Union Pacific Corporation (UNP) Q3 2014 Earnings Report, Transcript and Summary

Greetings. Welcome to the Union Pacific Third Quarter 2014 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Jack Koraleski, CEO for Union Pacific. Thank you Mr. Koraleski, you may begin.

Thank you, Rob and good morning everybody. Welcome to Union Pacific's Third Quarter Earnings Conference Call. With me here today in Omaha are Eric Butler, our Executive Vice President of Marketing and Sales; Lance Fritz, President and Chief Operating Officer; and Rob Knight, our Chief Financial Officer. This morning, we're pleased to report that Union Pacific achieved third quarter earnings of $1.53 per share, an increase of 23% compared to the third quarter of 2013 and another quarterly record. Total volumes were up 7% and the increases were nearly across the board. We saw growth in 5 of our 6 business groups with particular strength in Agricultural Products, Industrial Products and our Intermodal shipments. Coming out of the first half, we were pleased to see the strong volume growth continue through the third quarter. These strong volumes along with solid core pricing drove a 2.5-point improvement in our operating ratio to a record 62.3% for the quarter. And as we continue to focus on improving our service, we are encouraged by the accomplishments that we achieved in the quarter. So with that, I'll turn it over to Eric.

Thanks, Jack and good morning. Volume was up 7% in the third quarter as solid demand across our franchise led to volume gains in 5 of our 6 business groups. We continue to see strong gains in Ag Products, Industrial Products and Intermodal. We also saw gains in Automotive and Chemicals, and Coal volume was flat for the quarter. Core price improved over 2.5% to help average revenue per car improve 3.5%. The volume growth and improved average revenue per car combined to drive freight revenue up 11%, which set an all-time quarterly record of over $5.8 billion. Let's take a closer look at each of the 6 business groups. Ag Products had another strong quarter and once again led our volume growth. Revenue was up 19% in the third quarter on a 14% increase in volume and a 4% improvement in average revenue per car. Grain carloadings were up 34% this quarter as we continued to benefit from a strong U.S. supply and lower commodity prices. Export feed grain demand to Mexico, China and Southeast Asia were strong, and domestic feed grain shipments were solid across most of our franchise. We did see softer wheat exports this quarter, which partially offset our volume gains. Grain products volume grew by 6%, driven by another strong quarter in ethanol shipments. We also saw strength in canola, meal and DDG [ph] shipments. Finally, food and refrigerated segments were up 3% for the quarter, as volume increases and import beer more than offset declines in frozen foods, canned goods and import sugar shipments. Automotive revenue was up 3% in the third quarter on a 5% increase in volume. Average revenue per car was down 1%, driven again by the previously reported change in the way we handle per diem revenue and also by mix. Strong consumer demand drove finished vehicle shipments up 5% this quarter. The seasonally adjusted annual rate for North American Automotive production was 16.7 million vehicles in the third quarter, up 1 million units from the same quarter in '13 and the highest level since 2006. On the parts side, strong production and a continued focus on over-the-road conversions drove a 3% volume increase. Turning to Chemicals, our revenue was up 6% for the quarter on a 2% volume increase and a 4% improvement in average revenue per car. We continued to see strength in our Industrial Chemicals volume, which was up 7% in the third quarter. The demand was driven by a variety of end-use markets such as shale-related drilling and various housing-related applications. Liquid petroleum gas shipments were up 12% for the quarter, driven by new business to an LPG storage facility on our franchise. We also saw an increase in demand for fuel additive imports in Canada and propane exports to Mexico. Partially offsetting our volume gains in Chemicals was crude oil, which declined 10% in the third quarter. As previously discussed, increased production in Texas limited shipments of Bakken crude oil to the Gulf region. However, we were able to partially offset the decline from Bakken with gains from other origins. Coal revenue increased 2% on a 2% increase in average revenue per car and flat volume. Southern Powder River Basin tonnage was down 2% for the quarter. Strong demand from lower inventories mostly offset volume headwinds from our previously reported legacy contract loss and a relatively mild summer. Volume was also negatively impacted early in the quarter from flooding in Iowa that interrupted service along our east-west main line. We continued to see increased demand in the Western part of our network, which drove Colorado/Utah tonnage up 13%. In our Industrial Products business, revenue increased 19% on a 12% increase in volume and a 7% improvement in average revenue per car. Once again, nonmetallic minerals led to growth in Industrial Products with volume up 30% for the quarter. Frac sand shipments were up 39% as we continued to see strong demand to most shale formations. Our lumber shipments were up 15% in the quarter. While steady improvement in the housing market increased demand, we're also seeing over-the-road conversions in many markets as order sizes increase and truck capacity tightens. And we continued to see strength in construction product shipments where volume was up 11%, driven by demand for aggregates and cement. Finally, in Intermodal, revenue was up 15% driven by a 10% increase in volume and a 4% improvement in average revenue per unit. Domestic Intermodal was up 13% in the quarter. Continued demand for new premium services and highway conversions contributed to a best-ever quarter for Domestic Intermodal volume. Our International Intermodal volume was up 8% as continued economic strength and new business volume carried over into the third quarter. Similar to the second quarter, we believe some of the portion of this strength can be attributed to cargo owners advancing peak-season shipments in anticipation of a possible impasse during the renegotiations of labor contracts at West Coast ports. To wrap up, let's take a look at how we see our business shaping up for the remainder of 2014. In Ag Products, all signs point to another record crop for corn and soybeans this year. Although the harvest got off to a slow start, we're optimistic for a strong finish to the year in grain. Though remember that our comp gets much more difficult starting in the fourth quarter. We also think ethanol shipments will be strong and we expect continued strength for import beer. In Automotive, finished vehicles and auto parts shipments will continue to benefit from strength in production and sales. Most of our Chemicals markets should remain solid for the remainder of 2014, though crude oil will likely continue to be a headwind. Low inventory levels should drive demand for Coal in the fourth quarter. We are hopeful that the weather cooperates as we continue to improve operational efficiencies. In Industrial Products, we expect the strength in frac sands to continue and we remain cautiously optimistic about the construction and housing markets. New product offerings and highway conversions will drive demand in Domestic Intermodal, and we continue to believe that the International Intermodal will benefit from an improving economy. But we expect growth to moderate in the fourth quarter as we believe the international peak season is largely behind us. Overall, the U.S. economy continues to show signs of strengthening, but we are keeping a close eye on softening economies in various parts of the world. Our diverse franchise and strong value proposition will continue to support business development efforts across our network and we expect a strong finish to the year. With that, I'll turn it over to Lance.

Thanks, Eric and good morning. Starting with safety. Our team continues to address risk in the work place and to generate record safety results. The performance is noteworthy given our current network variability. Training and deploying thousands of new employees introduces risk as the new hires get a feel for their work. We rely on each team's commitment to risk reduction, Total Safety Culture and the principles of Courage to Care to counter that risk. As a result, our year-to-date employee personal injury rate of 1.09 was 4% better than 2013 and a year-to-date record low. On a technical note, we have restated our employee personal injury rates for 2011 through 2014 year-to-date due to an overstatement of employee hours during this period. The absolute number of injuries reported was not affected. In rail equipment incidents or derailments, our reportable rate improved 7% to 3.04 and also set a year-to-date record. Continued investments in our infrastructure and advanced defect detection technology drove a reduction in track- and equipment-induced derailments. We also made progress on human factor incidents through enhanced skills training and standard work. In public safety, our grade crossing incident rate increased slightly versus 2013. To make continued progress, we are reinforcing public awareness through targeted safety campaigns in local communities and businesses. We are also developing analytics to assess crossing risks, which will enable us to target those with the greatest safety impact. Overall, we've made real progress on generating safety improvements on our way to an incident-free environment. The third quarter was a challenge for the operating team with significant weather events, robust volume growth and interline connectivity issues. During the third quarter, flooding and subsequent washouts on several key routes materially impacted operations. The 84 days with major service interruptions resulting from weather and incidents were the most we have ever recorded in a quarter since we first started tracking the measure back in 2005. In comparison, the average for the third quarter since 2005 has been 37 weather and incident interruption days. Variability also resulted from the construction of major capacity projects, most notably the Tower 55 project in Fort Worth, Texas. This public-private partnership, completed in late August, created operational efficiencies and additional capacity by reconfiguring and adding additional track through a key bottleneck in our network. However, a project of this magnitude required us to reroute significant train traffic to facilitate installation. Given the more-than-100 trains per day that traverse through this intersection, the reroutes placed additional pressure on the network during the quarter. Reflecting this variability, our service performance fell short during the third quarter. As reported to the AAR, third quarter velocity was down 10% and freight car dwell up 13% when compared to 2013. We have maintained velocity around 24 miles per hour while addressing these operational challenges in moving growing volumes. The team has adjusted transportation plans to use alternate switching yards and gateways, realigned resources to where they are needed most, and employed the use of our surge resources. The interruptions and their subsequent reductions on network capacity also drove a decline in our Service Delivery Index, which gauges how well we are meeting overall customer commitments. On a more positive note, we were able to maintain local service within a reasonable range, registering a 93.3% Industry Spot & Pull. This metric, which reflects the tighter service commitments we introduced this year, measures whether a car is delivered to or pulled from a customer's facility on time. Our team is working very hard to handle customers' growing volumes while improving service and we remain focused on making it happen. To support our customers' volume growth, we have increased our total TE&Y workforce by more than 1,100 employees and our active locomotive fleet by around 900 units since September of last year. And we've stepped up our resource plan throughout the year to handle growing volumes and provide the level of service that our customers have come to expect. As to our workforce, we are now planning to hire around 3,600 TE&Y employees to cover growth and attrition, up from the 3,200 we discussed back in July. Approximately 2,500 of these 3,600 have already been hired. And while some of these employees are already active in day-to-day operations, a good portion of these new hires are still in our training pipeline. Around 1,100 will be moving into active operations in the fourth quarter. We also have plans to acquire an additional 32 locomotives this year, bringing our new total to 261 units, up from 229. Around 200 of these units are now on property and deployed across the network. And a quick update on CapEx. We still plan to spend around $4.1 billion this year, including the additional 32 locomotives I just mentioned. While we are largely on schedule, timing issues on a few projects keeps our overall projection unchanged. And while we still haven't finalized our overall 2015 capital program, we do plan to acquire around 200 new locomotives next year. Our capital investments help maintain a safe, strong and resilient network and include investments in service, growth and productivity that allow us to handle growing rail volumes. Moving to productivity. The volume trends we saw in the first half of the year were largely sustained in the third quarter, with volume growth in each network region. We generated solid productivity with the volume growth despite the operational headwinds we faced during the quarter. So while we incurred some incremental costs associated with congestion, we improved network productivity by increasing average train lengths in nearly all major categories and by adjusting the T-Plan to reduce work events. The chart on the lower right demonstrates our ability to leverage growing manifest volumes through UP's terminal infrastructure. During the quarter, we switched 7% more cars with a 5% increase in yard and local employee days versus 2013. The result was an all-time quarterly record in terminal productivity. Our employees are bringing their expertise to bear on improving service, safety and efficiency by standardizing work and reducing variability to drive our operating ratio to an all-time record. Wrapping up. Our first order of business is to safely improve network performance while satisfying customer demand. We are working hard to provide customers with a value proposition that supports growth with high levels of service. As I've previously mentioned, our recovery is partly dependent on interchange fluidity, so we continue to work with our connecting railroads to improve performance at key gateways. We expect to generate record safety results on our way to an incident-free environment. We will continue to make sound investments in resources and network capacity to overcome congestion and service interruptions and to handle increased demand. Our focus on reducing variability in the network has never been more important to generating sequential improvement. Ultimately, running a safe, reliable and efficient railroad creates value for our customers and increased returns for our shareholders. With that, I'll turn it over to Rob.

Thanks, Lance and good morning. Let's start with a recap of our third quarter results. Operating revenue grew 11% to nearly $6.2 billion, driven by strong volume growth and solid core pricing. Operating expenses totaled just under $3.9 billion, increasing 7% over last year. And even though our network continues to run at suboptimal levels, our operating income still grew 19% to $2.3 billion. Below the line, other income totaled $20 million, down $8 million from 2013. Interest expense of $144 million was up 4% compared to the previous year. Primary drivers were increased debt issuance during the first 9 months of this year. Income tax expense increased to $836 million, driven primarily by higher pretax earnings. Net income grew 19% versus 2013, while the outstanding share balance declined 3% as a result of our continued share repurchase activity. These results combined to produce best ever quarterly earnings of $1.53 per share, up 23% versus last year. Turning to the top line. Freight revenue grew 11% to over $5.8 billion. This was driven primarily by volume growth of 7% and core pricing gains of just over 2.5%. A positive lag impact on our fuel surcharge program added approximately 1 point in freight revenue growth. Business mix added another 0.5 point as the positive mix impact in grain and frac sand volume more than offset the increase in lower average revenue per car Intermodal shipments during the quarter. Other revenue increased 12% in the quarter. Primary drivers included revenue associated with the per diem on auto parts containers as well as subsidiary-related volume growth. Recall that beginning last year, per diem revenue on auto parts containers is now reported in other revenue as a result of a change in how we are compensated for this service. Slide 22 provides more detail on the impact of changing fuel prices on our fuel surcharge revenue. Represented by the blue line, you can see how diesel fuel prices declined in August and September. Remember, there is about a 2-month lag before the price of diesel fuel actually flows to our surcharge revenue. The dashed line reflects that 2-month lag. In periods of falling fuel prices, earnings benefit from the surcharge lag. On a year-over-year basis, the surcharge lag added about $0.04 per share to our third quarter 2014 earnings. This includes $0.02 of positive impact in the third quarter of this year as well as $0.02 of negative impact during the same period last year. As we look ahead, it's hard to say what might actually happen with fuel prices. It's a little like trying to predict the economy. So whilst we've been seeing a modest benefit to start off the fourth quarter, much can change between now and near the end of the year. Slide 23 provides more detail on our core pricing trends in 2014. Third quarter core pricing came in at just above 2.5%. This is up slightly from our first-half average, reflecting continued core pricing gains. And our commitment to a strategy of pricing to market at re-investable levels that are above inflation remain solidly intact. Moving on to the expense side. Slight 24 provides a summary of our compensation and benefits expense, which increased 8% versus 2013. Higher volumes, inflation and increased training expense were the primary drivers of the increase along with some increased costs associated with running a less-than-optimal network. Looking at our total workforce levels, our employee count was up 2% when compared to 2013. However, the reduction in the number of employees associated with capital projects helped to offset some of the increase in noncapital-related workforce levels. If you exclude capital-related employees, our workforce was up over 3% with the majority of this increase coming in our TE&Y ranks. For the full year in total, we are now revising our previous estimates. We now plan to hire over 5,500 people to cover growth and expected attrition of just under 4,000. This total does include the increase in TE&Y hiring, which Lance just discussed. From a timing perspective, about 30% of this hiring is expected to occur in the fourth quarter of this year. Going forward, you should expect to see our workforce levels grow with volume, but not at the same rate of increase. Labor inflation is still expected to come in under 2% for the full year in part reflecting favorable pension expense. Turning to the next slide. Fuel expense totaled $882 million, up 2% when compared to 2013, driven primarily by higher gross ton-miles associated with increased volumes and lower diesel fuel prices. Compared to the third quarter of last year, our fuel consumption rate improved 1% while our average fuel price declined 5% to $3.01 per gallon. Moving on to the other expense categories. Purchased services and materials expense increased 11% to $650 million due to higher locomotive and freight car material costs, volume-related contract and subsidiary expenses, and crew transportation and lodging expenses. Depreciation expense was $481 million, up 8% compared to 2013, consistent with our 7% to 8% full year guidance. Slide 27 summarizes the remaining 2 expense categories. Equipment and other rents expense totaled $310 million, which is flat when compared to 2013. Higher volume-related freight car rental expense was offset by lower freight car and container lease costs. Lease costs are lower as a result of exercising purchase options on some of our leased equipment. Other expenses came in at $242 million, up $37 million versus last year. Higher state and local taxes, damaged freight and equipment costs and personal injury expense contributed to the year-over-year increase. Year-to-date other expenses are up 5%, within the range of our full year guidance of an increase between 5% and 10% excluding any unusual items. Turning to our operating ratio performance. We achieved a quarterly record operating ratio of 62.3%, improving 2.5 points when compared to 2013. Through the first 3 quarters of the year, we achieved a 64.2% operating ratio, an improvement of 2.3 per [ph] points over last year. With 3 quarters now complete, we are in a solid position to achieve our long-term guidance on a full year basis of a sub-65% operating ratio this year. Turning now to our cash flow. Year-to-date cash from operations totaled nearly $5.4 billion. This is up almost 10% when compared to 2013. Recall, this amount is tempered by the headwind this year in bonus depreciation and the timing of cash tax payments. Capital invested totaled $3.3 billion year-to-date. In addition, we returned about $1.2 billion in dividend payments to our shareholders. Taking a look at the balance sheet, we increased our adjusted debt by approximately $1.7 billion since the first of the year, bringing our adjusted debt balance to $14.5 billion at quarter end. This takes our adjusted debt-to-cap ratio to 40.2%, up from 37.6% at year end 2013. This puts us in line with our target of an adjusted debt-to-cap ratio of approximately 40%. And we continue to work towards our target of an adjusted debt-to-EBITDA ratio of about 1.5. We also continue to be opportunistic in our share repurchases. Since the first of the year, we've bought back over 24 million shares, totaling about $2.3 billion. This brings our cumulative share repurchases since 2007 to 237 million shares. When you combine dividend payments with our share repurchases, we returned more than $3.5 billion to our shareholders in the first 3 quarters of this year. These combined payments represent a 47% increase over 2013, continuing our focus on rewarding shareholders with increased cash returns. So that's the recap of our third quarter results. As we look to close out the year, we are well positioned to report a record year in many of our key financial measures. Of course, we still need the economy to cooperate, but the business fundamentals remain strong and are supported by our solid core pricing initiatives. I would also like to remind everyone that as we have previously announced, we have an Investor Day coming up in a couple of weeks on November 5 in Chicago. So as we look past 2014 and into next year and beyond, we look forward to providing you our thoughts and views at that point in time. And with that, I'll turn it back over to Jack.

Okay. Thanks, Rob. Well, as you've heard from the team today, we're feeling pretty good about the remainder of the year. Assuming that the economy and weather cooperate, we are well positioned to finish up the year with record results. We continue to see tremendous opportunity across our diverse franchise and we remain focused on improving our network velocity and fluidity so that we can leverage these opportunities by safely providing our customers with excellent service and our shareholders with strong returns. So with that, we're going to go ahead and open up the line for your questions.

[Operator Instructions] Our first question is from the line of Brandon Oglenski with Barclays.

Jack, just given that I'm the first here, I guess I'm going to ask a question that you probably know is coming. There's been some discussion around M&A in the industry right now and definitely proposals to fix the service issues facing the carriers. So I know you talked about it in the last call, or said effectively you don't think M&A can happen. But do you believe that combinations of the east-west carriers could potentially alleviate some of the congestion that you're seeing right now?

Brandon, I am not convinced that merging is the way you solve service issues in this industry. And particularly right now, I don't think mergers make sense and I still believe that. I think, when you look ahead to the regulatory hurdles that are out there, the STB, the new rules basically say that any combination is going to have to enhance competition as opposed to the past when it was just maintain competition. And secondly, that they will consider the triggering effects of additional consolidations. So that really does add a whole layer of concern for me as I think about the prospects of future mergers. So I'm not a fan and I really don't believe that's the best way to fix the service situation.

Well, when you look at the overlap, though, of the networks, do you believe there's a lot of competitive overlap in some of these combinations? Or are there, potentially, combinations that could help some of these bottlenecks where you wouldn't have significant competitive concern?

When we come across bottlenecks, we work really hard with our interline partners to solve them. And I don't see that merging is the way to eliminate bottlenecks.

The next question comes from the line of Chris Wetherbee with Citigroup.

Maybe just a question on pricing. I want to get a rough sense of sort of how you think about the pricing environment, particularly when you're looking out to 2015. Obviously, volumes are sort of getting back up towards previous peak levels. Just kind of want to get a rough sense about how you feel about that and a potential re-acceleration, if we could see one, in 2015 up from about the 2.5% you've been doing the last couple of quarters.

Chris, we like to -- what we're seeing in the marketplace today in terms of the volume that's taking place and the demand and clearly, when a market reacts that way, the pricing environment gets better. I don't know, Eric, you want to put some technical around that?

Yes, Jack, you're right. We've said in the past that as demand strengthens, we see our ability and our strong value proposition to continue to allow us to take price and we're excited about the future opportunities.

Okay, that is helpful. And then if I could just ask a follow-up question, specifically as it pertains to Intermodal. You've had some fairly strong results on the Intermodal side. Just want to get a rough sense, maybe if we can parse out is there-- how we think about sort of the core business and then the competitive potential opportunities that maybe you've seen over the course of this year. And maybe if it's just sort of a mix dynamic that's playing into that Intermodal average revenue per car. Just want to get a sense of how that is trending because it seems to be a bit of a standout.

Okay. Eric?

Yes. I think we've been saying the whole year, talking about our new products and services, and as we're rolling out our new products and services, it's really driving our value proposition and our ability to convert truck, particularly long-haul truck, to the rail. And again, that value proposition continues to allow us to price to market and strengthen our prices and it's just a continuation of the trend that we've had.

Okay. And the fourth quarter, that's sort of the same dynamic, potentially, with international being a little bit maybe softer and then the domestic side continuing to do what it's been doing.

Yes. As you know, there's always kind of a cycle throughout the year in terms of the volumes quarter-to-quarter, and we expect that cycle throughout the year to be similar this year as it was previous year. But given that, yes, we see our strong value proposition and the trend to continue.

Our next question is from the line of John Larkin with Stifel. John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division: Just had a question on whether or not you all have estimated the cost of the network performance issues that you incurred in the third quarter. You were able to put up, obviously, just spectacular numbers. But I suspect that if things have been more fluid, you would've done even better than that. Any estimates on the cost of that set of challenges? And also, was there any revenue missed due to performance issues or interline issues?

Hey, Rob, why don't you take a shot at that?

Yes, John, that -- it's difficult to kind of nail that down, as you know. Roughly -- clearly, there was some cost. I'd say, it cost us probably $0.01 or so on the cost. But as we pointed out, we recognize that we didn't meet all of the demand in our Coal business, for example. So there's some revenue that, clearly, we hope to continue to make up as we move forward, but that had an impact as well. John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division: And then on the reduced year-over-year crude volumes, is there any hope for making up some of that by connecting with the Canadian carriers and hauling some of the heavy sour out of Alberta down to the Gulf Coast?

Eric?

Yes, John, as we've said in the past, our strategy is to strengthen our franchise to provide optionality between origins and destinations. We're still doing that. We're heading down that path. As you know, we don't control the flows. The spreads are going to drive that and the price of oil is going to drive that. In terms of the Canadian perspective, I certainly think that as oil goes to $85, $80, the Canadian heavies probably have more headwinds than they do at $100 or $110 price of oil. So those are all factors that will go into our crude oil opportunities in the future.

I would just add to that, John. The trade-off of a 10% down on our oil business but a 39% increase on the frac sand business is pretty darn attractive to us.

Our next question is from the line of David Vernon with Bernstein Research. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: So Jack, I think the company used to speak about the capacity on the network being somewhere in that 190,000, 195,000 carloads at a 4-week moving average basis. Obviously, you guys have been doing a lot in terms of double trucking [ph] parts of the network to the Tower 55 project. Can you sort of help us understand where you think the capacity situation is now with all the resources you're adding? Are we -- or do you guys feel like you're in a good position to accommodate volume growth? Do you feel like there's the potential for a more drawn out potential for service issues as the volume outlook continues to look pretty strong?

David, I actually feel pretty good about our positioning right at the moment. And I'm not backing down from the 195,000 to 200,000 kind of a range. Our capital spending on infrastructure has been excellent. Our railroad is really in the best shape it's been in, in a long time. We are adding crews I think, as you've seen in the presentation today, pretty aggressively here in the last quarter of the year and actually even into the first couple of months of next year. Our locomotive take for this year is solid and we're protected for next year. And I like all of that. We're running the 100,000 -- between 190,000 and 195,000 cars a week, week-to-week, and we are continuing to see improvement in our internal measures and our velocity and things like that. So I feel good about the fact that we're getting better even at these very strong volumes. And I think I'd stay in that 195,000 to 200,000. I think we'll be okay. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: All right. And the results definitely support that. So Eric, maybe just as a follow-up, it looks like the growth in premium traffic, the trailer growth in the Intermodal segment there, you're picking up some business. Would you think that there's more runway to grow that? Or do you think that this is going to be sort of 1 or 2 premium accounts where you're getting a nice hit on the RPU? Or do you think that there's more potential to grow that premium service product over a longer period of time?

As you know, and as we've said in the past, we're continuing to put new products and services in the marketplace. I think we spoke at the last quarter about some of the new premium services that we put in the marketplace between Chicago and the West Coast and the TMNW [ph]. And so we certainly saw a benefit from putting those new products and services in the marketplace. We're going to continue to look at opportunities to do that, and we expect to continue to drive growth across our Intermodal book of business, including our premium business.

Our next question is from the line of Jason Seidl of Cowen.

Real quick here. You talked a little bit about pension being a minor help this year. Given current interest rates, what are you expecting for '15?

Rob?

Yes. I mean, obviously, we don't have all the full numbers nailed, but Jason, I think it's a safe assumption that it'll be higher next year. And as I pointed out that pension and other health and welfare items are what drove our comp inflation number to be, as I stated, below 2%. We would expect that's going to obviously drive that to a higher number next year, probably closer to 3-ish, all in.

3-ish, all in. Okay. Now given that and you said your core pricing was just -- I guess, just over 2.5%. Is that something that we should look to trend up, that 2.5% next year, to try to keep up with some of the additional costs that are coming on?

Rob?

Yes. I mean, I -- our philosophy, Jason, has not changed at all. And that is to price to market at re-investable levels and above inflation. So we're constantly taking advantages there, talk to where it make sense for us to bring on business at the right terms and right conditions and that -- we're not giving more detailed guidance on that other than our tenet and our focus and our belief achieving those goals has not changed.

Has it been a little bit more difficult given the service levels on some of the pricing discussions with your shippers this year?

Eric?

Jason, we operate in a very competitive environment and lots of competitive options. And getting price is always difficult, but we believe we have a value proposition and we are going forward in selling our value proposition and gaining a price for it.

Our next question is from the line of Bill Greene of Morgan Stanley.

I wanted to ask about -- and Jack or Eric, really, the addressable market. So when you look at what's kind of going on with your operating ratio, it's getting to very impressive levels. And I realize you haven't quite gotten to low 60s on a full year basis, but you're getting to levels where I think all of us are going to sort of rightfully conclude that, well, there's probably more opportunity to go, but that opportunity set is diminishing. So could you talk about how you weigh the pros and cons of using some of that operating ratio to try to grow revenue faster? Is that something that you started thinking about, that you want to kind of start to try to win business using maybe price where appropriate? Or how do you think about this changing dynamic?

You know Bill, I don't think about my opportunities as diminishing. As I look ahead for the next 4, 5, 6 years, and we'll talk about this more on November 5, I think the Union Pacific franchise is loaded with opportunities. And I think Eric and his team are doing an outstanding job of business development. Part of our capital investment strategy, like Santa Teresa, part of it in terms of the announcement we made about moving ahead with a new facility in Robertson County down in Texas. All that's focused on growth and development. There's still huge potential for us in Mexico. I'll stop. I'll let Eric...

The only other thing I would add, and again, Jack and Rob said we'll talk more about this at the Investor Day, if you think about the shale play and the lower energy prices in this country, there is really a resurgence of activity, business activity, investment activity, manufacturing activity. And we see that continuing to be just a strong propellant for growth in the future. I mean, talking about price, using price to grow is not even in our vernacular at this point.

Bill this is Rob, I just got to add. We'll try not to have 3 people answer each question. But, I have to add that focus really for us is on returns. Operating ratio has got a shorthand target, that gives us -- brings it all together in terms of efficiency, and we use that as a measure of success, if you will. But at the end of the day, we really are focused on driving returns.

No, that's very hopeful. Let me just clarify, because I just kind of wanted to make sure I kind of asked this in the right way. And what I'm basically getting at is I think most people would say that a long-term organic growth rate, in volume terms for rails, is probably GDP-like. Pricing will be inflation-plus if you put that at 2% or so, we'll talk about maybe a 3% number. And that kind of puts you in the mid single-digit revenue growth rate range. And I think what I'm trying to get at is, is there a way to push that higher or are what you -- maybe what you're saying is, listen, our network has much greater opportunities than that organic GDP-like level of growth. But that's what I was kind of trying to get at.

I think 2 things, Bill. One is you're right. I think we believe that our franchise has greater opportunities than that. And number two is it's not just about market and inflation. It's also about the value that you provide for the customer. How do you differentiate your service package, the options that you provide customers, the relationships that you build with them. And we think that gives us an edge.

Our next question comes from the line of Tom Wadewitz at UBS.

Let's see, so I wanted to ask you about how would you compare the current environment for -- rail environments, not just UP. But current rail environments, 2004 through 2006, I guess the shoe is on the other foot, so to speak, among the western carriers in terms of maybe who has greater capacity challenges. But is it fair to say that this may be similar where it really takes a while to recover for the industry and velocity, but that supports some positive things in terms of price and perhaps a couple of years of pretty favorable pricing?

I think, Tom, that's not a bad assessment. Having been the poster child of what not to do in 2003, '04, '05, it feels better that we're where we are at the moment. But I do think, when you look across the rail industry, you're seeing incredibly strong capital investment. Almost uniformly across every property. You see operating teams that are experienced, that are working diligently to get these things working. There's a lot of interline activity between carriers that's looking at improving service and things like that. So I think it'll -- while there are some similarities to that, I'm hopeful that you're going to see a quicker return to kind of a more normal velocity than what we saw back in those days.

Okay. Let's see, in terms of the, I guess, getting to your own pricing opportunity, how much of your book is available to get repriced in 2015? And I guess how much of that have you already taken up, already set the repricing?

Eric.

So we've said in the past, Tom, that at any one given period of time, roughly 70% of our book of business is tied up in contracts of a year and longer. We're rolling those over at -- all the time. So I think that's a good rule of thumb to continue to use.

Okay. But I mean, if you said tariff, one-year letter quote plus the multi-year that rolls over, is it maybe 50% of the book you could touch for next year or is there a broad brush number you can give us for what you actually [indiscernible] next year?

If you look at it, Tom, it hasn't changed very much over the years. About 30% is in tariff, about 30% is in one-year letter quotes. But those all come up and due at different times during the year. So I think you kind of stick with what Eric told you.

Our next question is from the line of Ken Hoexter with Bank of America.

I just want to revisit your answer then, on kind of the volumes here. To David's question before, you talked about 190,000 to 200,000, and you said you felt good about 195,000 to 200,000. But if you're growing at these levels and you're already running at 190,000, 195,000 carloads per week, do you start to face congestion if you get -- if the Ag business stays strong or what-have-you in terms of volumes? I just want to understand, do you see tightness, just given on the volume side? Understanding what you're doing on the crew and locomotive side. It just sounds like the network, at some point, hits that max or is it just based on where the volumes are coming in from?

I don't think that, that's a max for us, Ken. I think we have potential even beyond those numbers. It really does depend. I don't know, Lance, why don't you take a shot at it.

Sure. So right now, we'd love to have more crews in our network to spool up our speed. That's probably the starting point of where current service product gets back to what we would consider an acceptable level. As we look forward, we're constantly making investment decisions in all the critical resources to be able to handle growth where we anticipate growth is going to occur. And I don't see any reason why we would say future growth is going to be retarded because those investments aren't happening in the right spots.

Nor do we think it's going to take anything more than what we've stated, which is a 16% to 17% of revenue kind of capital trend to keep us ahead of that game.

16% to 17%.

Yes. We're not saying it's going to take an exceptional capital infusion to keep us good.

No, that's encouraging because it sounded like you were saying before it was kind of a max, at least for now, but that's encouraging on the ability to grow. And then maybe, Eric, thoughts on the Ag business in terms of this record crop we've had. It looks like we've got another strong crop. You said there was a delay in getting the harvest started. Can you maybe delve into that and talk about business there and what you're seeing in terms of congestion and the infrastructure there and kind of the pace of growth we should expect on the Ag side?

Yes. So last year was a record corn harvest and a good soybean harvest. This year, all indications is that it's going to be another record corn harvest. I think last year was 13.9 billion bushels. This year might be -- I think the estimates are 14.4 billion bushels. And likewise, soybeans I think are going to be up close to 4 billion bushels, which would be a record. The delay that's occurring is really the delay of farmers harvesting in the field, it's not a transportation supply chain delay. Variety of reasons for that. Some parts of the country, it's been wetter than usual. Other parts of the country, the farmers are making the decisions in terms of when they want to bring their product to market. So a variety of reasons for that. So we expect this record harvest to still -- record corn harvest to still be ahead of us in terms of harvesting and the farmers looking to put that into the supply chain, the transportation process.

That's helpful. I appreciate the time and great results. If I could just get a clarification though, Eric, on something you said earlier. The oil that you mentioned was declining. Is that because it's moving east and west, and -- because your frac sand is going up. So I just want to understand why that downshift in the crude on your network when we're seeing such strong growth on all the others.

Yes, the crude reductions for us have been the Bakken to the Gulf and Louisiana. And if you look at the flows of the Bakken crude, that is flowing east and west and not north and south. And one of the reasons it's not flowing north and south is that there's such huge production of crude in Texas, in the basins in Texas, that it's predominantly moving by pipeline to the refineries. We have some spot rail moves but predominantly by pipeline. There really is not a need to move the Bakken crude to Texas. So that's the dynamic that we're seeing.

Our next question is from the line of Allison Landry with Credit Suisse. Allison M. Landry - Crédit Suisse AG, Research Division: So following up on frac sands. So volume growth clearly accelerated in Q3. And in spite of the uncertainties surrounding crude prices, do you have any opportunities to take up price on this business, given the very tight supply? And it looks you took up some of the public tariff rates on this business. I was wondering if you could comment on what percentage is contractual versus spot.

Eric?

So we don't give kind of percentages of contracts versus public by individual business segment. But we are focused, again, on our value proposition. We're focused on the demand, the strong demand that's going on in that marketplace and we are pricing it appropriately. If you look at that marketplace, there's huge new production coming online, of sand facilities in Wisconsin and Minnesota. We're excited about our franchise and the ability that we're giving the disproportionate amount of that new production on our line, which we think is a great opportunity for us in the future. So we think that as long as the drilling continues and oil prices sustain drilling, we have nice growth opportunity ahead of us in the future. Allison M. Landry - Crédit Suisse AG, Research Division: Okay, perfect. And then you mentioned earlier your longer term view of a resurgence in industrial activity in the U.S. Within that context, how are you thinking about the new ethane crackers coming online, maybe in terms of the size of the opportunity? And has there been any talk from customers about potential delays from either labor or the recent slide in crude prices?

Yes, as you know, Allison, that there's huge number of new capacity coming online. A lot of that will come online in '16 or '17. Those were the plans. But as long as natural gas kind of remains where it is, in the $3.75 range, it's going to be a huge financial incentive for those projects to go forward. There's been public reports of some spot shortages of skilled laborers. As far as we could tell, it's not significant or material to the timetable of any of those projects.

Our next question is from the line of Scott Group of Wolfe Research.

Wanted to follow up on that question about comparing this to that '04, '05 timeframe. If I go back and look, when you guys were having those significant service issues, it really kicked off a 3- or 4-year period of pretty material share losses to be in. This year we're seeing the opposite. Do you think this is the beginning of a multiyear period of share gain or do you think this is going to be more of just a one-off?

That's really hard for us to tell right now, Scott. So I got to tell you, the BNSF is a great railroad. And they're going to come back, and they're going to come back strong. So we have seen some opportunities, probably the strongest we've seen have been in grain and in Intermodal, but those can move back very quickly. And our goal is to impress those customers with our value proposition and doing business with Union Pacific such that when the competition is stronger than what they are today, they won't think about shifting back. But it is a tough competitive marketplace out there and we recognize we will have to compete.

Are the tenor of the conversations suggesting that next year could be another year of share gain or could some of that go back in your mind?

Eric?

As Jack said, the BNSF is a tough competitor. I think they have publicly stated in different forums that next year, the full year, will be a full recovery year for them. We see them working hard to recover and I would not be surprised to see them recovering in different parts of their markets as you go through the year and they will continue to be a strong competitor.

Okay, that makes sense. And then one for you Rob. If I look back at last year when you had legacy pricing, it looked like it was about 1 point, 1.5 point boost to the core pricing gains. Is it realistic to think next year could be similar to that? And is there any update on what percent of the legacy you expect to retain? Sometimes you can give us an update around that.

Yes. I mean, just to kind of reiterate what I think you already know Scott. You're right, we achieved about 1.5 point of benefit last year from legacy contract renewals. Coming into this year, we said "legacy light." So basically 0 this year. Next year, we have about $300 million worth of revenue that we will compete for in the marketplace. We don't give guidance in terms of what the pricing's going to look like on that. But we're going to be in the marketplace competing and we're in those discussions as we speak. So no further update on that, other than it will -- we would expect there would be some contributor next year on legacy versus this year, 0.

Our next question comes from the line of Walter Spracklin with RBC.

Just have one question here on Intermodal. We mentioned the BNSF issues and there was obviously some labor volatility. A few of the other railroads are talking about the potential that shippers will start to diversify away from the port of L.A., Long Beach. And I see you have a question mark on your Intermodal growth outlook. Do you think that this diversification is possible and to what extent it might impact your operation out of those ports?

Eric?

So, Walter, great question. The market is aware and we are aware of the difficulties that are occurring right now in the Port of L.A., Long Beach. They are experiencing backups. A variety of reasons for that. Probably some of it is due to some of the labor uncertainty with the West Coast ILWU workers. Some of it's probably related to the fact that you have larger ships going into the terminals and they're dwelling longer as they're trying to unload those ships. Part of it is due to the fact that as the alliances, the steamship alliances, are changing. It's having different impacts on different terminals within the Port of L.A. and Port of Long Beach. So a variety of issues. Those issues, frankly, are impacting some of our transportation operations. We're doing some things creatively to overcome those. But if you look at it, the Port of L.A., Long Beach is still such a huge driver of West Coast imports. It's unlikely to see significant long-term material diversions. Last month, September, the Port of L.A., Long Beach, hit volume levels that they hadn't seen since probably '06 or '07. So they're seeing huge volume growth. There might be some nominal diversions to some other ports, whether up or down the U.S. West Coast or in Canada. Some of those ports have similar capacity challenges that they also have, that they're also working through. So there might be some nominal short-term diversions. But long term, if the Port of L.A., Long Beach can get their issues worked through, they're still in a pretty good place to maintain and grow their segment of the business.

And as you see some of that capacity tightening along the Western U.S. and Canada, as we approach a more full -- approach Panama fully up and running, as time gets closer, are you hearing your shippers talk more and more, looking harder at what they're going to do with Panama? I know there's still a lot of question marks around the rates around there and all that, but any update on what the potential impact, longer-term, of Panama could be?

Yes, so, as you know, there's still a whole rate question out there in terms of if it's going to cost more money and you have a longer transit time. There is actually a construction delay question still out there with the Panama Canal. I think what we've said in the past is still what we think today, that you might have 1% or 2% that gets diverted today. About 30% of the business is all water. That might grow to 31%, 32%. But we don't see, nor are we hearing from shippers, anything significant beyond that.

Our next question comes from the line of Rob Salmon of Deutsche Bank.

With regard to the -- you guys have historically talked that the train size performance isn't kind of the end-all be-all, particularly when there are growth opportunities. I think we saw that with the Intermodal results this quarter. Could you give us a sense how much more volume the Intermodal network could handle on average, if volumes continue to pick up here?

Sure. Lance?

Yes. Rob, so you're right. Train size is not the be-all end-all. Intermodal was impacted this quarter by new products that, on average, were smaller than the rest of the network. And if you think about train size opportunity on Intermodal trains as it exists today, to get them up to average train size in the routes that they go, there's plenty of upside. Not putting it in a percentage, but dozens and dozens of boxes.

That's helpful. And then, Lance, as I'm thinking about the Intermodal growth, particularly on the expedite trailer side, you guys have clearly taken market share in the PNW down to Chicago. How much of the growth has been driven by some large customers you guys took on there versus just overall network gains that you're seeing across the network due to a tight trucking marketplace?

It's probably more a question for Eric. But I will tell you, we do not speak to specific customers. We do have a new product in that lane that's performing well and it is attracting new business.

Yes, that's the answer. And I mentioned that earlier, we put in some new products both to the PNW and to California. And those new products are attracting business, particularly as some of our competitors are struggling in that corridor.

And, Eric, as we think about that business, should there be a significant peaking factor to the RPU in the fourth quarter associated with that or is the third quarter a pretty good run rate looking out kind of for the Intermodal product?

I think overall, Rob, we're not going to give specific pricing guidance on that. I think we'll have to just wait and see how the business materializes and hopefully it's going to continue to be positive.

Our next question is from the line of Thomas Kim with Goldman Sachs.

I had a question with regards to Mexico. It's been sort of around 10% of your revenue days. And I'm wondering, is that changing materially? And if not, when do you anticipate the growth or potential outsized growth in Mexico to start to contribute or a little bit more of the overall book of revenue.

Overall, Thomas, it was 10% again in the quarter. Volume was up about 9%, so it's a great piece of business with us. In terms of future growth, Eric, you want to take a shot?

We continue to think Mexico has nice future growth opportunities on the auto side, the grain side, the industrial product side. A 9% growth trend is pretty good.

I'm curious as to what the point when -- one would think, with all the newer sourcing opportunity, that it should be a bigger percentage of the book to business. And I guess if you can maybe frame out, maybe even how Santa Teresa fits into that picture and when you anticipate that potentially adding maybe 1 point or 0.5 point in terms of the overall revenue contribution. Will you be able to frame out perhaps maybe the medium- to long-term?

This is Rob, maybe I can answer that for you that Thomas. I mean we're not going to give specific guidance on that. But I would just say that if look out over the last several years, our volumes in and out of Mexico -- and of course as you know, we're the only railroad that crosses the 6 rail crossing points. But our Mexican-related business has been growing faster than our overall enterprise business has. So it's been contributing. And we're not going to break out in terms of what the margins are on that business. But I would just tell you that it's good business that we're bringing on the network. So it has been contributing and continues to contribute as we move forward.

And your Santa Teresa growth is meeting expectations. And just as a data point, that would be considered domestic business.

Okay. All right, great. Can I just ask a question with regard to the labor inflation? Obviously we're hearing sort of recurring, sort of comments about the challenges recruiting labor and obviously -- just in particular, with regards to certain markets where labor's extremely tight. Should we be a little concerned? Is wage inflation possibly a headwind into 2015 that we should be thinking about or are there other mitigating factors that could dampen that sort of concern that we might be having here?

You know, we have a solid pipeline of talent. We have a great organization out getting us new employees. And right now, we're not seeing a concern. Rob, do you have any insight on inflationary [indiscernible]?

Yes, Thomas. I would just say that's all wrapped in to -- I agree with Jack's comments. In the inflation, we expect it to be higher next year. And as I said earlier 3 plus-ish versus the less than 2 all in this year. For lots of reasons.

Our next question is from the line of Justin Long with Stephens.

I wanted to follow up on how you're thinking about the potential pricing environment in Intermodal. Do you think it should mirror some of the contractual rate increases we're seeing in the truckload market? Or given you've been pushing price in this business to get back to re-investable levels over the past few years, do you think the pace of increases could be below what we're seeing in truckload?

Eric?

Again, we feel very good about our value proposition. And as the truck market tightens from a variety of issues, the new CSA rules, truck driver, the cost of fuel, the cost of cabs, we think that just strengthens our value proposition and strengthens our ability to get price as we go into the future.

Okay. And another one on Intermodal. It's obviously a lower RPU business, but is there any way you could speak to the incremental margins that you're seeing in Intermodal today? Just given the opportunity to build into the -- add the train lengths, et cetera. Do the incremental margins in Intermodal look pretty similar to your other commodity groups?

This is Rob, let me answer that. We don't break out specific margin by business. But you have heard me, perhaps, say many times, that our Intermodal opportunities -- Intermodal has typically been on the lower end, if you will, of our very diverse business group and it's been moving up fast. All of our business has been moving in the right direction. And as Eric said, we still have confidence that we can continue to move it directionally correct.

Okay, great. But to clarify, today it's still a bit below the other businesses?

It's probably below average, but improving nicely.

Our next question is from the line of Cleo Zagrean with Macquarie.

Two follow-ups on previously asked questions. The one just before me on pricing and Intermodal: could you please help us understand the outlook for continued sustained improvement? And maybe the main drivers, whether it's narrowing the gap to trucking, given your enhanced value proposition, whether changes in the road mix or the mix of domestic versus Intermodal, new relationships that you are building. Please help us understand what we should look for, long-term, for Intermodal pricing.

You know, Cleo, you did a pretty good job of answering that question. I think it's a combination of all those things. It's, first of all, getting our service back into the zone where it absolutely needs to be and we're committed and we'll get there. So that's a good thing for us. Secondly, it is the relationships, the new business opportunities. Thirdly, it's when you look at the business proposition that Intermodal offers compared to the trucking industry, the opportunity for highway conversion, when you think about environmental friendliness, when you think about the fuel efficiency, when you think about the whole package of the beauty of Intermodal, which combines the best of both truck and rail. That's an opportunity for us. You add to that the capital investments that we're making in places like Santa Teresa, that's part of our opportunity pipeline. So all of those things that you've identified continue to keep us excited about the growth opportunity. And then the other thing that I would add is the pressure on the trucking industry, the additional regulations they're seeing the increased insurance cost. And eventually, you're going to find out that they're going end up with driver shortages. We're back now to where the housing market's getting back into what would be considered normal. What we saw originally was all those guys that went out of construction went into driving trucks. And right now they want to stay home with their kids. They're all shifting back into the construction zone. So I would expect that, at some point in time, the trucking industry is going to have driver shortage issues. All that plays into our book. Anybody want to add?

No, good.

And the second question also goes back to the issue of capacity. Can you please help us understand why just looking at the past peaks in terms of carloads on your network may not fully reflect your new capacity and flexibility. I don't know if it's just because the cars themselves are getting bigger or there are changes with your manifest versus unit train mix. Any other change in the base of your resources that really enable you to support growth more than we appreciate right now.

Okay, Lance?

Sure, yes. Actually, Cleo, if you go back to the same volume levels, historically we're running about 1.5 mile to maybe even 2 miles an hour faster than we were at equivalent volume levels. That's a direct reflection of improved network capacity. And so when we look forward, our current utilization of that network capacity is not what we want it to be, we're retarded by lack of crews and a handful of other things. As we get on top of that, moving forward, which we are doing, we anticipate that those service levels improve at these current volume levels and give us plenty of runway for future growth.

How about maybe infrastructure investments by your customers, whether it's Energy or Chemicals. Do those also help you carry more growth with the relatively efficient use of resources on your end?

Absolutely they do, Cleo. And our customers are making significant investment to support themselves in the marketplace and help us serve them better all the time.

Our next question is from the line of Keith Schoonmaker of MorningStar.

I'd like to return to the strong frac sand growth you mentioned and its divergence from the quarter's crude volume trends. Could you share some color on broad customer behavior? For example, what portion of sand shifts to wet versus dry wells. And are you seeing changes in driller behavior, such as more sand per well?

Eric?

So the second question, more sand per well. Absolutely. There's a lot of technology changes that's allowing the drilling services industry to do longer laterals, more laterals, and that has been a driver of our sand growth all year long. And we've talked about that in the past, we'll continue to talk about that in the future. In terms of where the sand is going to, I think it's really being driven by the economics of the well. Today, you see lots of drilling in the Permian Basin, lots of drilling in the Eagle Ford. You see growing drilling in the Niobrara. You see the Marcellus kind of resuming the levels of drilling that they had a couple of years ago. And you see sand flowing to all of those places. It's really driven by the economics of the shale play.

A significant portion of it is going to dry gas. Is that correct here?

If you look at where the sand is flowing today, I think the shales that I just listed are the common places where the sand is flowing today.

Okay. The capacity improvements you've outlined, which is the biggest, earliest lever to improve congestion. Is it mode of power, employees or infrastructure? I suspect you'll say all of the above. Is it crew the biggest constraint?

I wouldn't say all of the above. First thing we're focused on is crews. There are other constraints but crews is the primary one right now.

Our next question is from the line of Matt Trey [ph] with Nomura.

I had a question. Given the systemic issues in truckload and driver shortage which, by all appearances, look like it's going to be a multi-year thing. Is this an opportunity to examine your marketing strategy with Intermodal internally and potentially your usage of IMCs? I was just wondering if you're thinking about that.

Matt, we evaluate our marketing strategy constantly. And up until this point in time, we continue to see IMCs as our primary carrier in the marketplace. We think that model is solid and we are working very hard to work together with our IMC customers to improve service and to help them succeed in their marketplace. I don't know, Eric, do you have anything to add to that? Okay.

I guess, as a follow-up, short haul versus long haul. Traditionally we've kind of thought of about a 10% to 15% spread versus truck. And in short haul, Intermodal, 40%, 50% north in long haul. Is that relationship still true? Are those numbers accurate? Have they narrowed? And if not, is there an opportunity to narrow them given the issues in truckload?

Eric?

Yes. I think what we've said is that the spread actually kind of depends on lanes and it could range from 35%, 40% spread, which is large, so as narrow as a 10% or 15% spread. And we think, with our value proposition, we'll continue to be able to narrow that spread and price closer and closer to truck as we improve our service and value propositions.

Our next question is from the line of Ben Hartford with Robert W. Baird. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: Just to follow on that final point, in terms of the IMC partners. How do you think about the strategy going forward? The trend over the past 10 years, it seems, has been fewer number of IMCs as opposed to more. I'm just wondering how you think about that going forward, given the fact that you do think that, that strategy is a healthy and viable one. Would you prefer to see a continued reduction in the number of IMC partners and really focus on scale and throughput and productivity to solve some of the constraints and to pursue market growth in Domestic Intermodal? Would you prefer more to help alleviate or kind of continue to strengthen your bargaining power? I'm just trying to think about that strategy over the next 5 years with regard to IMCs.

Eric?

Yes, Ben. One of the things we realize is that it is a big, wide, broad market out there and you have lots of different customers, and customers opportunities. You have large customers, the large retailers that probably will be managed with a small set of large IMCs. But you have a large group of midsize and smaller customers that we believe, at least at this time, that you'll continue to have a broad base of smaller IMCs that will assist in servicing and addressing those channels. And that's the reason for the strategy that Jack talked about, where we continue to see the IMCs being a large portion of our go-to-market strategy.

At this time, I'd like to turn the floor back to Mr. Jack Koraleski for closing comments.

Great. Thanks, Rob, and thank you all for joining us on the call today. I was going to say we look forward to speaking with you in January, but hopefully we'll see you November 5 in Chicago at our meeting. And if not, again, we'll see you when we wrap up the year in January. Thanks so much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.