, we’ve seen it removed and then I guess restored. From your perspective on forwarding, would you expect an impact on maybe airfreight rates and customs clearing?

Did you see any volatility with people trying to get stuff over the border when that was pulled off for what, less than twenty four hours?

Dave Boseman, President and CEO, C. H. Robinson: Yes. I would say on de minimis, it’s for us, it’s not really a big deal, partly because that is really dealing with Parcel. And we’re really not in that business on dealing with Parcel. So that was really not a big deal overall for us on the de minimis changes. Certainly, it could affect some airfreight if this comes down to shipping pullback when it comes to that, but that’s nonmaterial for us overall as a business.

Unidentified speaker: Well said.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Yes. Okay. The other one that might be more material if it goes through would just be the layers of fees that they might charge on vessels either tied to or built in for China. So big topic recently, especially at recent conference with TPM. But what are you hearing from sort of your partners in that regard?

Are they preparing for that yet? Or is it still a little too early? Because it seems like it would be pretty significant event if it were to go through as written, which is, of course, the big question mark if that will actually happen.

Unidentified speaker: Yes. So I would say carriers are starting to prepare for that just from an optionality perspective. I would say, I think they’re looking for ways to drive more efficiency in their port calls. So I think they’ll make less port calls and try to drive more density in each call. So I think that will help them drive efficiency to offset any of that cost pressure they may incur.

So I think that will be one step they’ll use to try to abate any impact that may come. And then I think secondly, which is really what ends up happening with tariffs anyways is I think they’ll end up passing those fees along to the shipper, right? And then it will be up to the shipper on what they do with those added costs. But those are the two actions that I think are probably most front and center on the carriers’ minds.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So we often hear about and they’re asked about technology in the brokerage industry. And it’s always difficult to figure out who has the best or leading tech from an outside perspective. So if you’re in all of our seats, how would you sort of address that question?

Dave Boseman, President and CEO, C. H. Robinson: It’s a good question. I would actually ask the question differently if we were in a seat because this is really important. From a tech perspective, our I think when you look at the amount of tech that’s out there in the industry, everyone has some level of pretty good technology in what they’re dealing with and helps them run the business. But the key thing on that question is how are you integrating that with your people as a strategy? For us, it’s different at Robinson now.

We are not we don’t lead and say our strategy is technology. Our strategy is our people enabled by our technology. And we think that makes a huge difference than if you just say the technology strategy because we’ve kind of been there and done that. And that one play doesn’t work if it’s just technology. So you have to have this connection between this kind of human in the loop, and the technology stack that we feel is the best technology in the industry, but that it’s now busted up against the best logisticians in the world.

That together is a really powerful combination that allows us our unit, our operating mechanism to run like it’s running, as Damon said, and you’re seeing that in 2024. This strategy has worked with an operating model that really produces. I don’t know if you

Unidentified speaker: Yes. I’ll only add that as Dave mentioned, right? I think historically companies in our industry even ourselves view technology as our strategy, right? That didn’t work, right? And so to us, the litmus test on do we have the best technology is what results is it yielding, right?

Is it given a better customer experience? For Robinson, we believe the answer is yes. Is it given a better carrier experience? We believe the answer is yes. Is it driving growth in our revenue?

We believe the answer is yes for Robinson, right? Is it enabling margin expansion at the gross margin level? The answer is yes for Robinson. And then lastly, is it allowing us to generate operating leverage to drive a more efficient company at the operating margin level? And we believe the answer is yes.

So for us, technology we have a very high bar for technology at Robinson, right? It goes through we had the ROI discussion before. We don’t do any technology at Robinson unless it has a high probability of success and a compelling ROI. So there’s really no kind of pie in the sky investment when it comes to technology for Robinson. But just to summarize that, I mean, our key test on do we have the best tech in the industry, as Dave mentioned, we don’t think it’s a tech by itself.

We think it’s the combination of our expert people with the tech, which we call human in the loop. We don’t think the ends of that spectrum are correct, right? We’ve seen technology pure plays that didn’t work in the marketplace, right? And we’ve seen, more labor intensive efforts and those are proven out to be not competitive in the marketplace. So we do believe that optimal combination of people and technology is the right answer for our industry and we think we’ve got that right formula.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So one of the big goals, I think of the operating model and the next up cycle would be to decouple headcount in NAST with volume growth. So maybe working backwards from there, obviously, you did in Global Forwarding already, but are there some steps or projects, initiatives or successes that you already had that would give you some visibility and confidence to that happening if and when we actually get to the upcycle here?

Dave Boseman, President and CEO, C. H. Robinson: Yes, Brian. I mean, one of the tough things in in a we started this conversation out by saying with this thirty seven months and dealing with that is we know the case that’s been on Robinson is like, Hey, listen, I always say people are from Missouri. They say, You got to show me. It’s the Show Me State. And you can’t do that unless the market is back, right, in doing that.

But we’ve been debating that and really kind of showing this group and many others, we tend to say that there’s a canary in a coal mine. We actually feel like we have debunked that, that story to say, you know, disconnect headcount growth from volume growth because we’ve done it in Global forty. And that’s a business that makes us unique because we get in to in, and it separates us out from the competition. We know that, but this is why we have to talk about it. Our operating model and how we’re driving the company, how we’re improving it, we take Global Forwarding through that same operating model, and they’ve gone through that last year.

What was the result? The result was growth every quarter, year over year, while costs went down into the right. Growth up into the right, costs went down into the right, headcount was reduced. If we had not done that, we would have added people and had higher expenses within Global Forward, period. So now you go over and say, for NAS, we feel that’s gonna be even a even a stronger play.

Why? We have a deeper technology stack within NAS that we have not yet put into global forwarding, but that’s coming. We have processes in place in NAS that we’ve we’ve driven. I think we’ve talked about our productivity, 15% in ’twenty three, 15% we achieved in ’twenty four, you know, a kind of a CAGR of over 30% of productivity. So now if there when the market returns, we feel like that case is already here that you should have confidence that we’re gonna actually do that within the NAS space, but it’ll actually be in in probably even a more aggressive way than you saw in Global forty because of how we’re set up in that.

So I feel super bullish on where we are and I feel like we’ve debunked that. But I understand, again, the market isn’t here in NAST, but just look at what we’ve done in Global forty.

Unidentified speaker: Yeah. Could I add to that? Because this is a topic Dave and I are extremely passionate about. So just to put a few more specifics on what Global forty nine actually did in ’24, right? So we grew revenue year over year in 2024 while reducing headcount 10% while generating more than 15% productivity, right?

So that is the bear thesis debunked for Global Forwarding. As Dave mentioned, all of those operating cadences, all the discipline, all the rigor that allowed those results to be generated for Global Forwarding are in place for our NASS business, right? And I would argue from a technology perspective, we’ve over indexed to NAST, right? We have a better technology stack at NAST than we do in Global Forwarding, which is just going to further enable that probability of success going forward. And the one thing we keep driving home is, there’s two things that will prevent us from adding headcount back from a NAST perspective when the market recovers.

The first one is we have fundamentally changed those processes, right? Those processes now don’t require the same amount of headcount that they did before, right? The process itself fundamentally changed, right? So continuing to follow that process, there would be no reason that by headcount, it would actually be adverse to the process we have in place, right? So there’s no driver to add headcount back in many areas of processes within Robinson because we fundamentally changed those processes through automation, through lean techniques, through efficiency.

So we think that is a key importance. The other one is our operating model gives us visibility to what we’re doing, right? So there won’t be a surprise that said, Oops, we added back headcount. We didn’t know it. Our operating model doesn’t allow that.

Right? We will see the early indications of that through the operating model process and we’ll certainly receive the results of that through the operating model process. So there won’t be a situation where we’re not on top of headcount versus volume on the NAS perspective. So Dave and I are both extremely confident that you will see similar results, if not better. In fact, I would argue you will see better results on the NAS side as we’ve demonstrate on Global Forwarding in 2024.

Dave Boseman, President and CEO, C. H. Robinson: Yes. Just one last point on this, Brian, is I always like to say yesterday and today. And it’s fair for all of you to do that because we do it to ourselves. Where was the company yesterday? Where is it today?

Why is it fundamentally different? And if you go back to 2018, ’20 ’19, there’s a fundamental, as Damon said, structural difference. This is really important that I’ve been I’ve been telling to a lot of people as I talk to them. There’s a fundamental structural difference of where the company was. And we we do it, we coined a term called evergreen productivity within Robinson.

Evergreen productivity means it’s forever. We don’t give it back because you structurally change the company. And so we’ve achieved this evergreen productivity in global forwarding and NAS, and that’s not a clawback. So that won’t go away. So when the market comes back, you’ve got these things built in.

Our digital bookings and our digital transactions within the company. You go back to 2018, ’20 ’19, it was less than 5% and pretty clunky, right, on dealing with that. You know, now fast forward to today, you know, we’re north of 55% in a number of different things. That doesn’t go away when the market comes back, and we feel like it’s some of the best in the industry. So there’s just a structural difference.

And at our scale, that makes it a game changer and especially how we’re leaning in with large language models, which has really, really changed at our dataset.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: All right. Appreciate that. Try to squeeze in two last quick ones here. First one on cargo theft, we hear about it more in the news, we hear about it more from shippers, so it’s not just being reported more. They’re definitely more concerned about it.

It’s obviously an industry supply chain challenge. But how does that affect Robinson? And what are sort of the conversations and concerns you hear from your shippers?

Dave Boseman, President and CEO, C. H. Robinson: Yes. Good question. I’ll start with this. We’ve been focused on this for almost eighteen months. Actually, it was part of the diagnosis in coming in and looking at that.

We have a great team, an awesome team that is really on this. And the, the outputs, this is a a a key part of the operating model. It’s it’s it was it was on our enterprise score sheet. We looked at this. We tracked it.

And the team just did a wonderful job at at producing results here. I mean, take, for example, our truckload, cargo theft would be, really, we we have almost zero theft in truckload. We’re at 99.99% successful on that. So our customers can feel very confident when they use our service and that we do that. We’ve also taken a leadership role in this, and we lead up a consortium of some really big names out there and a number of different companies that actually are working with Robinson and seeing some of the things we’re doing and actually helping, with this consortium.

And we’ve also partnered with Highway as well, when it comes to this. So we put a lot of work and effort into driving this, and I think the benefit has showed up in the numbers. But this is no hubris, and we always knock on wood, and we always have a bit of paranoia around this and always trying to improve when it comes to fraud and theft in cargo. It’s a big industry. We’re just we’re doing pretty good about it.

I don’t know if you’d add anything in there.

Unidentified speaker: No, I would say, look, certainly, as Dave mentioned, our thefts free rate, from a load perspective, it rounds to 100%. But we do a lot of loads, as you guys know. So there’s still opportunity to reduce the dollar impact. And we made significant process improvements in 2024 to yield that benefit. So it’s been a big focus for us.

I’d say in many areas, we’re probably, you know, close to leading the industry on some of our practices there. And I think the partnerships that we’ve developed, one with Highway, to just continue to safeguard our network as well. So it’s an area that the rate can be a little misleading because we do so many loads. So it says, hey, there’s not much of an opportunity, but we would argue from a lean mindset, every bit of leakage is an opportunity and it’s certainly a focus of ours.

Dave Boseman, President and CEO, C. H. Robinson: That’s right.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: So maybe to wrap up with just some thoughts on how to look at normalized earnings power through whatever normal cycle is that being in the future. But maybe just to use the Investor Day framework, is that a good way to look at ’26 forecast or your projections? Is that a good proxy for normalized earnings power when you think about all the changes in the processes and the operating model that you’ve driven over the last eighteen months or so?

Unidentified speaker: Yes. So what I would reiterate is, so we’ve committed externally that at mid cycle, our NASS business will generate, mid-thirty operating margins at mid cycle. So that’s what we’ve committed to externally. We reiterated that in Investor Day. From a specifics perspective, so for a versus 2023, which is the baseline we used, we’re going to generate between $350,000,000 and $450,000,000 of incremental operating income, you know, 2026 versus twenty twenty, twenty three.

One of the assumptions in that, constructive courses is truckload spot rate, which we’ve assumed will will go back to levels of, say, 2019. Right? And if you look at 2019, we would consider 2019 rates to be slightly above above mid cycle. So using truckload and NAST is kind of a proxy there. You know, we would say we’ll be within the range of mid cycle with what we’ve communicated for 2026 assuming the market backdrop has the same composition that a normal mid cycle would have.

So I’d say we’d be in a pretty tight range to mid cycle with our 2026 guide.

Brian Austin Picker, JPMorgan Analyst, JPMorgan: Okay. Well, we’re out of time. That’s a good place to wrap up anyway. So Dave Damon, thank you very much for joining us today. We really appreciate it.

Dave Boseman, President and CEO, C. H. Robinson: Yes. Thanks for having us. Appreciate it.

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