About Lance Fritz
Lance Fritz, former Chairman, President, and CEO of Union Pacific, has discussed the company's operational and financial performance in several media appearances. In October 2022, Fritz stated that the company made "sequential improvement" in network fluidity from the second to third quarter, and he anticipated a return to normal operations in the fourth quarter. He attributed volume pullbacks to cooling consumer demand, particularly in domestic intermodal and parcel shipments, while noting strong demand in coal, grain, and some industrial segments. Fritz also addressed labor negotiations, saying he was "less comfortable" after the BMWED Maintenance of Way employees failed to ratify a contract, but he anticipated closing agreements by the end of the year.
In 2023, Fritz described the hiring picture as "very difficult" in 2022, particularly in rural areas, and noted that Union Pacific was using hiring bonuses and a referral program to attract workers. He discussed the company's implementation of Precision Scheduled Railroading (PSR) to lower costs and improve the operating ratio. Regarding the regulatory environment, Fritz said the Surface Transportation Board (STB) had done "a very good job" of balancing its decisions with the health of the freight rail network. Earlier, in 2022, Fritz addressed supply chain disruptions, citing high import demand, a shortage of truck drivers and warehouse labor, and the impact of COVID-19. He also described organized train theft in the Los Angeles area as a "real problem," stating that the company was working with law enforcement and investing in security measures.
Source: AI-verified profile updated from Lance Fritz's recent appearances.
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Transcript (10 segments)
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Morgan Brennan0:03
Shares are currently down about 2%. Joining us to break down those results and give us his outlook for this year, first on CNBC, Union Pacific CEO and Chair Lance Fritz. Lance, it's great to have you on, as always, on the heels of results. One of the things you talked about on the call was this idea there's a lot of uncertainty as we enter 2023. Walk me through what that looks like and what that means from the railroad standpoint, given the fact you do move so many different types of commodities and goods across the U.S. and really through the continent.
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Lance Fritz0:36
Morgan, first, thank you very much for hosting me this morning. You're exactly right. Freight railroads in the United States move about 40% of our tonnage, of the goods economy. And as Union Pacific looks into next year, you know, our concerns are around housing looking like it's getting a little wobbly, the consumer looks a little wobbly to us. Not sure what's going to be happening in Asia in terms of source of imports. It's not really clear what demand for those imports will be. You roll that all together and there's enough storm clouds and industrial production that's expected to be down half a percentage point for us to think, well, we're going to add business. We're doing a great job on business development. We just brought on a large new customer in Schneider and their intermodal business. It's just too early for us to be -- have a finer point on what we expect out of the year than to say, we think we're going to exceed industrial production.
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Morgan Brennan1:39
Okay. So, given that fact, the decline in industrial production, the fact that all the manufacturing data is contracting right now, can you still grow volumes and if so, where are you seeing pockets of strength?
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Lance Fritz1:52
Yeah, there is a potential to. And the pockets of strength are pretty broad for us. If you start in the bulk commodities, we think coal has some growth upside for us. We didn't meet all the demand last year because of weather at the tail end of the year, so there is still coal that can support growth. We see some other areas of growth, fertilizer perhaps. When you switch over to the industrial products area, metals has been a good market for us. It is a growth market for us right now year over year. And then you go into premium, and because of the addition of Schneider and our excellent stable of partners that are intermodal marketing companies, we're in really good position to be able to grow inside of the domestic intermodal market. And easy comps year over year, it is a little bit -- it is a little bit hard to discern. The comps are a little easier, but consumers are apparently pulling in their horns in terms of buying things. So overall, there are growth opportunities.
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Morgan Brennan3:08
And that's exactly where I was going to go with you because you see this remarkable decrease in freight coming into the U.S. Many of those intermodal containers, you have the East Coast which has taken more and more of those volumes away from the West Coast in recent months, even here in the New York area, the ports here becoming the number one port in terms of some of those volumes. Do you expect that some of that flow through of goods will return to the West Coast and how much are the labor negotiations impacting it?
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Lance Fritz3:44
There is definitely an opportunity for goods to go back to the West Coast. Some part of it moving out was congestion that's gone off the ports. And some part was recently more concerned about labor negotiation. I understand those labor negotiations are proceeding. The temperature is relatively low. And the executive directors of both ports in L.A. and Long Beach are expecting to achieve an agreement. I'm not sure exactly when. But we don't need to rely on volume going back to the port from the East Coast or the Gulf Coast. There is a relatively easy comp in the beginning of the year where the owners of the boxes, the big ocean shipping companies, were trying to make those boxes empty this time last year because pricing was so good over the Pacific. And now they are much more prone to allow the box to go inland. That's where we get the opportunity to take it in.
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Karl Quinones4:41
Hey, Lance. Are you framing the year as one in which industrial activity obviously softens, but prices do not? And how -- how treacherous is that scenario if, in fact, operating costs, for example, don't follow the decrease in activity?
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Lance Fritz4:57
Yeah, Karl. Our specific guidance for 2023 was that we were going to beat industrial production on the topside and we're going to price ahead of inflation. We're very confident in both. We anticipate there is unique growth opportunity available to us, both from a business development perspective and the market. On the pricing side, clearly, truck capacity is loose. And that makes for a more difficult pricing environment. But even in that context, we think there is enough opportunity reflecting inflation, reflecting the value that we're providing to our customers to be able to continue to price in 2023.
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Morgan Brennan5:40
Lance, I mean, you have mentioned a number of times a lot of uncertainty as we enter and begin this year. Go through a few of those things. Can you distinguish them from years past in terms of the level of uncertainty as well?
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Lance Fritz5:56
Yeah. So unlike, let's say, the past three or four years, you have this dynamic of the Fed raising interest rates very rapidly, which ultimately will destroy demand across markets. And you have got consumers that have been telling us for quite some time that they're concerned. But they have been flush with cash, mostly about transfer payments from the government but also from a very hot jobs market. So you put those two together, and it does appear that consumers are starting to pull in their horns on goods consumption. They're still consuming at a high rate on experiences and travel and entertainment. And it's just not clear yet exactly what the impact is going to be of the Fed interest rate.
