STB Oversight Hearing Pertaining to Union Pacific Railroad Company’s Embargoes, EP 772 (Day 1)

Okay Marty, we're already live. I'm about to unmute the mic so now for you.

Good morning everyone. This is the calling into order of docket number EP 772, an oversight hearing pertaining to Union Pacific Railroad Company's embargoes. We have two days set aside for this hearing, and having reviewed a number of materials, I think it will undoubtedly take us the better part of these two days, so I'm glad everybody is here. I think everybody has the order of business. We issued an order last week setting forth the order in which we would hear people. Before we begin, I thought it would be useful—we will be getting into a great deal of detail, I'm sure, during the course of this hearing. We hope to hear from a wide variety of shippers as well as Union Pacific on the details of what's happening. But I thought it would be useful to lay a very brief groundwork by just looking at a map of what has caused us as a board to believe that we needed to examine this issue in the depth that we intend to get into during these hearings. So I'm going to ask the IT people to put up in order three different slides that our staff has prepared. Before they go up, I'll tell you what they are. We have been keeping track, as I suspect many people have, of the increasing frequency of the use of embargoes, really throughout the Class I railroads, but very, very focused in the area of Union Pacific. And I asked the staff, in order to give us some idea what we were looking at, to see if they could plot on some maps both the location and the intensity of the embargoes. And that is what I wanted to bring up so we're all looking at the same thing. So the first map, which is slide number three, shows you the state of the then-in-effect embargoes as of November 14th, just about a month ago. Five days later, on slide number four, you can see how the use of embargoes just in those five days had mushroomed. And it was around that time that we began to focus pretty intensely on this issue. And just to give us some idea of trying to have a more global view of where the intensity of the embargoes is throughout the UP network, I asked staff to try to plot it in a way we could all appreciate on slide number five. So you can see that there are many, and I think the technical people who did this for us tell me the size of the circle gives you a general sense of the number of embargoes focused in that area. So that is a landscape on which this hearing is being held in a very general way. It certainly does not have all the detail that we intend to go into, but I, for the benefit of everybody in the hearing room, people who are going to testify as well as the public that may be watching, give you some idea why we're here. So with that, let's get underway. Our first panel consists of several railroad customers. I think they are all here. Brock Lottenschlager from Cargill, and I know that Jackie Bailey was planning to be here, but like a very large number of people, she's come down with it. So we hope she's feeling better and hopefully it's a minor case, but we understand obviously why she couldn't be here. Univar Solutions, Rob McRae, who I will say on a personal note is an extremely valuable member of our staff. I'm glad you're here today. AG Processing Inc., Gregory Twist is here. And Chemtrade Logistics, Don Boomstra. So remember in this hearing room, you got to turn your mic on when you speak and turn it off when you're not speaking, because the cameras are connected to the mic. And so when you turn your mic on, the camera will focus on your pretty faces. So with that, unless there's any other board member...

Good morning, and good morning to everyone who's here. I just want to say for the first panel that are here that I appreciate the four of you being here. And I know it's difficult for you to make that decision to come. I've said it before in our first public hearing earlier this year. You know, we can't do our job if we don't have people and companies or organizations willing to come forward and do so. I know within this industry there is a hint of fear coming forward, whether it's real or imagined, but I think it's real in terms of the intimidation and potential retaliation for individuals coming forward to the board and speaking up. And I'm going to say this now and I've said it before, I take that very seriously. And I am here to listen to everyone and to protect everyone's interest and their right to come forward. And if anyone feels that they have any sort of intimidation, any sort of fear, retaliation, you know, we're going to get to the bottom of it and we're going to figure it out. So I just wanted to say thank you to the four who are here and to the others who are going to be represented later on in other panels.

Good morning. Is my mic working? All right. Good morning, board members. My name is Brock Lottenschlager. I'm the North American rail leader for Cargill. I'm here today to talk about UP's use of embargoes, more recently its use of the CMIS tool, and the overall concerns for Cargill. For over 157 years, Cargill has been working with small and large-scale farmers, consumer packaged good companies, and retailers to source, make, and move food around the world. I appreciate the opportunity to speak with you all today on behalf of Cargill. I want to begin by thanking Union Pacific for their effort and partnership to improve service at the facilities Cargill operates. UP is in a better position today than they were this past spring. However, we believe there's still more work to do to establish a reliable and effective rail supply chain. To be clear, Cargill is not opposed to the use of an embargo in extreme situations. However, we do believe the use of an embargo should be the exception and not the norm. We welcome the opportunity to discuss the concerns that we have with UP's recent metering program, its impact on the use of private rail car equipment, and in our opinion, the increased misuse of embargoes. The current metering program targeted towards private rail car equipment has an impact not only on Cargill but on every piece of the supply chain from the producer to the consumer. Simply stated, it hinders our ability to serve our customers. I will also share what we believe is needed by UP to enable their customers to make effective short-term and long-term decisions to manage their business needs, and also share our recommended actions for the Surface Transportation Board. Leading on our company history, our goal is to act as an experienced advisor and emerge with a consistent, reliable transportation system and a better U.S. rail network that services our customers and farmers across domestic, export, and import markets. I'll first talk about our experience. For background, Cargill operates over 200 facilities served by a rail carrier within North America, of which 60 facilities are served or accessed by UP, and approximately 80 of those are single-served by UP. In early November 2022, UP notified us that it was considering a prescribed private rail car metering program that focused on private rail car operating inventory.

Yeah. So November 9th, Cargill received letters from UP advising us to remove 130 loaded private rail cars from UP's operating inventory at five production locations operated by Cargill by November 16th. So across those five facilities, we were asked to reduce our inventory anywhere from 15 to 39 cars depending on the facility. UP implemented this new approach for facilities that load rail cars by utilizing their Car Inventory Management System, or CMIS, which calculates UP's estimated excess operating inventory for each facility at a given time. Our understanding is CMIS utilizes three key data points: one, the 14-day average number of private rail cars released from a facility; two, the current number of loaded private rail cars released from a facility on UP's network en route for placement at a destination, also known as the operating inventory; and then three, UP's average future scheduled transit time plus a 24-hour buffer. Cargill worked closely with Union Pacific between November 9th to the 16th to execute temporary actions that we believe would not impact our customers nor reduce our production capacity. These include held and/or delayed releasing loaded private rail cars from our facilities; we ordered UP-supplied boxcars or hoppers to ship product to reduce our private car inventory when our intention would have been to use private equipment; and three, remove some empty rail cars from the UP system that were in route back to our loading facility. By November 16th, we had made sufficient progress that UP decided to not embargo any Cargill facilities. As a result of these actions, to avoid the embargo, we won less utilization of our private rail cars that were impacted, two, incurred additional transportation costs since UP's rail transportation rates assessed for rail-provided equipment are higher than private equipment. Even though we were successful in avoiding an embargo, we still have the following concerns: one, the uncertainty. When UP issued the November 9 letters, UP was not able to provide clear direction how long the embargo would last and the shipment level UP would issue permits for. Shortly after November 9th, we were told no permits would be issued for the first two days of the embargo, and then UP would issue permits between 50 to 100 percent of our 14-day average loading starting on day three of an embargo. As an example, if Cargill's corn milling plant in Blair, Nebraska had been embargoed within the framework stated, we anticipate this facility would have been shut down for seven days. This is a complex corn processing facility that produces 10 different products including ethanol, animal feed, a variety of other products. It operates 24 hours a day. Shutting down and restarting a facility this size is not like turning on and off a light switch. To support the 10 different products we ship, we manage 10 different rail car fleets to ship product out of the facility. So a rail car is not a rail car. On November 21st, UP notified us to remove private cars from UP's operating inventory at two other production locations operated by Cargill by November 28th. Those are at Eddyville and Cedar Rapids, Iowa. Single-served stations. So many of our facilities are served solely by UP, so we do not have options to ship product on other carriers if a facility's rail shipments are metered.

So November 21st, we were able to work through that and avoid embargo.

Same sort of triggers we pulled, leveraged, we pulled on November 9th.

Yeah.

Not with me today.

Yeah.

No, we did not get into that discussion. Our main focus was trying to manage the private rail car inventory number to avoid an embargo.

Can you reset the question?

Yes. So we will utilize both the UP supply cars and our private rail cars depending on the product that we ship. So we do have a commitment with UP for covered hopper car supply where we'll ship grain and grain products with them.

The CMIS methodology, the operating inventory calculation. Cargill's facilities that were at risk of being metered process oilseeds, grain, and salt continuously and will release loads as production is loaded into the rail car. The shipment demand is known and consistent. However, the volatility in the operating inventory once a loaded rail car is released is driven by the time it takes Union Pacific to deliver the product to the end customer or to an interchange with another railroad, all of which is outside of Cargill's control. The daily load average, so utilizing a 14-day historical average, constrains actual future shipment demand for commodities that have higher shipment demand in the future, or if a facility's load rate during that 14-day average was lower than normal for one reason or another. The excess operating inventory with buffer. UP uses a future scheduled or planned transit time with a 24-hour buffer to determine the excess operating inventory. The assumption overstates the excess operating inventory when UP's future actual transit time exceeds that scheduled transit time. We also believe consideration needs to be made to adjust transit time using UP's calculation if recent historical transits are greater than UP's future scheduled transit times. Here are the following recommendations we have for UP. We believe CMIS may have the potential to be a tool that could provide customers with increased visibility to enable better supply chain planning. We would like UP to consider providing a customer-facing tool for greater transparency into the past, present, and future rail projections. We would also ask UP to review and address our concerns with the CMIS methodology. We believe Cargill and UP agree that additional train employees are still needed to handle existing and future demand. Re-establishing a more reliable and effective rail supply chain, we are hopeful this will ultimately decrease UP's use of embargoes and stabilize the supply chain. Here are the following recommendations we have for the STB. One, we thank the STB for allowing us to discuss our concerns with UP's recent metering program, its impact on Cargill, and UP's increased use of embargoes. Again, we believe embargo should be the exception, not the norm. We encourage UP to continue hiring and training employees as quickly as possible. As I stated, after a customer releases a load, a railcar in Union Pacific, the operating inventory level on UP's network is driven by the time it takes UP to deliver the product to the end customer or to an interchange to another railroad, all of which is outside of Cargill's control. Finally, we encourage the board to finalize reciprocal switching rules under Ex Parte 711, which I believe is slated for February 2023. This provides shippers of greater access to competitive rail options. This would help create a more responsive and competitive freight rail system. In conclusion, Cargill's facilities process grain, oilseed, salt, and other products, all of which depend on shipping private rail cars to meet customer demand in domestic and export markets. These facilities generally operate continuously, and the shipment demand is known and consistent. We urge the STB to review the concerns we've outlined today regarding UP's metering and embargo practices on private equipment, as the impact goes far beyond UP and Cargill. Thank you.

Yeah. So we received, you know, November 9th, six letters, one for each of our facilities. The five that were impacted, one of our facilities we've got crush and a refinery there, so we had two letters for those facilities. Essentially what the letter states is UP has identified specific customers in geographical regions with elevated inventory, and they see an opportunity to remove X number of cars from our location, and that they need our assistance to reduce inventories out of the location within a week. So they give us one week to do it. And the actions in that letter is to reduce car inventory from this location by either storing empty rail cars or adjusting pace of future loadings. And if you don't, then you'll be embargoed.

I think in the end it becomes the same. So once an embargo is issued, your shipments are effectively metered based on the number of permits UP provides. Leading into this, we were asked to take action on our loading. So before an embargo is issued, the ask of Cargill was to reduce our shipments and meter our shipments. So the two were used kind of in advance and after.

Yeah.

That's what I mean. So we're producing product every day, we're loading rail cars as we need to, and once the rail car is loaded, we release it to UP for shipment to the final destination.

Yeah. They'll look at the number of cars on their network, our average daily release rate, and factor in what the planned scheduled transit time is to figure out what that ideal operating inventory should be. And if our inventory is above that while it's in their possession, then they'll ask us to reduce the loadings.

We've been in business 157 years.

A long time.

No, nothing that would be unusual. As we manage our logistics, we've got a need to ship every day within our processing plants. That's pretty known, it's going to happen throughout the month. As we manage our overall private car fleet, we're constantly looking at what the velocity is on the carriers, adjusting our private car inventory based on cycle time. So we're actively monitoring our cycle times, what we need for rail cars, but there wasn't anything out of the norm leading into this embargo.

No.

So the actions that we took there were temporary actions, and we did not experience a production loss at our facility. And we also kept product in front of the customer, so we didn't run our customer out of product. For the actions that we did take, there's enough inventory in the supply chain to keep product in front of the customers. But again, they were temporary actions that we took for less than a week of time frame.

Yeah, so it impacted our business significantly. So for each one of the letters, that's when that came in, our transportation team huddles with their supply chain or merchandising team, and we're reaching out to our customers to understand what the impact is to them if we have to pull back on shipments. So extensive customer outreach process. Our end goal is to keep product in front of the customer, and it starts with them. And if we do have to pull back on loading, it's all that customer impact. So we managed through that with our customer interactions.

The action on November 9th has not cost us business, or the 21st.

Yeah.

I'd have to look into that.

Yeah, I would expect we have some.

Thank you for your testimony today. I'm wondering if you could maybe speak to initiatives that UP has embarked on to lessen the impact, such as have they worked with you all to find access to another road or allow you to access another road even at an increased cost to you all? And have they worked with you all regarding existing contractual commitments to try and mitigate some of the impact?

Yeah. So the action here in November, UP was working with us at one of our facilities to get access to another carrier if we needed it. We were able to avoid that need. Contractual commitments, those are confidential in nature, but I would not expect an impact there.

To Cargill, are there opportunities for access to another carrier that you would have liked but that UP didn't work with you on, that you raised with them?

Yes. So there are facilities that were impacted. Some of them had access to other carriers already, so that helped us out. When we think about trying to keep product in front of our customers, if the other carrier can still access our final customer, we could execute on that. The challenge we run into at a local facility is that if our private rail car numbers are being metered, we still have to get access to that other carrier at an interchange. So we would still be monitoring underneath that threshold. So if we're metered on our private car shipments, we still can't access that other carrier. And then switching to visibility, could you expand a little bit on what you meant in your recommendation for UP in terms of providing additional visibility to help you prevent the need for an embargo?

Yeah. So what I meant there is the CMIS tool, it's been used for a while by UP. It's now being used for a loading facility and looking at the operating inventory. So if the numbers are showing there's higher inventory numbers on the network and there's a trend on that, I think customers having that visibility for what they consider higher, it's another data point that we could use in how we manage our fleet to see what's causing it, what the trends are. More data is better as we look at trying to manage the size of our fleet and keep products from our customers.

Do other railroads provide you that advanced notification or something to that extent when your inventory gets elevated?

Not to the extent that UP does, I guess.

And I guess last question for me is, you talked about 14-day average and how that locks you in to a particular demand pattern, and sometimes demand can be a little bit variable. When, if we were to drill down on your recommendation about adjusting that one of the three components of the CMIS program, would you recommend some sort of buffer for that that maybe looks at 14-day average but then looks at sort of a variation within that 14 days and allows for that variance?

Yeah. So I think 14-day average, it's a good start. It's half a month. But I think as we look at those transit times, we should be looking at it versus the 30, 60, 90, just a little bit more of a period to see.

Is that sometimes for your loadings?

For the loadings, yes. I apologize. For the loadings, just so we can get a better gauge of what's happened. But then too, as we look at some of our seasonal business in nature, salt for example, as we get into the winter months, our demand to ship salt increases. So we've got to look at also that natural demand that a certain facility would have.

As you're kind of looking at your solutions, would you think that perhaps is a recommendation with fewer downsides than looking at actual transit times? And I only say that to say that if the purpose of the program is to improve performance, but it's constantly reflecting past performance, that might not be what anybody wants. Do you think that allowing you a demand buffer might have fewer downsides than locking in maybe a transit time that wouldn't be what everybody wants us to get to?

Yeah, I do think that'd be reasonable.

Okay. Michelle?

For the traffic that is subject to embargo and which couldn't ship, did you have the horsepower to put it on the truck?

Truck is an option, but the markets that we're shipping to, they're long-haul volumes, and rail is the most economical way to get there. So we've made sales commitments based on rail economics. And as you think about truck, there's really some option, but it's very limited when we think about the capacity that would be available in the market.

Would you be able to ballpark a cost to Cargill for the processes that you've had to implement at your company in order to maintain your shipments?

I don't have that with me. I can provide that. As we think about what happened here in November, a lot of it was administrative time, employee manpower that we put into the processes for each one of the letters we received.

Yeah, yeah.

So under the rules of the November 9th, because we were limited by how many shipments could ship up line haul, so they would still have gotten the cars. As we look at Ex Parte 711 and reciprocal switch access, I view that as a separate solution than what we've experienced because it's not available today.

Yeah.

I got a couple. Okay, Robert.

How many other facilities, I think you said it before, which, how many of them were captive to UP?

Yeah. So of our facilities, approximately 80 are captive of the 60 that have access to UP.

Okay. And so were any of the ones that were targeted for metering or embargo not captive?

Yes. We were affected at both captive and non-captive stations.

Okay. Yeah. When they, in terms of communication, well, let's go back a second. From either embargo or metering, has this happened to you, this type of metering or embargo request happened to you before?

Yeah. So I would say this was round two of the embargo metering. So in April, mid-April, there was metering that was being asked of the shippers more holistically to reduce private rail car loadings on the UP network across all of our facilities.

Okay. And sort of staying with that, it was, you know, the elevated inventory of private rail cars. Now you said during your negotiations that you removed those private cars, but they were replaced with UP cars. Is that correct?

A small portion of our shipment demand, instead of moving in private rail cars, we used either UP-supplied boxcars or UP-supplied hopper cars where we could.

So how many cars, if you want to pick a, give me an example. So one of your facilities, if they, I think you said you had to reduce between 15 to 39 cars. Now if you reduce, let's say those 39 cars, how many of those cars were replaced, private cars were replaced with UP, what percentage would you think?

So our options available there were at Sioux City, Iowa, and then also Tempe, Utah, and it was a small fraction of the overall demand.

So there was a reduction in terms of the amount of cars that you were left with to move your product?

So there was a reduction in the number of private rail cars we would have used to ship, yeah, because we held back on shipping and went to UP equipment where we could.

Okay. Yeah. Okay. Had they come to you before, even in April, about in terms of your elevated, you know, their issue with elevated inventory? Have you heard anything before April or anything before November that you were reaching a certain stage, or did this just kind of pop up?

Yeah. So the actions in April, that's when UP kind of hit the bottom of their service levels in March, and they're looking at trying to speed up the recovery on their network and had reached out to us to help support that effort by reducing private railcars. Leading up to November, it felt like the UP system was actually starting to perform better. We were surprised that we had the ask for reducing our private car inventory in November. We thought kind of we'd hit the bottom and things were starting to improve. There were still some bottlenecks and things we were experiencing from a service perspective, but it caught us off guard.

So the second one, basically just to recap what you just said, that April had bottomed out, you took one for the team to help it recover, it seemed to be recovering, and then all of a sudden now you're taking another one for the team. Do you see this as a pattern?

We're concerned about it. That's why we're testifying here today. And as we look at just the overall program and the concerns that we laid out around the methodology and going forward, it's a big concern for us because we've got our local assets on UP, we've got an investment in a private railcar fleet, whether if we've purchased those cars or if we're in a long-term lease for those, and we need to be able to utilize those cars to keep product from our customer.

Exactly. So how far, you know, everyone goes through a planning phase. Okay, so you're planning into 2023. I mean, can you adequately plan into 2023 with this type of uncertainty before you, where you're planning to move or to grow, expand, does this hinder that planning?

The, you know, we're planning based on what we expect for cycle times, what we're hearing from UP, and making our own judgment on what we expect. I think for us it's around the execution of the plan. So the uncertainty around if we're going to be embargoed or not, and maybe the order of magnitude of embargoes. Again, embargo should be used as an exception and not more of the routine. And what we've seen on the private railcar side in April, we could kind of explain that. There's a lot of things that happen on the UP system, a lot of unplanned events. We understand that and we're willing to work with our partner where we can, and we think that's good for both parties of the supply chain. But then you fast forward in November, it really caught us off guard. We did not expect to see another round of metering or embargoes on private equipment. There weren't many weather issues that popped up. It just kind of hit the system and then the ask came from UP.

Well, I think that's important what you said before, is, you know, you're trying to work with a partner, but it seems, you know, from our perspective or from my perspective, that your partner is not really working well with you if you're getting surprised with these type of requests. Again, you're trying to take care of your product and your customers as well. So, you know, for me, the communication post-November 28th, I mean, have you been in communication with UP to ask them if there's going to be any more future metering or embargoing, and in your case, or reduction in private cars?

We're in contact with UP daily. Strong communication with UP on their marketing and their operational side. It is really strong. There's still that regular communication, and I would say getting information as they learn it on their system. The operating inventory levels on UP has declined, so operationally they are in a better position today than they were a month ago. So, but I think it really depends on how it plays out through November through the winter months and operations.

Right, but it's the unknown. You know, they're better, they're still trying to meter you.

We are not being metered right now. So we made it through the 21st, and then it's unknown, you know, what will happen again.

But that's what I meant, yeah, that there's still that unknown as to where you're going. So, yeah, right. Thank you.

Yeah. So we had a couple of weeks, and I get the time period off a little bit here, but I want to say it was like the month of May, late April, early May, where we had a program to the Pacific Northwest, and UP would not move trains into that corridor for a couple of weeks.

It in fact did. Our sales off the PNW, and had us executing a variety of contingency plans to try to meet those commitments.

No, there was no formal embargo that was issued. They just said we're not moving your trains.

I don't, I think in practice it doesn't. It's just not showing up as an official embargo.

Yeah. Yeah, it's a good question. So we had, so our export position, we've got assets in Texas and the center Gulf, and we'll stem the center Gulf both with rail and barge traffic. So there was a period of probably about 30 to 45 days where the river levels feeding the center Gulf were down, and it did increase demand for exports through the center Gulf via rail. Going into it, we had a pretty strong position going into it, but we just seen some shift from barge to rail.

So our grain business is, we don't ship in private rail cars, so it's moved in UP-provided shuttles. So we have a freight commitment.

No.

Yeah. So a variety of things. So as we look at how that played out, we had an export program on for, let's say it was March, April, and May, and we were able to complete the export program by the kind of the first week of July. So that program got extended. As we look at what the impact was, we had vessels that were bobbing off the Pacific Northwest, so there's vessel demurrage that was incurred for that. We bought in milo from other carriers on BNSF to help fill part of our commitments. And then we did move UP shuttles to grain elevators in Kansas and reloaded them on BNSF.

Yeah.

Yes. Yeah, for a portion.

No, we paid the freight on that.

Reloading all our cost that was all on you. Yeah, you're very generous. Okay, I don't think intended that generator. Yeah, anybody else? Don't move, Brock, we may go back to you.

Rob McRae. Can you hear me okay? Awesome, all right. Chairman Overman, board members Schultz, Fuchs, Headland, Primus, thank you for holding today's hearing on embargoes and for the opportunity to speak to all of you as a shipper. As you guys know, I'm Rob McRae, Vice Chairman of the Board for the Private Railcar Food and Beverage Association, or PRFBA, Secretary for the STB's Owned Railroad Shipper Advisory Council, or ORSAC, and Vice President of Transportation for Univar Solutions, a leading global solutions provider to users of specialty ingredients and chemicals. Univar Solutions has a critical purpose to help keep our communities healthy, fed, clean, and safe. A large part of how we achieve this purpose is through our distribution efforts utilizing the invaluable railroad networks here in the U.S. and North America. For perspective, as a company, we own or lease over 2,200 rail cars and utilize another 4,000 system rail cars and do business with every Class I railroad and many shortline railroads in the U.S. and North America. We do so as a values-based company where one of our core values is that we do what we say. This means placing service first and making commitments that we can keep while trusting others to do the same and holding ourselves accountable while being bold, direct, and transparent as we strive to fulfill our purpose. We take a lot of pride in this purpose-driven and values-based approach as we distribute some of the most critical products found in nearly every industry and application that helps supply the American consumer with the essentials of life. Importantly, some of our most strategic products are directly used by many U.S. municipalities for water treatment and other important applications that make up the broader backbone of our society, covering everything from energy to pharmaceuticals to agriculture to cleaning ingredients. We take pride in knowing that these products we distribute every day are critical to people across all aspects of society and are the building blocks of the chemistries that support almost every industry in our country. To understand the impact of embargoes on shippers, investors, and the American public at large, we must acknowledge that the incentives and interests of all of our participants are not always aligned. For the railroads and their investment community, the pressures of maximizing profits and continuous growth are enormous and very real. For shippers and the public at large, reliable service and rail capacity at a price point that is in line with inflation and other modes of transportation are pivotal to drive growth and revenue on those railroads. When Precision Scheduled Railroading, or PSR, was introduced in the U.S. over five years ago, it was by all accounts exactly what was needed. It appeared to improve productivity that many knew had been sitting dormant within the asset-heavy Class I railroads for years. However, it would do so under the guise of providing improved service for shippers and the American public. Calls for PSR being a Trojan horse fell on deaf ears, and the Libra scale balancing shippers' and the public's best interests were outweighed by the inertial weight of the railroad management's zeal in delivering enormous profits to the investment community. The honeymoon benefits of the PSR economic feast long past, and railroads, shippers, and investors are all now left with the indigestion from these practices. The demands of continued growth and economic profit are real and have indeed created the greatest freight rail network in the world. However, the demand for that product is dwindling as shippers are pivoting away from rail's inconsistent service and inflationary demand for an inferior product. The question becomes, what do we do about it? The railroads are well informed of the critical junction we're at. However, to date, their attempts to address the issues at hand are primarily focused on two remedies, both of which are myopically focused on their own self-interest. The first: control the variable labor costs through draconian labor practices such as furloughs and staffing crews at an absolute minimum levels with no safety net. When those staffing levels fail and the inevitable exponential service disruptions ensue, as we have all seen at an alarmingly growing rate, they resort to their last lover, the effects of which are felt by all stakeholders and the reason we are here today: embargoes. Embargoes are the equivalent of an opium prescribed for pain management. They can and will reduce the pain and in the moment offer a sense of euphoria. However, the moment is always short-lived, and it never addresses the underlying causes of the pain and leads to addiction and ultimately death. Point being, embargoes only treat the symptoms and further reveal the lack of a real solution. The railroads need to address the underlying issues of their deteriorating product and not habitually reach for the embargo level. The effects of embargoes are far-reaching, impacting not only the railroad itself but all of its stakeholders, including shippers and other railroads too. That domino effect paralyzes everyone and our society. I could provide specific examples of the economic impact of these embargoes on Univar Solutions or the plethora of industries that they impact that I hear about through NACD, the ACC, or PRFBA, and they're in the millions of dollars. However, I know that is exactly what railroad management wants to hear. Profiteering and left-hand, right-hand economic arguments between large companies fills the narrative. Let me be very clear: this is about addressing the need for our economy to continue to have a strong and robust freight rail system, which I believe everyone in this room would agree is the silent backbone of the U.S. economy. Without it, and without the supporting skeletal structure of road, ocean, and air freight, our ability to manufacture and distribute stops, along with our economic prowess as a nation. Enough of the continued debate over PSR. Enough of railroads' feeble attempts to assuage this board, its customers, and the American public while saying it's doing all that it can to recruit and retain its staff. Enough of shippers' petty arguments over inflationary costs, and enough of the short-sighted practices of habitually using embargoes and furloughs to address the hangover from PSR. What I would propose today is a real dialogue between shippers and railroads alike. I love that ringtone. One that uses data but prioritizes people and the greater needs of our society to drive economic growth. One that prioritizes collaboration and communication where all parties have a genuine interest and legitimate understanding that profits are necessary, but so too is efficient, effective, and a reliable product that you're selling. The Class I railroads need to have some guardrails, as lower rail car volumes and the opportunity costs associated with embargoes and furloughs has had little impact on their profits, entirely because of the pricing power that they are afforded with captive shippers who have no choice but to pay and little remediation of their own. Without a broad reciprocal switching plan or other mitigation tactics, this board is uniquely positioned to help mediate this request. Shippers must too understand that the proposition of adding crewing on a more permanent basis will indeed add legitimate costs to the railroads. Effective, efficient, and reliable service requires an investment. Without better collaboration and communication, without transparent acknowledgment of these realities, and without acting in the next few weeks, and without an equal bargaining position, Mr. Chairman and board members, we will be right back here in a few more months talking about these very same issues. Meanwhile, people and our greater society continue to suffer. Our products that are the most impacted from these ongoing embargoes support the American consumer, not simply from the economic growth but much, much more organically. They're used to treat wastewater, provide safe potable water, and create products that we rely upon to live in a modern society. We should not and cannot lose sight of the strategic importance of the Class I railroads having sufficient and reliable capacity to support the needs of the American public. Thank you again for this meeting and thank you again for this opportunity to speak to you.

Karen. Thank you, and thank you, Rob, for being here today. I thought about you yesterday as I was driving to the airport in Eagle, Colorado, up in the mountains. I was on I-70 and I passed a small convoy of Univar trucks, and I noticed they had hazmat placards on them, so I gave them a wide berth. But I wondered if they were making local deliveries or whether these were trucks that really were carrying product that should have been on trains. And I know you don't know the answer to that, but you spoke to it just a few minutes ago. I'm very concerned about that. Your kind of product should be on trucks. I don't want to have to call up my former colleague, Shailen Bhatt. My first job in the Obama administration was actually Chief Counsel at the Federal Highway Administration, and I worked with Shailen, and I don't want to have to call Shailen and say, 'Hey, Shailen, you got lots of money, I think you ought to expand your highways.' That's not the solution. We need to figure out a way to incentivize the railroads to expand their systems or their operations so that they can handle the traffic that's fully available to them. So thank you very much. Rob, I very much appreciate your taking sort of an elevated view of this problem, and it's helpful hearing it from someone with the kind of logistics experience that you bring, not only from Univar but, you know, you've had these responsibilities in other major shippers, and so I think you have a good sense of how the network works or how it's supposed to work. I would be interested if you could tell us, even in a general way, some specifics about Univar's locations. How many have been subject to the survival program? Could you give us some specifics on that? And by the way, I have to observe myself since I got here, wondering what it is I do here. And some days I say, you know, all we do is move millions of dollars around between big companies. It really is obviously not what we do, and I have focused my own attentions on precisely what you said. I gave a talk about this not long ago about the negative impact on economic productivity in this country by railroads not living up to their obligations. So you're preaching to the choir on that score, at least a one-person choir up here, but the others speak for themselves. But having said that, I do think it would be helpful for us in gathering a sense of what's really going on here to get some specifics from Univar about your locations.

Certainly. So Univar has about 100 to 120 sites. We don't manufacture, we distribute products. I would preface anything that I'm about to say with a couple points. One, I intentionally kept my speech at a very broad, high, holistic level because I genuinely believe that there is dialogue to be had between shippers and railroads. Her words are necessary. In fact, they offer a great product, and I am a huge personal proponent of railroads. That division between railroads and shippers has never been wider in my 20-plus years in this industry. Two, I would be remiss if I didn't say that Union Pacific is by far not the worst offender in embargo use, and I'll just leave it at that. But I will say that out loud. UP has got some really great folks, not the least of which Carrie and Brad, you know, that I know personally, been terrific to work with. With regard to your question, when we think about water treatment, especially on the West Coast, right, so let's talk west of the Rockies. Most of it comes out of NorCal, right? It's serviced by the ports that we import, you know, caustic or hydrofluoric acid or bleach. You know, we manufacture it. We have a site just outside of Pittsburg, California, which is in the Bay Area on Corteva. BNSF actually moves our hydrochloric and bleach from Cordova over to Pittsburg. From Pittsburg, there's an interchange between BNSF and UP. UP has embargoed or metered our shipments to three rail cars a day in the off-season. That's not terrible. There's probably two days a week that we have four cars, right? So two things happen. Either A, we sit and we delay that launch of the rail car, or B, if product inventories are critical, which a lot of big companies, some municipalities are lowering their inventory in Q4, right, keeps the balance sheet of cash flow going, and candidly, we're in what most people would call a recession right now, so people are trying to maintain cash, keep their inventories low. You know, we have to revert to truck. Four trucks for every one rail car, right? Three thousand dollars, you know, per truck. Remember, we're moving hazmat. This is not a dry van. These are very specific rubber-lined, you know, tankers that not everybody has. A very small niche, right? So that's twelve thousand dollars twice a week, twenty-five thousand dollars a week. That's the slow season. Now migrate to the peak season when everybody is filling up their pools or using the sprinkler system or drinking water, and municipalities have to have that caustic soda or hydrochloric acid or bleach. Now it's seven loads a day, and there is no end with the embargo. It's just an open embargo. Nobody said it expires at a certain date. So this is more, you know, I guess, proactive to talk to all of us today because I'm concerned that in April the embargoes are still here and I only get three rail cars a day. I can't find hazardous truckload capacity to fill for additional, you know, rail cars. That's what, sixteen trucks a day? That would be astronomical in cost. I'd probably have to hire a dedicated fleet. I'd probably have to find the drivers to do that. You're talking millions, millions of dollars a year. Does that answer your question?

It does. As indicative of the kind of problem you have, as a general proposition, you've got 100 to 120 sites. How many of those sites are served by UP?

Probably about 20. I need to get the specifics, but ballpark 20.

And have they all had some embargo experience like this?

Not all of them. I'd say probably 35 to 50, somewhere in that range, to varying degrees. NorCal is the big one for us, right? Because that is directly used for, you know, water treatment. But we could pivot over and we could talk about semiconductors and we could look at, you know, the Phoenix area, right? I mean, there's other industries that we touch as well.

Okay. And how long has this been going on, just the one example you gave of the three cars?

For a couple months at least now.

And it's ongoing, as you said here, with no end in sight. And what is the stated reason UP gives you for this?

Congestion in their network, right? And so when you think through the congestion, what causes the congestion? That's the point of my argument. Like, we keep treating the symptoms, but what is the root cause? The root cause is labor. You don't have enough labor, and I understand it costs money. Well, if you want to buy a product, right, and you want to sell the product, right, establish a price point that somebody is willing to pay for a, you know, superior product, not an inferior product. What's crazy is if I buy this bottle of water today for a dollar and it's full and I drink it and it tastes great and refreshes me, and then a year from now you say, you know what, there's a better way to make the pet and there's a better distribution for this bottle of water and we can get the water itself at a cheaper rate, and then you only fill it up halfway and you charge me two dollars. And then the third year you say, well, I'm only going to fill it up halfway and you can only get it Monday, Wednesday, and Friday, and you're charging me three dollars. In essence, that's what's going on with PSR on the railroads. It's not right.

So I take it you don't think your three cars a day are causing a system to be congested?

No. But in aggregate, they've got thousands of cars. It is a beast to run a railroad, and my hats are off to the management teams. It is a very complicated and difficult business to run. And for all of them that are publicly traded, they are, you know, on one hand, the pressures from the street are real, right? On the other hand, the pressures for management, you know, and internal are real, and then the pressures from shippers, their customers, are real. It's not an easy task. And what I am imploring, you know, all of the railroads to do and asking the STB to help is to mediate. Let's get a panel. Let's talk about it. If you do embargoes, how do you do embargoes? How much notice is fair, right? Is it fair to tell you on a Friday before Labor Day, you know, that hey, you have an embargo, and all of you know exactly what I'm talking about? Or is it better to give 30 days' notice if you see your network is becoming congested and you know your labor trends can't fix it? That's a leading indicator that you should have as a manager if you're running the business effectively. You can see that. You can see that coming and start to identify and talk to your customers. As we hear about embargoes, you know, Dwayne, who's, you know, our VP of, you know, corporate comms, he's sitting back behind me, he's very quick to send out letters to our customers saying this is coming to us, it may impact you, right? We want to give as much notice as possible to our customers. Right? That's only fair. And I would ask that we do that in some dialogue. And, you know, what's interesting to me is the pressures that would normally affect a large publicly traded company, you know, with reduced consumer demand as you're seeing in the railroad industry, fewer carloads, right, it doesn't apply to them, right? The Staggers Act does give them some level of, you know, discretion that they can use, right? Some protections that are afforded to them. And captive shippers, let's take again Northern California where that Corteva is located is on a unique peninsula. There is no ability to geographically grow that site. It butts up against water. There's no ability to... the rail tracks are so dense that there's only a few shipping docks. So even if we could find the trucks, there's physically no geographic possibility to add more rail docks or truck docks there. So you are stuck, even if all the money in the world you want to invest it. I suppose you could dredge the bay and build something, you know, for a billion dollars, yeah, but beyond that, it's impractical, right? So how do we find and how do we identify and how do we prioritize our shipments? And I'm not saying that Univar Solutions is any better or worse than another company out there. How do we find and prioritize our shipments that impact directly the American consumer, municipalities? And make no mistake, when a municipality, you know, when Univar Solutions has to ship something via truck and we can't, a municipality, whatever county you live in, has to shift over and find an alternate source. And when they do, it's going to come in on truck because everybody else is rail-served. And when it comes in on truck, that costs more money. When it costs more money, that county has only got so much tax revenue. Who bears that burden? The American taxpayer.

Thank you, Rob. Patrick.

Rob, a couple questions. First is on the notification piece, which is an example you threw out, but because it's concrete, what to you is an appropriate amount of advance notice?

As a senior executive, I would say 30 days. You should be able to, you know, what your staffing levels are. Most people, if they're going to quit, are going to give you two weeks' notice. If you're not tracking your employment rates, you understand what your outputs are. Everybody in this room has got KPIs as they're managing too. You'll see your inventory creeping up. You see it at least 30 days out.

Is there a railroad that exemplifies a best practice in that area?

Consistently, no. Inconsistently, I would tell you there are moments that UP does a really good job, honestly. And separate from notification, although it's related a bit, visibility. Are there, you know, some things have been made about, you know, RailPulse and its promise in future years. Are there changes from a visibility standpoint that you think would be particularly helpful?

Help me understand that question again.

In terms of knowing where your rail cars are on the system, does that play a role at all in some of the challenges, or do you think that visibility is helpful but not necessarily central to some of the issues that you're facing here?

The latter. We have visibility. We've got great visibility, and candidly, some of the systems that the railroads themselves have rolled out to customers are fantastic. But seeing your car sitting there because there's no crew to move it does little for us.

Understood. Got it. Thank you.

Thank you. And Robert, thanks for being here. And I would, I want to disagree with you, your opening statement where you said the feast has passed. It has not passed. It's one of the reasons why we're here today. There is gluttony, there is greed when it comes to PSR. I'm not against the idea of PSR, but how it's been implemented across some of the railroads is highly suspect. And I think when you don't take into account operational standards, and certainly we're here now because we're in a challenged operational environment, as you know, as Brock alludes to before in terms of, you know, elevated inventory. If there's a slowdown in the network, that's extra days. Extra days of transit means there's more cars on the network. Whose fault is that? Is that yours? I don't think so, but you pay the price when they come back and tell you, well, you got excess inventory on the network, but they don't factor that it took them an extra 10 days to get the car there, so there's excess cars on the network. And so, you know, there's this, you know, I'm from New Jersey, and you commented about the bottled water. There's a certain industry that is homegrown to New Jersey and New York and other metropolitan areas where it's called racketeering, and how you, you know, challenge pricing and others that you can't get away from. You can't go anyplace. It's the only game in town. And you know what, if you speak up, you lose it. And I think, you know, honestly, that's what we see here. It's all about pricing for inflation. It's all about, you know, you guys have less service, but I guess you're paying, I bet you're paying more next year or paying more now for a decrease in service.

100%. Anytime you guys got a rebate back for bad service?

Not to my knowledge. I didn't think so. But, and I see that as a challenge because again, what you said is true, is that you need them, but they need you too. But the problem is, I believe that there's a disconnect. You know, when you look at how they look at growth and how you look at growth, it's different. And we're going to, I'm going to look at that as we go forward. I mean, you guys want to grow your business to your customers, you know, you deserve to. That's what makes this economy grow and what makes it great. The contribution that the railroads put in to you is that they deliver your products to your customers so you can do that. And so when there's a disconnect between that supply chain, you know, this is where we end up, and there's an imbalance right now. There is. I mean, I know across the board you guys are all profitable, your companies are doing well, but you're all stymied by the fact that you can't grow as much as you really want as it relates to who delivers your product. And that's an issue. So I do think, I do challenge you on that, that feast, I think the feast is still out there. I think it was relevant and evident, you know, when you look at, you know, the third quarter investor calls when you hear it and everybody lauding about, you know, where they're going and what's happening, but no mention of the embargoes. And that's again going back full circle, embargoes, as Brock said, should be only an emergency basis. We don't see that now. And I think that's an issue there because it does prohibit growth and economic growth that we need. I mean, even though we're in a recessionary time, we still need to grow so we can get out of it. So I think that's a problem too. So now, one of the things that I'd like to, you know, ask is, you know, what do you see, you know, as partners and those at the table, what do you think we need to see moving forward that would help alleviate this or at least get it moving in the right direction?

I'd like to see an open dialogue, candidly. I'd like to see a panel set up of senior executives from the Class I, senior executives from large and small shippers, sitting together, almost similar on our stack, you know, setting, but really talking about some of the issues at hand around service, around crewing, around transit times, around exemptions for products, you know, that when an embargo does happen, which products absolutely, positively cannot be embargoed or metered, right? It's just some basic guardrails that shippers and railroads can agree on. When you have an embargo coming up, even if you think it's coming and it doesn't come to fruition, give as much notice. What is this much notice? Let's define that. Let's define, you know, when you've got a product that literally is treating water treatment, right? That's a big deal. It's a very big deal. It's not something that, hey, you're just selling to some other business to make a widget and make a profit off of. No, that's directly impacting the American citizens, right? Society as we know it, right? And all of us in this room have, you know, to varying degrees, you know, some commitment to our citizens, right? And I would like to see some sort of open panel discussion where, you know, the railroads will come in and have a candid, you know, genuine conversation on the topics at hand. And I'll use an example. So I manage hundreds of millions of dollars in common carrier spend, be it on the road, be it in the rail, be it in the air. I touch just about every mode of transportation. I've got ocean barges, or ocean vessels rather, I've got river barges. Do it all at Univar Solutions, right? It's a utopia for any professional logistician. It's amazing to have people come in and talk with my procurement team or talk with me to negotiate how they grow share as a business, as a carrier, right? Hey, we want more of your business. How do we do it? And it's a negotiation. Service rates, you know, load tender acceptance rates, right? Just all the different KPIs any load decision would look at. When the railroads come into the room, and specifically the Class I railroads, here's your inflationary number. There's no negotiation. There's, here's your number and you'll get the service that we give you. It is 180 degrees different than any other mode. When my C-suite talks to me about transportation rising costs, etc., and then we get on the topic of rail, the eyes roll back and they're like, thank you for dealing with this. It's one less headache we have to deal with. They are notoriously difficult to do business with, and they walk in with just a, you know, an air of there's nothing you can do and take our product or be stranded. And that fundamentally, I'm not going to open it up, but I know I'm going to open it up, you know, 40 years ago there was a need for it, you know, the Staggers Act. Wow, that pendulum has swung too far the other direction at this point.

Rob, we've done that conversation you just gave us a little dramatic description of. Is it different with regard to any of your sites that are dual-served? Are any of them dual-served?

It is different. It is. They don't just hand the paper down and say, exactly, exactly. There's volume commitments. There's, okay, we'll give you this if you can get to this. It's all of that.

The panel discussion you'd like to see, are you suggesting that that be a panel convened by the board?

I am.

Are you suggesting that discussion be public or private?

Either way. I believe transparency is the key to success.

Well, I'll say a couple of things. I rarely speak for the other members of the board. The one thing I think I can speak for all of us is to echo what you said at the outset. We're all big fans of railroads, or we wouldn't be here. We all know the centrality of railroads to the health of the United States. I have been struggling since the day I walked into this place with the lack of competition. I'm wondering, just to be devil's advocate here for a moment, whether all the open panel discussion in the world will bring any result as long as when the railroads walk out of that discussion, they're still monopolistic towards a particular shipper. What's going to make a change?

That's the five of you that are up. My faith in you guys is absolute. You guys are a fantastic bunch, and you guys understand, you know, the ebbs and flows. And for me as a shipper, I've got my own, you know, biases, and the railroads have theirs, and the investor community has theirs, right? Everybody has, you know, levers that are being pushed and pulled against them. And I do not, for my UP friends that are behind me, want to leave the public that may be listening in or anybody else in this room under, you know, any impression that they aren't doing a lot in the interests of their shareholders, in the interests of, you know, the American consumers. What I am arguing is there's a lot more that can be done. And what I am arguing is the protections that they are afforded under the Staggers Act currently provide them protections that don't motivate them as much as they need to in a free market to really address their customers' needs, and those customer needs are impacting the American consumer.

Okay. Any other webinars? Michelle.

Thanks for your testimony. It's good to see you again, and also thanks for your service on ORSAC. And so the last time I actually saw you, we were in tomato country back in August, and during that meeting, you actually spoke about the efficiency of rail and how if you could, you believe Univar would actually ship more product by rail.

Absolutely.

And I wondered if you could speak to whether or not you believe you could actually obtain that growth with a reduction in the number of cars on the network.

Oh, that's a more difficult question than the last one. So let me tackle that one first. Embargoes are typically because of, you know, congestion on the network, and the remedy for shippers that have the capital is to go out and acquire more cars. We've increased our cars in the hydrochloric and caustic soda side, and I think even some bleach cars and sulfuric acid, by in totality about 300 cars in the last, called 18 months. So we've actually added cars. And part of that is because of the congestion and slower transit times, which means for us we have to have rail cars to load at our customer and supplier sites. The flip side of that, the other part of the equation, is we genuinely, like most big publicly traded companies, have some lofty ESG goals that we're very proud of and we are on track to achieve by 2025 and 2030 respectively. And part of that is migrating, you know, our modes of transportation to more environmentally friendly modes such as the rail. And rail offers the ability of offering a phenomenal ESG, you know, kind of carbon credit if you will, to big shippers. The downside, right, is that they're not reliable. And if they were only more reliable, holy cow, the amount of volume that we would love to take off the road and start pivoting onto rails, be it full rail cars or intermodal. And we have a lot of instances where we receive product on the East Coast and we have snow shipments across land because we just need the product and we don't have the reliable service, so we truck it. It would absolutely be advantageous from an economic standpoint and from, you know, a carbon footprint standpoint to put that on an intermodal shipment.

Thank you, Rob. But we will move on to Greg, and I hope you remind... have the microphone on.

Good morning. Appreciate you referring to me as Greg, because Gregory only gets used at home when I'm in trouble. Well, Commissioner, folks, Commissioner Headland, Commissioner Primus, Vice Chairman Schultz, and Chairman Overman, thank you for the opportunity to present here today. My name is Greg Twist. I'm the Senior Vice President of Transportation for AG Processing Inc., better known as AGP. AGP is cooperatively owned by 153 local and regional cooperatives representing approximately 200,000 farmers in the U.S. AG Processing has soy processing, vegetable oil refining, and biodiesel plants in Iowa, Minnesota, Missouri, Nebraska, and South Dakota. AGP has an export facility in Aberdeen, Washington. AGP is the soy processing arm of these local and regional cooperatives and sources the vast majority of our soybeans from our cooperative members. AGP then pays patronage-based stock dividends back to our member owners based on the company's profitability. AGP faces international competition for our products from foreign crushers in Argentina and Brazil, so access to a reliable transportation network with competitive pricing is critical to succeed. These competing countries have spent millions of dollars to increase their transportation capability with improved roads, ports, and river access, which enhances export capacity and reduces rates. Meanwhile, in the United States, the widely accepted practice of Precision Scheduled Railroading, or PSR, has not only limited growth but in some cases reduced capacity of carriers. I was fortunate enough to moderate a panel at the National Grain Car Council this past August, and we discussed how reliability of rail service was paramount to a successful export program. Reductions in or suspension of service through liberal use of so-called embargoes by railroads like the UP provide substantial risk to export programs, which are key to our success. Embargoes, historically speaking, have resulted from floods, weather, or other acts of God outside of a railroad's control. In recent years, the UP has increasingly labeled controlling or stopping service to AGP's facilities embargoes because of congestion. However, the so-called congestion they cite is usually self-inflicted by UP's own operational shortcomings. Anything real or perceived as a limiting factor in the ability to procure, process, and export our products gets reflected in lower soybean prices to our owners. We have the U.S.-China trade wars of 2018-2020 as a great example of reduced soybean prices because of export limitations. Additionally, embargoes limit our production capacity, which results in less patronage being paid to our owners as well. Embargoes designed to meter production allowed on a railroad, which results in fewer soybeans crushed, penalizes our owners on the cash price, and then again on the earnings based on reduced production. It seems disingenuous for the AAR to point out the economic impact of a rail strike at two billion dollars per day to the U.S. economy but not acknowledge any economic impact of UP's embargo practices. Let's talk about rail regulations for a moment. I started in the agricultural business in 1982. Even though the Staggers Act was passed in 1980, it took several years for negotiated contracts to show up in the marketplace. Prior to this time, all rates were regulated based on the distance traveled, and neither shipper nor railroad could negotiate anything else. The Staggers Act showed why deregulation is normally a good thing. Negotiated rail rates allowed shippers and receivers more competition in sourcing and transporting agricultural goods. Also, there were 33 Class I railroads at the time of Staggers versus seven today. But by and large, the free market system was much preferred to the highly regulated structure. You may have some people testifying this week that will call on railroads be re-regulated. AGP will not be one of those, as long as there exists free market alternatives. While the UP may bristle at the notion of re-regulation, isn't their use of embargoes to meter their service a means of regulating shippers? I last testified in front of the STB on May 22, 2019, during a hearing on accessorial charges. I mentioned that the UP was talking about level loading of cars at that time. I explained that level loading of cars was not possible because all of our plants load trucks during the week, resulting in heavier rail loadings on the weekend, which are influenced by local demand and weather. At the time of this writing, AGP has two plants where UP has refused to provide service unless there's an exact volume to be billed each day through permits. This sounds a lot like level loading. Embargoes used to occur when a customer's volume overwhelmed a servicing yard to an industry, resulting in congestion. The incredible increase in UP embargo numbers would indicate that a different rationale is being used today. First, servicing yard monitor. The UP started sending out notices to customers that were over UP-allotted space in their servicing yards. No conversations with customers occurred ahead regarding the establishment of the yard allowance. Often, the bunch of cars that caused the UP-determined allowance being exceeded was due to UP operations, as larger trains remain one of the tenets of PSR. This is contrary to the usual definition of embargo, which is a temporary cessation of service due to an event outside of the railroad's control. We have a great example of bunching by the UP from last week at Sergeant Bluff, Iowa. Our methyl ester plant at Sergeant Bluff loads approximately eight tank cars per day, but last Thursday the UP delivered 43 empty tank cars to the Sioux City yard, the servicing yard for our plant. The empty cars had been released from customers over an 11-day period. The UP delivered all of them at the same time. UP will later show in their presentation that the customer's work list notice starts when they have more than three days of loading in the yard. How is any customer supposed to manage three days' worth of inventory when the UP bunches and delivers five days' worth of cars at a time? The computer program used to determine the yard capacity simply looks at past shipments and compares that to the current railroad congestion that was caused by the UP. I liken it to driving down the road while only using the rearview mirror. It's dangerous and makes no allowance for changing landscapes. It also has little to do with the established criteria for imposing an embargo. Second, corridor analysis. Just when it seemed the yard analysis was cooling down, the UP started analyzing customers by corridor. Let's use the example of Mason City, Iowa, plant, which was put on notice for too many cars on November 9, 2022. Corridor analysis assumes that private cars in our fleet stay on certain corridors. For Mason City, we ship crude soybean oil in our private cars to our refinery in St. Joe, Missouri, on the UP. We do not have a Mason City crude oil fleet with cars just designated for Mason City, but rather a general crude oil fleet that allows cars to load at any of our plants. In fact, the UP runs their covered hopper fleet the same way. When we receive UP system cars to load at our plants, seldom, if ever, do the plans for the cars return to the same plant. Through corridor analysis, the UP is subjecting their customers to a different standard than they hold themselves in the operations of their own fleets. How this activity justifies an embargo on service has not been explained by the UP. Bad information. When a decision is made to institute an embargo, one would hope the UP is using good information. But I can give multiple examples where they do not. On December 1st, while two of our plants were being embargoed, the UP sent out a notice we had five refined soybean oil cars from Sergeant Bluff, Iowa, that had sat in the customer wait to be pulled from 16 to 38 days. None of the cars sat for an extended period of time until the car has been released from the customer, moved back to Sergeant Bluff, and been in our facility since November 22nd. So not only is UP taking liberties with the embargo rules to refuse or control service, they're doing it with bad data. They no longer send us these notices. How much bad data is driving their decisions? Does the UP build in allowances for their own operational downfalls that are causing the congestion that embargoes are based on? Example: AGP was put on notice at four facilities that we had too many cars in our corridor on November 9, 2022. Those plants were Hastings, Nebraska; Sergeant Bluff, Eagle Grove, and Mason City, Iowa. Three of our Iowa facilities were impacted by an earlier embargo because a bridge that was destroyed by the UP near Hampton, Iowa, on September 5, 2022. The UP embargoed 75 locations in Iowa, Minnesota, and Wisconsin because of this incident. Our Mason City, Iowa, plant was without service for 11 days. Disruptions like these cost tremendous amounts of cars but take weeks, if not months, to work out. However, local service has been a challenge at two of our four notified plants. The result of UP missing switches is more loads waiting to be pulled at our plant and more empty cars at the UP yard. However, because of the interconnectedness of our fleet, the poor local service impacts more than just these plants. Again, we have examples from last week at Sergeant Bluff. On Wednesday, at our Sergeant Bluff plant, we ordered in all 55 empty tank cars and covered hoppers that were in the Sioux City yard to deliver to our facility. The UP spotted nine cars. On Thursday, we again ordered every empty tank and covered hopper. This time we ordered 93 cars and received 57. Is there any allowance being made to AGP's process due to local service? We frequently see our private rail equipment misrouted. Congestion bills, for instance, our private cars destined for Sheldon, Iowa, should go from Council Bluffs, Iowa, to Worthington, Minnesota, and then down on local service. However, when Council Bluffs is congested, the car is routinely routed to Mankato, Minnesota, then Worthington, costing us three to four additional days' transit. Are these misroutings built in their analysis? How is an action beyond their control? To summarize, the methodology the UP is using to meter or stop service through embargoes by looking at customer corridors is flawed and differs from how they manage their own fleet. The accuracy of the information is flawed based on examples they have shared. They also assume perfect service and none of the congestion is their fault, but their service has been anything but perfect. Is the argument speculative in nature? Yes, because UP hasn't shared how they calculate their data, just the results. We were thrown prior to the notices coming out by the marketing department of the UP that AGP would have several plants put on notice for excess equipment. We responded to all four notices and copied several members of the STB. The UP responded to our responses by saying, in essence, we're reviewing the data you submitted without customer care and...

support of the commercial team once the review was complete, UP would follow up on next steps with either face-to-face or virtual meeting. Neither happened. Instead, we're notified by email that our Eagle Grove, Iowa and Hastings, Nebraska facilities were embargoed. No explanations as to why Mason City and Sergeant Bluff were removed, why Eagle Grove and Hastings were not. There have been no details provided as to how to get off the embargo list, and UP provided no details on the steps it would take to eliminate the cause of the alleged embargoes.

Now let me take a moment to defend the marketing team at UP. I believe they're having a difficult time getting information themselves. I know the marketing group has been active over the past years trying to gain more business, then they must watch as they operationally miss expectations. My problem does not lie with the people, but rather the policy. Let's look at private cars. AGP provides 100% of tank cars used to ship crude soybean oil, refined oil, methyl ester also known as biodiesel, and some liquid co-products. AGP does use a significant amount of UP system covered hoppers for soybean meal loading at Eagle Grove and Sergeant Bluff. At these two locations, sound for marriage because they were both notified about too many cars on the corridor, with Eagle Grove, Iowa in an embargo status. As I pointed out at the National Grain Car Council in August, UP was not offering the same amount of system cars, covered hoppers, this year as last. UP, by not offering any voucher program and reducing the guaranteed freight program, reduced our availability to UP system covered hoppers by 45% for October through March versus last year. AGP alertly added more private covered hoppers to fill in for the lost system cars. Our only other option would be to cut production or to bid for UP system cars in the secondary market, currently trading at $900 to $1,000 per car, and a thinly traded market would not sustain our production with no certain day the cars would arrive. The private cars AGP added were directly offsetting the drop in UP system car availability. Therefore, our addition of private equipment should be net neutral to the UP network. Blaming private cars for poor operating performance at UP is like blaming a Band-Aid for the cut. No customer wants the cost of additional private cars, plus commit to said private cars for three to five years. That said, I will acknowledge that additional private cars can worsen the situation as UP struggles to gain their balance, and to that end, we voluntarily removed what we can. In years past, railroads including UP have added people and power to work through the situation. Now, for whatever reason, tight labor market, continued pursuit of lower operating ratio, UP is unable or unwilling to attract the people needed to correct the situation. As I stated earlier, AGP doesn't want re-regulation. We much prefer free market solutions that enhance competition. UP said they do not want embargoes but have exhausted all other options. Be that as it may, AGP has a proposal that will reduce private car congestion on UP, enhances competition, requires no additional personnel to be hired at UP: open up our Sergeant Bluff, Iowa plant to reciprocal switching to the BNSF. Our plant at Sergeant Bluff is closed on UP. It's served from the Sioux City yard, which is approximately one mile away from the BNSF yard. Opening up access at Sergeant Bluff to the BNSF will provide immediate relief as we can now move cars onto BNSF's line, reduce the number of private cars on UP. This would enhance competition, would be a good faith gesture that UP is truly exhausting all options in an effort to resolve their service problems. It also fulfills the common carrier obligation, which is better than attempting to circumvent transportation through embargoes. I testified in May of 2019 that railroads used to be a key economic indicator for the U.S. economy. My concern was they would become an impediment to economic activity through adoption of PSR. In doing so, they've lowered their operating costs, which limits capacity, reduces local service, which in turn increases dwell times at shippers' facilities. I wish my words had not been prophetic, but one could see this trend coming for the last three years. I would like to thank the Surface Transportation Board for their swift response to the UP embargo situation, for this opportunity to provide testimony. Now, UP has given up the opportunity to respond to a free market-based, non-regulated solution to enhance their productivity by granting reciprocal switching to our Sergeant Bluff facility. I'd like to respond from the UP management team that's here today. Thank you.

I'm sure somebody will ask that question, Greg, but Patrick, you had some questions today.

Yes. You mentioned the connection between local service and transit times and embargoes. Are you implying that if local service, say measured by switch percentages or spot pull percentage or order fulfillment, and transit time measured by say days, if they slip below a certain level, that AGP should have expanded rights of some sort?

Well, what I'm saying is we're having to move more private cars on their system because of either transit time between customers or a combination of that with local service. In the case of Sergeant Bluff, where they didn't bring cars out, they're still showing those cars in the yard and they're still counting that towards their SIMS numbers. And I'm not sure what we can do when A, they bring in five days worth of production to us at one day, and B, they don't deliver the cars out that we order. And I doubt seriously that the local operations team is calling somebody in Omaha and saying, 'Hey, we didn't bring this many cars out,' that they're falling on the grenade themselves to self-report that. Therefore, I think their information with SIMS is off.

Well, I want to touch on that, but just to focus on because you also raise the access point. Would it help you if UP's performance got below a certain level along the lines of what you were describing, that that was then a trigger for UP having a discussion about accessing another railroad?

Well, I think you know, it's a remedy. That's what we're looking for, it's remedies to the situation. And so to me, if they're simply trying to get cars off their system, what better way than right now open up reciprocal switching to us, allow us to get to the BNSF, which is not monitoring cars, and move that traffic on another carrier.

And then I guess my other question would be on the bad data point. And you know, I will first say that I have heard consistently across the panel and other shippers that the marketing team and the customer care team do the best they can with the data that they have and work hard with shippers. So I just want to acknowledge that point that you made, Greg. It's something I hear consistently. But why do they have bad data? And it doesn't seem as though UP is lagging behind the industry, and in fact, in some areas they're a little ahead of the industry, right? Some of their visibility tools like UP Next and the sign-out of robots and the like. So why do they still have bad data in your view?

I really don't know. That's the question you have to ask UP.

Okay. I wouldn't say it's the majority of the time. Where's the data dark spot, you know, for lack of a better term? Where do you not have the visibility, or where do you think they don't have the visibility?

Well, I don't know. I would say, you know, when you go to short lines, there's sometimes, you know, areas where you don't get good information back. But in some of these, these were UP points that were served and cars are released and back to our facility, and they still show to the customer. So I'm not sure. That's a better question because we are thinking about, you know, AEI readers and then, you know, the handhelds, and there's all sorts of errors that can happen or there's, you know, kind of dead zones is maybe a better way to say it, right? Between these things. And so, you know, I am curious. You know, we oftentimes see that the dead zones are at the local level is where the visibility, either because whatever happened from an operational standpoint was it entered incorrectly or because there's not as much readers locally than there is between yards over the road. But it's helpful to know where that is and then what the solution would be. Probably more likely first and last mile. That's what I'm thinking would be my guess, but that's a better question for UP.

Understood. Thank you.

Greg, did I understand you correctly to say that if you had been given a reciprocal switch, that you believe that BNSF would have the capacity to fulfill your needs?

I haven't approached the BNSF on this. I think they would be, I think they'd welcome it. I think they're better in better shape operationally right now than UP. So I'd love the opportunity to approach them on that.

Greg, thanks. Thank you for appearing today. How long you been at AGP?

28 years.

28 years. You ever see anything like this?

Not really, no.

Okay. And what's interesting, you know, the plans, we talked a little bit this morning at breakfast. It's not really hard to plan around what our needs are for some of our facilities. Our Eagle Grove, Iowa facility was an original plant when we formed AGP in 1983, and the production there is about the same as it was at that time when the CNW served our plant. So it's not like we've had astronomical growth at these facilities. It's been pretty steady and really pretty, one would think, easy to plan assets around.

And so do you, given that and given the substantial increase in embargoes from Union Pacific, do you see this as the new normal? That's why you're asking, you're here talking about remedies, because you really hadn't had to face that before.

Yeah, we hope it's not the new normal. But yes, I mean, there's concern. You know, and when they put the embargoes out, you know, and the feedback we had with the marketing people said we were going to be able to build all your cars you normally would. I said, okay, then why are you embargoing me? And they didn't really have an answer. You know, if we're able to ship the same amount of cars while we've had the concern is, I think for everybody who's presented here, is where do we go from here, right? What if that doesn't work and what do they come back and say, now you're going to have 50% of what you normally load? I mean, is it on us to make sure as a shipper that they run the railroad at the levels they can through our volume? I think that's bass-ackwards, right?

And a reason why I asked the new normal is because again, the high number of embargoes to date, and again as I asked Brock and even Rob, I mean, how can you plan for that? And have you got your facilities and you're looking long term, right? How can you plan knowing that you don't know whether or not you're over an artificial limit that you're not aware of, or you know, you're about to get hit because of some operational deficiency and now your production is so... That's why I said new normal, that you really, can you really plan based on what's happening?

It's difficult too. You know, we thought we did by filling more private cars to make up for the lack of the UP system cars, and we're told there's too many private cars. The concern I have is our trend lines are going in different directions. We're building towards more volume going forward, meanwhile their production is going down, and it's hard for me to sync those two up.

That's going to be a problem that continues, right? Because you know, as I said before, all of you want to grow, right? You want to add business. You know, I question this as the new normal, and you know, I'll pose this again to the others because if you look historically, you know, I'll go back just for an example, we'll go back to 2011 when, you know, in your neck of the woods, there was one of the biggest floods we've had in the Midwest since '93, right? If you look at UP's response then, not one embargo, 14 embargoes the entire year. 14. Right? Yet you had floods that spanned the entire Midwest, many of your areas as I said, and then you add on the drought that came in Texas, you know, you had rails buckling, you had a system just going down, and yet 14 the entire year. Yeah. So that tells you there's something missed in terms of how they operated then and how they're operating now and how they're looking at their customers. Because back then there was a quick response as to how to deal with their customers and their shippers. Here, it's a different PSR playbook where it's not quite the same, and it's evident because in the numbers and in the operational flows that you're seeing now.

Yeah, I'm not sure if it was UP or BNSF, but one of the carriers in 2011 with the flooding, I believe had close to 40% of their routes were different routing across the flood. And so that adds cost and time and crews and so forth. But to your point, they handled it well. And I am concerned if we have that type of natural disaster now, without any makeup ability, what the impact will be for not just AGP but for the whole U.S. economy.

Well, the interesting issue about the whole thing is we don't have a flood, right? We don't have a polar vortex, we don't have a hurricane, you know, and yet and still we're, you know, in terms of UP's case, for over a thousand embargoes and climbing. And so we don't have an answer for that. And well, hopefully we'll get an answer, but I think you know, in terms of growth for the economy, growth along the network, growth in shippers, it's imperative that we do. You know, they can't be the only ones growing.

Thank you.

Let me follow up, Robert, by saying we will have a flood, we will have a hurricane, and we will have a polar vortex. That is a certainty. I can't tell you the date.

Greg, I wanted to get a little bit better flavor of your operation. So I realize you're an amalgam of many small folks, but how many rail-served sites do you have in your whole operation?

Sure. We have 10 separate locations that are served by rail. We have two points that are closed on UP. Those closed points are Eagle Grove and Sergeant Bluff, Iowa. We have jointly served points at St. Joe, Missouri, that's UP and BNSF both. We have Mason City, Sheldon, and Emmetsburg, Iowa, all in northern Iowa, that are served by both UP and CP.

Okay. So we have dual served at, served by UP and BNSF at St. Joe, Missouri.

Okay.

And at Hastings, Nebraska.

And then you had how many are dual served with CP?

Three served dual served with CP. That's Mason City, Sheldon, and Emmetsburg, Iowa.

So the only two UP captive points we have are Eagle Grove, Iowa and Sergeant Bluff, Iowa.

I'm missing two. I have...

And then we have two BNSF-served points that are being closed, which is Manning, Iowa and Dawson, Minnesota. And then we have one that CP served only at Algona, Iowa. Sorry.

Okay, that's the 10.

Yep, that should make sense. That is Tim.

So you have five that are dual served with UP by either BNSF or CP. And what's the bid in the embargo experience with those?

Well, Hastings, Nebraska is one of the points that's dual served and it is embargoed. But having access to the BNSF gives us some flexibility to move more volume onto the other carrier. At Eagle Grove, we don't have that flexibility and unfortunately can't really reach the markets we're going to all by truck.

And what about the CP ones?

CP, to be honest, we're doing about as much as we can with CP as well now. On the meal side, we can hit there. On the oil side, because none of our oil refineries are on CP, we have to go out on UP to those points.

So you might as well be captive-served for that product.

For that product, we're in essence kind of closed on UP. But on the meal side, we can get out on CP.

So I wanted you to, you talked about corridor analysis and that went past me kind of fast. Okay, explain that to me.

Well, the way what I've seen in terms of the way this has progressed, initially UP was looking at yard congestion and just what we had in our yard, servicing yard coming out to our facilities. And we'd be notified at times that we were over a certain volume and we'd respond as to what the cause was, and that usually sufficed. And then they started looking at corridor analysis where they said, okay, rather than look at say Eagle Grove, we're looking at everything that's in the Eagle Grove corridor, not just in the yard. And so it became a little more complex. And again, from what I understand, they're simply looking at everything that flows into Eagle Grove over a certain period of time.

So they expand the kind of scope from just the yard capacity to the whole corridor.

I see. And you said that if you could get reciprocal switching at Sergeant Bluff, you could take traffic over to BNSF.

Correct.

Is that the only one of your... so what about Eagle Grove? Is that not... is there no... there's no real viable Class I there?

There's one within 20 miles and there's not an interchange there. So Sergeant's the lowest hanging fruit. Eagle Grove would not be.

Okay. And got it. Do you have any sense of, I was trying to follow, was whether your total output from your operation has been decreased or suppressed as a result of this, or have they made it up, or how does that affect your bottom line?

So far we haven't missed production as a result of the embargo. However, it doesn't mean there's not cost related to that. Just adding private cars to fill in for the system cars that were not available from UP, we're probably spending two and a half, three million dollars a year for additional private cars. And unfortunately, you don't get those for one year. You're making a commitment of typically three to five years on those. So we have additional cost and we're trying to move product out, you know, on other modes where we can. We're over trying to move more into the truck market, and that's sometimes at a discount. That's a lot harder one to calculate what that number is, but so far production hasn't been hurt. But it doesn't mean we don't have damages.

I take it if you weren't able to spend the two and a half to three million for private cars, your production would have been cut.

I think if you had to rely on what UP had for system cars and cutting that supply 45%, you would have had no choice but to try to either discount truck way below the market or slow down a plant. That's speculative in nature, but...

And can you be a little more descriptive if it's a problem in terms of the uncertainty of not knowing if you're embargoed or not going to be embargoed, how that affects both your workforce and your customers' workforce, or does it affect them?

Well, it makes it more complex. You know, we had an example of Eagle Grove being an origin embargo trying to go to a destination that had a destination embargo, and there's so many embargoes out there. And so we were trying to build cars to a customer and there wasn't enough places in the waybill to put all the permits needed for both an origin and a destination embargo. So we've worked through some of that, but it does cause some issues. It causes your customers concern obviously when they see an origin that's embargoed about what the availability of product will be going forward. So far we're managing it, but there are certain other concerns.

Is there some potential that you have to face of losing customers if you can't get product to them because of an embargo?

Possibly. I mean, there was, there's points that quite honestly, California was a market that was messed up last year in terms of transit time. And so what we're forced to do sometimes is make decisions based on where we'll go based on how UP is operating. So if we can only have so many cars in their railroad, you know, there's going to be points that as shippers you may say we can't afford to go here because of the transit time. And that is a concern. Have we done that? We'll try to shift to certain markets based on turn times. We haven't eliminated anybody as a customer per se because we look at a market as a whole, an average of a lot of trades. And so that's what we'll continue to do. But will we give preference to certain points based on how we can turn the cars? We have to at times, yeah.

Okay, thank you. Yeah, Michelle.

I think you went over this already, but just to clarify, how many locations are currently under an embargo?

We have two locations under embargo. That's Eagle Grove, which is served by UP only. We have Hastings, Nebraska, which is served by UP and BNSF.

And were you provided with an end date?

No.

Robert, just to follow up on Michelle, did you ask for the end date or when it was going to end?

We asked what we can do to get off the embargo list and really didn't receive feedback from that. So they just left it open-ended and we're getting our permits every week from them.

Yeah, okay. Thank you.

Thank you, Greg. We have been going a little over two hours.

We will reconvene.

I don't have a gavel, I have a coffee cup.

Well, I have a gavel. I've never used one and I'm not going to start now. Sit down, everybody.

Should be enough.

Thank you.

All right. Appreciate it. Dan, you're up next.

Don, sorry.

Dear Mr. Chairman and members of the Surface Transportation Board, my name is Dawn Boonstra and I'm a business director working for Chemtrade, which is a Canadian company with sales of about 1.5 billion dollars. We operate more than 60 chemical facilities across North America with the majority of our plants and customers located in the U.S. My talk today is a little bit different. I'm not a transportation expert. I'm here today to describe how much we depend on reliable rail service involved for some perspective on the fragile nature of supply chains and dependence on rail service that may not be obvious. I also want to clarify that while my businesses are the largest shipper on UP in our company, none of my plants are served directly by UP. Instead, embargoes from the railroad to service my plants are usually due to downstream railroads. So if the downstream railroads don't take the cars, then the embargoes work their way up to my plants. The products that we produce are essential raw materials for our customers who in turn manufacture custom products that are key to the U.S. economy and our everyday life. We have plants that regenerate sulfuric acid that is needed by refineries in the production of gasoline. We produce a number of chemicals such as aluminum sulfate, ferric chloride, chlorine that are used in the treatment of municipal drinking water and wastewater. We are one of two North American producers of a chemical that is the workhorse anti-friction additive in motor oil. We produce a high-purity sulfuric acid that is an important component to the manufacture of integrated circuit chips used in such electronic devices as smartphones, automobiles, and refrigerators. We produce hydrochloric acid which is used in steel production, food applications, and by the oil and gas industry. We have our own fleet of over 4,000 rail cars that are specialized in their design for the chemicals that they carry. Each year we make over 30,000 shipments by rail of raw materials in or finished products out of our 60 sites. We are what's known as a manifest shipper. That means that from any one of our plants we might ship as few as one or as many as 30 rail cars and these cars will be going to different customers located at multiple destinations. The railroads pick up these rail cars from our manufacturing facilities, sort them into different trains that are scheduled for different destinations, with each train containing a mix of cars including our rail cars and those of many different shippers.

First example I want to give you relates to the disinfecting of drinking water to ensure it is safe to drink. As I mentioned at the start, Chemtrade is a large supplier of chlorine that is used for the treatment of drinking water along the western part of the United States. The majority of the water treatment plants either use liquid bleach or elemental chlorine for disinfecting water. In most cases they take the deliveries of these chemicals by truck. So what does this have to do with rail? Well, a funny story I heard a couple weeks ago will illustrate my point. In the lead-up to the recently threatened national rail strike, I was speaking with the president of one of our large customers. We deliver chlorine to this customer by rail car and they in turn repackage it, deliver it by trucks, or to use it to manufacture bleach, which should also then be delivered by truck. The company president told me he was talking to a local public official who was relieved to hear that all of the water treatment plants in the official's region receive the materials by truck and should not be impacted by the rail strike. Naturally, the president I was speaking to smiled and informed the public official that while the trucks serving the water treatment plants were in fact his trucks, a rail strike would nonetheless halt these truck shipments in short order because he was reliant on receiving chlorine by rail. The reality is that water treatment plants are located all around the country, but the production of chlorine comes from a small number of large, world-scale plants, and the only practical method of getting the chlorine to where it's needed for disinfecting drinking water is by rail.

Second example I want to share with you is another water treatment product. In North America, Chemtrade is the largest manufacturer of aluminum sulfate, otherwise known as alum. We have 39 chemical production plants, the vast majority of them are located in the U.S. Alum is another chemical used in water treatment plants with its function being to aid in the removal of sediment in the water. A failure in supply can result in boil water advisories if the water no longer meets safe drinking water specifications. Similar to my first example, all of our deliveries of alum to our water treatment plant customers is by truck. However, also similar to my first example, we are reliant on rail service for delivery of our key raw materials. Our 39 plants are all located in or near the cities that they serve. Our key raw materials are obtained from a handful of locations and must be railed often across the country for use in our plants. As an anecdote, let me tell you about our experiences this year from our plant in Denver, Colorado that serves the city of Denver and surrounding municipalities. Our plant normally receives daily rail service of raw materials into the plant and delivers two trucks of alum every day to the city of Denver. Twice this year we had to shut our plant for three days due to multiple days of missed rail service, even though our raw materials were on hand at the local rail yard and available to be pulled in, but the embargoes prevented us from having rail service to do so. The city of Denver, who would normally get two trucks every day from us, received no trucks from us for three days. As I understand, the city of Denver became dangerously close to running out of treatment chemicals for drinking water on both occasions.

The third example I want to offer is for a chemical that we produce that is essential to the manufacture of integrated circuit chips. These are for the electronics industry and power our smartphones, computers, and smart appliances. We are the largest producer in the U.S. of ultra-pure sulfuric acid. A chip manufacturing fab plant uses a number of chemicals, but we are told that ultra-pure acid is the single largest consumable used in the manufacturing process. We refer to the product as ultra-pure because the purity level required in the manufacturing of the latest generation of circuit chips is extremely high. Think of it as being allowed to have one drop of impurity in the amount of water contained in 18 Olympic-size swimming pools. Similar to the other two examples, all of the deliveries of the specialized chemicals to the circuit chip fab plants are made by very specialized trucks. Our plants are located in geographies that are logical to where the customers are located. However, the primary raw material that we use in our manufacturing process is sulfur, which is largely delivered to us by rail. Sulfur is produced as a byproduct of oil refining or natural gas production and so is railed from locations around the country to our production plants. Without reliable rail service, we cannot produce a specialized chemical that's critical to the domestic manufacture of integrated circuit chips.

A fourth and final example is that of sodium nitrite. We are the only on-purpose producer of this chemical remaining in the United States. This chemical has a variety of uses in industries such as inks and dyes, corrosion prevention, and industrial butters and treated wood. But one of the most important uses is an additive to foods such as cured meats to prevent botulism. Once again, most of the deliveries to customers are by truck, but one of the key raw materials is soda ash, which is mined from the ground in Green River, Wyoming, and delivered to our plant in Syracuse, New York. Given the distances, the quantities, and the specialized equipment, rail is the only practical means of delivering this raw material for manufacturing a critical product. I bring up these examples to illustrate how complicated supply chains are and how reliable rail service is essential for these supply chains to function. Like any chain, a breakdown anywhere along the linkages results in the chain falling apart.

These stories are from products across our entire company, but now I'd like to share with you some impacts that real embargoes have had on the businesses that I manage within Chemtrade. For reference, my business units represent about 50% of the total rail shipping in our company. Year to date, my businesses have experienced seven different embargoes totaling 235 embargo days. In most of these cases, while under embargo, we need to apply to the railroad for and be granted permits to allow for a reduced number of shipments. In some cases, multiple railroads issued embargoes at the same time for overlapping regions, meaning that for shipment routes that use multiple railroads, we've had to apply for multiple permits for just one rail shipment. And then this last Thursday we were notified of a new embargo at one of my plants, so I guess we can now say we have eight different embargoes. The number of embargo days is counting. And that embargo last week, we had one day notice, no shipping for two days. Now chlorine was excluded, but it was open-ended, and hydrochloric acid is also used in treatment of water. The railroads use these embargoes and associated permitting system in order to reduce the number of shipments in the railroad networks, and the embargoes do unfortunately succeed to achieve their intended outcome. However, the consequence of this is that the inventories that our customers have are reduced as they draw them down, and the inventories of raw materials that our plants have are reduced as we draw them down, and the result is that we're in danger of running out. As I've already mentioned, our chemical supplies industries and applications that are critical to the economy and with drinking water to America's day-to-day life. While embargoes this year did not result in any boil water advisories that to my knowledge, I can say we are dangerously close to a number of instances this year. As a consequence, the 235 and counting days of embargo we've experienced, we've had to reallocate a person full-time who devotes all their time to obtaining permits from railroads, which involves entering permit requests into each railroad's online portals and then spend the rest of the time following up with each railroad and pleading with them to grant our permit requests. In addition, our sales team members have to be in constant contact, at least daily and often several times a day, with our customers to understand the status of their inventory and the timing when they will likely run out. A further impact of the embargoes on our bottom line is that we've had to slow down our production at our plants on multiple occasions because not only can we not ship the product out to our customers, but we can't fill the rail cars in order to keep production flowing since the embargoes prevent the empty rail cars from being returned to us. As you can see, there's an unacceptable amount of unproductive activity generated by these embargoes. In closing, I urge the Surface Transportation Board finds a way forward with the railroads to reduce the occurrences of embargoes and improve overall rail service such that we can ensure that critical supply chains remain functioning. Thank you.

Thank you, Dawn. A couple of sort of back questions I wasn't clear about. You have, I think you said 60 locations in North America that are rail-served?

Yeah, I think nearly all of them have rail.

And how many of those are UP?

Very few. UP is mostly in the West. We're contracted with UP, but UP is not the serving railroad to the plant.

That was the other thing I didn't quite understand. You're... sure, so how does that work? Are you served by other Class Is from a short line or what?

So we're shipping chemicals to water treatment plants all the way down the West Coast, and we have a number of destinations where UP is the serving carrier for the end destination. We're contracted with UP, but CN Rail would pick up the car from our plant, deliver it to BNSF, and BNSF would in turn deliver to UP. And so when we get an embargo, all we know is that the next railroad is not picking up the cars.

And it might be... let me stop you there, which is in that chain, which is the next railroad? I'm not following it.

Generally with BNSF.

So when you say when you get an embargo, are you saying you're getting an embargo notice from UP?

Generally not.

Generally not. Where are you getting the notice from?

We've had one occasion where we had notices from all three railroads involved in the chain: UP, BNSF, CN. Last week it was, we got an embargo notice only from CN, but they blamed it on BNSF not picking up the cars from the interchange rail yard. So we did not get an embargo from BNSF.

But as you understood that situation, CN was not embargoing you, they were just communicating to you that BNSF was embargoing the interchange point, so they couldn't take your cars to BNSF. Is that the way to understand it?

As I say, I'm not a transportation expert. CN communicated the embargo to ourselves and to all the customers in that region, anybody that was going south to the U.S., that BNSF was not, due to congestion, BNSF had doubled the number of cars in the transit yard and CN was going to embargo cars until that could get cleared.

Well, how do you know about embargoes coming from UP, which you were talking about?

Of the seven embargoes this year, one UP communicated directly to us. I would say the vast majority of the time where a railroad does not serve our plant for multiple days in a row, we never find out why.

So how do we figure out if it was ultimately a UP embargo?

It's observing the yard two railroads downstream.

You don't know.

I don't know.

But do you understand that... so your plants that are, who are your plants served directly by?

CN primarily. I have four plants in my business, they're larger plants. One is dual rail-served by CP and CN. I have three out of four plants are in Canada, they ship most of their product to the U.S. So their serving railroad is in one case CN, two cases CN, one is dual CP/CN, and one is CSX.

All right, I'm a little confused now because I thought you said you had 60 locations.

Chemtrade has 60. My businesses have four.

But they're large plants. And you say your businesses, you mean your section of Chemtrade?

My section of Chemtrade. Chemtrade, I think we deal with all Class I, our plants are all over the country, so I don't think there's any plants that, or any Class I railroad that's not serving one of our plants.

Okay. And you just don't have the information as to whether any of those plants that are directly served by UP have been embargoed?

No, I don't.

Okay, thank you.

I have a question, Karen.

Ms. Boonstra, for your comment about your statement about the city of Denver, I found particularly alarming because I live 100 miles from Denver. Do you have any sense that the railroads give your shipments that are obviously critical to the health and well-being of millions of people any kind of priority when they get into a pickle?

What I'll say is two years ago, the Department of Homeland Security and the EPA created an awareness in the railroad community around chlorine and the importance of chlorine for treating drinking water. And so what I've witnessed is the railroads having a sensitivity to that. But to the other chemicals that go into other water treatment chemicals, no, I don't think that there is an appreciation.

Huh, that's very interesting. So, you know, I'm sitting here thinking the United States Congress took action they haven't taken in 30 years to ensure that water treatment chemicals were delivered to our cities and communities across the country. I hope it doesn't take another act of Congress to solve the problem that we're dealing with here today.

All right, Dawn, I have a quick question. So just, you know, from the standpoint of embargoes, from a holistic point of view, you know, do you see this as, and I've asked this to the other witnesses, do you see this as a new normal? Do you see this happening more and more and something that we're going to be faced with in terms of addressing critical shortages of chemicals like those used in treating water?

I've been in the industry for 30 years, various kinds of jobs. It's only been the last two or three years that I've seen embargoes employed and it seems to be increasing. So as I say, our last year there might have been two in my businesses. Our other, I say talk about 60 plants, they're very small plants. I have a number of the larger ones, but we have probably 40 of our plants might have less than five people, small plants located next to these cities to service those cities. And so as I say, generally if they have poor rail service, they don't know why. The railroad, it's small enough business that the railroad won't take the time to explain why other than just congestion, we can't get a crew to you today. So anyways, getting back to the occurrences, I said it's been eight this year, two last year, and I couldn't recall embargoes before that.

And so, you know, how much of a concern when you talk to those folks who are next to cities in terms of their planning, in terms of inventory and others, do they see going forward as a real problem?

No, we're very concerned. And this summer has been very challenging because as I was mentioning before, these embargoes are open-ended. So when it gets announced, we do not know how many permits we're going to get, we don't know how long it's going to last. And so when I talk about having a person allocated to do nothing but enter these permit requests in and then plead for permits, because it's open-ended, we don't know how many permits we're going to get, and it's a fixed amount of demand. I mean, how much chemical these water plants need is a function of drinking water consumption, not on any other indicator. So matching up demand's needs with capacity, I don't know how to do it.

Okay. And I know that again, not directly tied, but from your conversations with others who are affected, is it a lack of communication you're saying because you don't know how long it's going to last, you don't know the terms? Is that, would you consider that a major issue?

Yeah, so we don't know how long they're going to last, we don't know how many permits we're going to get. And it was mentioned I think by Rob earlier, when you're in the water treatment, it's a seasonal business. And so in the summertime when water consumption is high, I don't know how we choose which water plants are going to get chemical.

I don't know what you should choose. No, there shouldn't be that choice. I'd like to, and Dawn, unless you have a question, I want to ask this to the four of you. You know, we've been asked, we're sort of grappling with also, you know, whether this is reasonable service and whether this actually flows counter to common carrier obligation. So I'm going to ask all four of you, do you believe this, this sort of pattern that we're seeing now in terms of embargoes, reasonable service, and do you see it as a potential counter to common carrier obligation? So Brock, start with you.

Yeah, so you know, I'll go back to when we look at, you know, probably the root cause on this, we continue to believe it's the number of train and engine employees is the major issue we're facing today with moving traffic on Union Pacific. We're hopeful that they advance, they hire, are able to get enough T&E employees to operate the system, so we would hope that the embargoes become more of an exception than the norm, or so we've seen the last couple of years. The embargo practice where our loading facility is being embargoed per activity that we don't have control over, so the cars on UP's lines are moving into a destination we have no influence on. So the formulas, the calculation to determine the operating inventory versus...

Target inventory, we don't see that as being reasonable.

So I'm not sure what you were saying to Robert's question. Not having the options results in service that is not exactly accessed up with the common character.

I think I'll echo the comments. I do not feel that they're fulfilling the common carrier obligation. I think, you know, it's been explained to us that a large amount of these service issues relate to lack of labor or lack of power. And, you know, I can see embargoes having a place for unexpected things like a surge in traffic or a weather event or something else like that, but this seems like it's a capacity issue.

Okay. Robert had asked Greg about if you've seen this in your 28 years. You guys all looked fairly young, but I assume you've been in this for a while. But you, the other three of you, care to comment on however long you've been doing this and if you've seen anything of this magnitude before that you've had to grapple with.

Right. I've been in the industry just over 20 years, a little over half the time with a Class I railroad, the other half as a shipper. I have not experienced this in my career for what we've seen over the last couple years with the frequency of embargoes increasing significantly.

Rob, I would echo those comments. I've been doing this just over 20 years myself, both as a shipper and as a carrier. I have never seen it this bad. And if we don't do something about it, it will continue to get worse.

Greg, you already commented on this. I mean, if you can comment more if you wanted to.

No, I just echo the same thing. In the, I guess, 29 years with, 28 years with AGP or nearly 40 years from the industry, I've never seen embargoes used to this extent. As we talked about, you know, and this is the part that I guess is disappointing to me, I've seen the railroads perform through really tough circumstances, through floods, through really harsh winters and different things, and they've done an outstanding job. We really haven't had any weather to contend with so far this season, and if we do, I'm just worried about what the outcome is going to be. So no, I've never seen anything like it.

Well, as I said before, there's no 'if we do' involving the weather, when we do. I wanted to see if I had a picture which might reflect... hold on just a moment. I have too much paper. But I was curious about what the data showed. It's basically rail data, it's nothing secret. And I had asked staff to see if they could chart out what you folks have said from your own experience. It's fairly graphic, so I'm going to ask the staff if they can put up slide number seven. This only goes back to 2005, so it's not as old as you are, Greg, and it's not as old as I am. But this reflects the UP embargoes. The blue column are those that are allegedly caused by congestion. The others are other, which I assume are the classic, you know, floods, fires, bridge washouts. And you can see with except for a little blip in some natural disasters in '06, '07, and '08, there basically weren't any. The embargoes were so small they barely show up until 2018, which would seem to be consistent with what you've all testified to. The bottom graph is interesting because it shows the UP embargoes compared to all embargoes on all the other railroads, and they were almost at the same level going back to '05. And then you can see in 2018 they started to go up rapidly and have greatly surpassed all other railroads combined since then. So the numbers, I think, tell the story. I don't need much comment about based on what you were just talking about.

Well, maybe whether there's a meltdown is in the eye of the beholder, Robert.

Sure. All right, I didn't have anything else. Does anybody else have anything for this panel? I want to thank you all for coming forward. It's impressive that you're doing it, that you're so knowledgeable and articulate. The board really cannot function without input from the industry, from all stakeholders including railroads. And as we said at the beginning, a lot of affected shippers are just, and I think you're all sympathetic to them, unable or unwilling to be here. We'll hear from their trade associations tomorrow. But hearing specific experiences of companies that have to go to work every day and try to do their business for the benefit of the country is very important for us to have. So we all appreciate your taking the time to be here and make these presentations. If you stick around, I'm going to say you need to take more time away from the office, but if you do and you hear things, we may call you back tomorrow if you want to add something. But I'm not trying to impose on you. I know you've got to run your businesses. So thank you very much, appreciate it. All right, we are going to move right ahead with our next witness, who is so distinguished he's on a panel all by himself, Richard Edelman. Although Richard is speaking for a large number of entities, so he's really many people.

Thank you very much. Good afternoon. I'm Richard Edelman. I'm speaking today for several unions: the BMWED, the BRS, SMART Mechanical, NCFO, IBB, and BLET. We thank the board for holding this hearing and beginning to hold Union Pacific accountable for its service failures. Now, when I read the board's order in the Stokke opening and the data there, I was really taken aback. I mean, the massive use of embargoes by UP reflects a fundamental failure and apparent inability to provide basic service of a Class I railroad at a magnitude that I cannot recall since the big mergers were completed. And Chairman Oberman, to answer your question, in my 35 years of being involved in this industry, I've not seen anything like this. I'm going to make some points about job cuts across the industry generally and how that impacts service. I'm going to talk about staffing at Union Pacific, and then I'm going to show how the inadequate staffing has affected the level and quality of service provided by Union Pacific. Now, rail service depends on the people who move the trains and inspect and maintain and repair the infrastructure and equipment. It's really rather simple: if you don't have enough people to provide and support the service, then you can't adequately provide the service. And by now we're all aware the Class Is, including UP, rather brutally reduced their workforces for several years. After the board's hearings in April and the board's mandate for reporting on service and employment, the Class Is, including Union Pacific, said they were ramping up hiring and were trying to meet the employment needs for the advance of their customers. They filed reports with this board, talked about their extremely modest goals and how they were exceeding meeting those goals in hiring. They claimed they didn't have an employee retention problem, that they're actively recruiting workers, that they were not at a loss for applicants, and they weren't having a problem keeping new hires. And, you know, we've jousted over this and whether or not our evidence is anecdotal, but we've provided evidence to you. In June, several unions I represent filed a paper saying the carriers' filings regarding employment were extremely difficult to interpret and seem to be deliberately inscrutable and frankly designed to obfuscate rather than illuminate. We noted while the carriers provided information about hiring, they weren't providing net employment numbers. And the board in particular chastised Union Pacific for non-compliance with its orders. About two weeks ago, I submitted a filing on behalf of all of rail labor in Ex Parte 770 that showed that at least one of the things the Class Is are telling the board was not true, because as shown by a number of sources, employment with the Class Is, including Union Pacific, from October '21 to October '22 is actually down, not up, as one might have concluded from reading the railroads' filings. In Ex Parte 770, one of the measures of employment we gave you was union membership by craft. Those numbers reflect actual employees doing the work and training, not trainees who don't stay. Those numbers are related to union dues payment withholding from payroll by the carriers. Now, if the carriers are going to say that those numbers are wrong, then they owe us a whole bunch of dues withholdings. Those numbers are also consistent with measures that we've also provided you from the U.S. Railroad Retirement Board and from covered employees in the industry's National Health and Welfare plan. I want to emphasize the purposes of that filing, and I reference it today, is to dispute the trend characterization you're hearing from the carriers. You know, it was not to suggest that there's a reasonable debate about the numbers they have now being remotely accurate. I'm just trying to sit there and say you're being told that they're doing everything they can, they don't have a retention problem, they're able to hire people, they're trying to fill the jobs, and I'm saying this data within the last year shows that they're not. And for Union Pacific, it shows that it has not increased employment over the last year. And despite reporting to you, I read these, I tried to read these reports, I will tell you they are, everybody I talk to who reads them says I can make no sense out of them. They are not readable, and kudos to anybody at the board who's been able to do that. But, you know, what's remarkable is even for the operating crafts, the engineers and conductors, very little has been accomplished. The conductor cadre is basically flat, and the number of engineers is actually down by 1,400 from October, last October to this September. This after telling the board that it was up, was on a path to meeting its extremely modest target. When I keep saying that, because I keep putting this target up there as if, oh, we're aiming for something while they're aiming really low. Among the non-ops, the BMWED membership on UP went from 6,123 in October of '21 to 5,954 in September of '22. The BRS membership on UP was essentially flat, going from 1,619 in October '21 to 1,628 in October '22. IAM machinist membership went from 1,442 in October of '21 to 1,439 in October of '22. So we're either down or flat. And again, it has to be recognized that all of these crafts are significantly down on all of the Class Is from the numbers before the pandemic, down over 20 percent, and that's where the real point of comparison ought to be. But I wanted to hit these things because you're being told they're making efforts and they're not. But even for the last year, you know, so how does this affect service, right? Well, you don't have enough employees to run the trains and maintain the infrastructure and equipment, you're not going to be able to meet the demands for service. We've provided to you in this docket yesterday, so I filed it late yesterday, statements from union officers that showed us from BLET, we have statements from General Chairman Chad Lambert, Local Chairman Joel Miller, BLET Division Number 9 President Bradley Bell. From BRS, Director of Research Christopher Hand. From BMWED, Director of Safety Roy Morrison. Mr. Lambert, Mr. Miller, Mr. Bell have documented service problems as a result of reduced locomotive engineer staffing. Mr. Lambert demonstrated a reduction in employees on extra boards for his territory in UP, down 200 from 215 in March of '20 to down to 161 in March of '21, and up a little to 189 in December of '22, still well below March of '20. So down 12 percent in his territory, carloads are up 6 percent. By the way, this is in the area in Minnesota and Iowa where you've seen embargoes. Mr. Lambert shared statements also from a locomotive engineer and his wife about his resignation from Union Pacific due to having to work all the time on call. This has been a significant contributor to the shortage of engineers, and I recommend that everyone read it for a better understanding of what is going on here and what is going on in the industry as a whole and what we've all just been through. Mr. Miller explains how Union Pacific is continually operating trains that are over 13,000 feet when the sidings in his territory are only 9,000 and 10,000 feet. What you heard Mr. Twiss describe, circuitous routings from Iowa going up to Mankato, Minnesota, and back, one of the reasons that happens is because the dispatchers don't know what to do when trains are going to meet because the sidings are too short for the trains. And you even saw in the CPKC's, you saw a demonstration of that. But they're continuing, they're insisting on running these long trains when they don't have the infrastructure for those long trains. And he showed an example of how this ties up the lines because the trains can't pass each other. Crews on both trains expired under the hours of service law, so the trains had to be re-crewed. That then meant that that crew wasn't available for something else. He provided another example how trains had to be re-crewed when they expired, an 11,000-foot train in the terminal, and another example of a train having to be re-crewed because it was behind a train where the coupler failed because they had jammed two coal trains together. Mr. Miller also describes trains for servicing grain elevators showing up with bad order, those are defective or not fully operational locomotives, and then being unable to pull the cars that they're supposed to pull. And he says it's not unusual for such trains to wait up to two weeks to be pulled. Now, remember, Union Pacific has dramatically reduced its mechanical forces, those are the folks who inspect and repair locomotives who would prevent bad order locomotives from going into consists. Mr. Miller documents that although UP says it's returning multiple locomotives held to service, and we provided this sheet that shows they still have 2,182 locomotives in storage at a time when trains are being held for a lack of power. Mr. Miller describes a problem in Sioux City, Iowa, where the carrier reduced the number of daily switch engine shifts from four to two, which has prevented it from doing classification. This is a location that Mr. Twiss referred to earlier as having a problem. And Mr. Miller talked about Rosemount, Minnesota, where the carrier has not had sufficient operating employees to serve a major petroleum refinery. Positions aren't being filled there. Now they've used, they've borrowed the so-called borrowed out, moved in place from other places. Not only is that not enough, they're not familiar with the switching and spotting moves for this particular carrier in order to do it as it should be done. Mr. Bell explains how the refinery in Rosemount, Minnesota, there had been five regularly assigned jobs two years ago. Now there's one. Five to one. This resulted in both substandard service for the shipper and a need for the shipper to use the contracts which are in to purchase five locomotives. Mr. Bell also reports that two customers in Minnesota have been embargoed because of insufficient crews, and how the closing of the switching yards has reduced the ability of these crews to do switching, which leads to the fabled congestion. Now, these are a number of examples in specific locations. I haven't given you the entire system, but we submit they illustrate the connection between inadequate operating craft and mechanical craft staffing, which is leading to the service problems that you're hearing about today. For BRS and BMWED, Mr. Hand and Mr. Morrison have showed an increase in slow orders on Union Pacific, and we've provided you with the documentation for that. Slow orders are placed on tracks when a signal and maintenance of way worker detects a signal system or track or right-of-way defect. The defect isn't immediately repaired and trains can still safely operate but not at normal speeds. A slow order requires trains to move more slowly through the affected section of track until a repair is made. And because slow orders restrict train movement, they affect the railroad's ability to serve the shipper since all trains moving through that section are moving slower. And the fewer signalmen and the fewer maintenance of way workers you have on a railroad, the harder it is for them to perform maintenance and repairs that prevent or clear slow orders. Union Pacific slow orders for 2021 and 2022 reveal an increase in 2022 of number of slow orders and mileage under slow orders. For the northern part of Union Pacific, there were 3,477 slow orders in October '21 and 4,055 in October of '22. This is in our papers. The southern part of Union Pacific, there were 6,943 in October of '21, 8,396 in October of '22. The track mileage for the north, that was 2,297 and 3,867 for the south in '21, and in '22, 2,852 and 4,387. So 2,297 to 2,852 in the north, 3,867 to 4,387 in the south. So it's in our papers, but 22.97 miles of track in the northern part of UP in '21 were under slow orders. Southern, okay, and that's in our papers. So the principal reason for inability to keep up with the maintenance and repairs is insufficient staffing. Particularly over time, signal and track conditions deteriorate. Now, I also want to note, I just did a little simple math, and lawyers doing that is never really ideal, but when you look at the miles under slow orders, that's 22 percent of total UP track is under slow orders right now when they're having embargoes. I mean, it's sort of like, I don't know, having a football team with two players playing with bad hamstrings. I mean, it's stupid. The cuts in the signal and maintenance of way employment have negatively impacted the signal and maintenance system, which in turn affects the ability of UP to serve its customers. I want to make one last point. I was flabbergasted by the chairman's letter indicating that UP had not complied with the board's order requiring certain information, and this on the heels of failing to comply with the original order in Stokke Docket No. 1 of Ex Parte 4770. Maybe it's not my place to speak to this, but as a practitioner for the agency for 35-plus years, I think it's appropriate for me to comment. And frankly, there's no ramification to me to saying that because they don't care what I think. I know that UP doesn't care about its employees and they don't take their employees seriously. But it's stunning that it seems not to care what this board thinks or to take this board seriously. I assume this is based on the view that UP doesn't think a government agency ought to be looking over its shoulder. But here's the thing: for all its posturing about the free market, UP operates with a government license. It exists in its current form because this agency and its predecessor found its mergers to be consistent with the public interest. As a result of those decisions, UP is part of a government-sanctioned duopoly in the West with immunity from antitrust law and all other law, and it has a common carrier obligation. So we submit UP should throttle back its umbrage about government oversight. And frankly, having failed miserably lately in its basic function of transportation as a common carrier, it should be less arrogant and more humble and comply with this board's order and begin to show some respect for its employees, its customers, the board, and its statutory obligations. You know, Member Primus, to answer your question you posed at the end of the last panel, no, they are not complying with their common carrier obligation. That what showed up in that order is ridiculous. In conclusion, there need to be consequences here. If the board doesn't feel it has the authority to do it, then Congress needs to provide the authority. And I agree with Mr. McRae, the pendulum has swung too far since Staggers, and the conduct that you're seeing, the way they're running this railroad, indicates a need for a check. Thank you very much.

Thank you, Rich. There's a lot to unpack in what you said, and I think I will wait for your presentation before we get into some of the last points that you made. They're not unimportant. I did want to ask you a little bit about the filing that you made in 770 with a lot of data, because I too have been trying to relate what the railroads have filed, try to understand all of it. So in the latest filing from UP on December 2nd, where they have listed the T&E and Y active workforce, that's at page eight of their filing. I've tried to understand who's in the T&E and Y active workforce. So, as a fairness, let's just take them one at a time. Then in the document that you filed, there's a page for the BLET membership.

Yes.

And in September, you only go up through September, you show 6,602 BLET members.

Correct.

But as you understand it, that would be one component of T&E and Y.

Correct.

Okay. Secondly, you have a page for SMART TD. Always been my understanding those are essentially the conductors, who would be conductors to extend their trainmen, switchmen, yardmen, and the yardmasters. And there's a gentleman here from SMART TD here from tomorrow who can correct me if I'm wrong. Are those all T&E and Y?

Yes.

So you have 8,033 in September. So that would be 14,600 combined. Is that everybody in T&E and Y as you understand it?

Yeah, plus, I mean, the yardmasters are below that, that's another 500.

Yeah. Well, the irony here is that in the December 2nd filing, UP says it only has 12,984 T&E and Y.

I can't explain what they're filing. What I, you know, I actually even looked at their stuff, if you know, going down, it's still going down, right? I mean, from, I just took some handwritten notes, but, you know, in T&E and Y they had 17,817, 15,773, and 13,140. I mean, just go straight down even on them, and they kick up a little in '22. Now, I should point out, by the way, and I've sort of said this, I've seen a lot of these filings where the railroads say we're up from January. Well, January is not a particularly good month to use as your starting place because of seasonality. So that's why we went October to October where we had the date, or September to October.

I'm looking at the December 2nd filing where it's exactly as you say, they say they're up 382 from January of this year. Just this year in this December 2nd filing, they were 12,791 in January. They were 200 higher, 12, or not quite 200, 120, there were 12,914 in February. Well, and now they're at 13,173 in November. So you're saying that in terms of trying to measure if the workforce has increased, even using UP's numbers, in your opinion, it's more informative to go February to November rather than January to November.

No, I would say go last October to current October. I mean, okay, and here's the other thing. Look, I will, one of the reasons we gave you three forms of data, you know, is there a potential margin of error in the union membership numbers. Members sign up authorizations that give it to the railroad, they give it to the union, the railroad pays dues over the local, they cap it up to the National. Okay, but what you can see is it's consistent. It's consistently that. And then look at the Railroad Retirement Board numbers, again, they're consistent. What we're showing consistently that. And look at the United Healthcare numbers, those are stunning.

Do you have those filings in front of you?

Yeah, yeah.

I'd like to go through it so I know which pages you're talking about.

Sure. So the, you didn't number the exhibits, but under Exhibit A, Exhibit A is all the union membership.

Okay. So I see the BLET numbers there.

Yeah, they were 6,899 a year ago and this year they're 6,602, so they're down roughly 300.

Is that how you think we should measure what's happening?

Um, 6,899, yeah, that's, well, that's what it says, yeah.

Okay. And I just for the moment want to stick with T&E and Y because there's a lot of data in here and that's, not that the others aren't, as you pointed out, very important to the railroads' functioning, but...

Let me just say that that 1,400 down is industry-wide. So when I said 1,400 down, that's the entire industry.

Oh, I see. I misspoke there, but okay, yeah.

And that bottom, that, yeah, bottom line, okay.

But it's 300. Yeah. And then I go over a few pages and the SMART number is actually up by 31 from 8,059 to 8,090 year over year.

Yeah, right, yeah. That is all membership, correct.

Right. Okay. So now there's a different data source, Exhibit B. This is the Railroad Retirement Board. Okay. Now, so what are, let's, couple of caveats, it's hard for me to read the smallest. So this, so the first page is a five-year look back. The second page is comparing, so the second page is comparing '21 to '22.

All right.

So what are the numbers though? Are those in thousands?

So yes.

If I look at 2021, which is the bottom graph, it looks like, or is it...

So the green, hopefully yours is in color.

Oh, okay, that's too bad. Okay.

So the bottom line is '21, correct. So it was 186,000 in January and 189,000 in December.

All right. But that is industry-wide.

Yes. Okay, but with it was, which I was going to carry out, but let's remember, A, the Class Is predominate. Amtrak is another large component. They're actually up, in fact, over the course of this year. The next chart shows this year, you see it tracking slightly 2,000 higher than '21, but Amtrak is net up 2,000, so that basically accounts for all of the increase for the first six months of the year. The other elements would be the commuter railroads and the short lines and regionals because it's industry-wide. But, you know, commuter railroads are not down. But my point is it's what they're basically saying is consistent with what we're saying. And if you look at Exhibit C, what I did was I took the five-year and because the board doesn't do without a complete year, hand-rolled in 2022 as you look at the five-year trend. Because if you look at B on small scale, it looks like a big change, but when you compare it on the larger scale, it's insignificant. So that's what that was. The next is, and I really enjoy your country, this is United Healthcare. They are the administrator, Exhibit D.

C.

Uh, and that is, United Healthcare is the administrator for the National Health and Welfare plans for the unions. So these are all the covered employees. And this is industry-wide again. I don't have this broken out by carrier, but you can see, you know, going from 142,000 covered employees in '13 to 125,000 in '19 to 108 in 2020 to 121, and 98,904.

I'm not seeing that on C. On C I have...

Sorry, you're right, it is the, I apologize.

And go to the second page, the second chart on this exhibit.

Oh, I see.

And you can see that, you know, the decline in the number of employees, let's just start in 2019, right, 125,000. 2020, 108. 2021, 100,000. Now, you know, that's kind of where like, oh my God, right, 2020, we can call people back early, you know, we should be going up, right? Well, they're still down. And then here in 2022, they're showing 98,904. And I want to point out projected 2023, because they have to sort of tell United Healthcare what are we anticipating, they're only projecting 100,015. That's their projection. So what I'm suggesting is they're not planning to increase the hiring, whatever they're telling you.

Well, let me ask you this. This, the covered members, is this assuming retirees? That's why the number is so large.

No, I think that's family, you know, though.

I see. So you look at covered employees.

I see. Okay. And why do we see numbers generally speaking for the industry-wide of about 115, 117,000, but only 100 are in the... getting there?

There are some employees who opt out of the industry coverage because of spousal coverage. There are some employees who are in hospital associations, so they're not part of this. Otherwise, I don't know. And I don't know about those 115,000 numbers, but again, the point is this is a consistent thing. Whether you say it's higher up or not, you know, if you say this only covers 95 percent of the industry, on the 95 percent they're still going down.

You're saying it at least shows us the trend, you're saying.

Correct.

Okay. It was very helpful, thank you. Maybe that says something about how we collect data, because I do think there's a difference in the way railroads, even between themselves, measure. It might be employees, it might be FTEs.

It's, well, there's another thing, and I can't speak to this for train and engine, but I can for, say, Category 300, which is maintenance of way and structures and signal. I believe, for example, that first-line managers like assistant roadmasters, assistant roadmasters, they're reported there, not under Category 100 for management. Same thing, I think, with shop first-line managers. So one potential difference in the data is going to be what they're reporting to you for departmental numbers. And what I've given you on our Exhibit A is craft membership. So, but again, the thing I just keep on and say, no matter how you measure, each measure shows, even UP's own measurements show, you know, no real progress. I mean, according to them, they've got themselves up 2.7 percent over October of '21 when they were really low. So, you know, don't be breaking out popping champagne corks over 2.7 percent.

So, yes, I, the numbers we have from UP as I understand it were 13,554 in October of last year versus 13,862 for the T&E.

Right.

For train and T&E and maintenance.

Yeah, I mean, it's a way, you know, eight, nine, and they're down actually, maintenance of equipment slightly down. So, I apologize for the error about the 1,400. I was reading the total industry, but anyway.

Understandable, a lot of numbers in front of us. Anybody else have any? Karen.

Um, thank you, Mr. Edelman. I've got a question kind of knocking around in my head, and I don't know if you have an answer to this. One of the things we've heard that contributes to congestion is unplanned re-crews. Are unplanned re-crews a cause or a result, or both, of understaffing?

Um, I will give an answer and I will also defer to my colleagues in the back tomorrow. But I think both. Because, so if a, first of all, one of the functions of an extra board is to be there for, you know, not unplanned but, you know, wildly unusual occurrences, right? That so a train is delayed for weather, somebody doesn't report because they're sick, because unlike the railroads, you know, we acknowledge the fact that people get sick. You know, people, somebody gets injured. Or for example, that I give you that example of the coal train where the coupler separated and they got stuck. So one of the functions of extra boards is to be there to pick those up. Well, if you've cut your extra board, you've cut your cushion, you've cut what is designed to fill that gap. Then again, when you're talking, I mean, if you, when you read the statements from the locomotive engineer officers, you'll see like how this plays in with the extra-long trains and no sidings for where to go, or building an extra-long train in a yard that doesn't have the footage for building that train leads to the crew then being on the train. I mean, I think there's one example, 12 hours, you know, or, and so that crew, I mean, I've heard stories of crews that have basically gone out to the train and expired under the hours of service law without moving. So it is, to my knowledge, both.

Um, I want to go back to your point also about the long trains and lack of sidings. I saw something in Amtrak's filing last week with us with respect to the request for investigation and the Sunset Limited, and we are not here today to discuss that, I have no intention of discussing it. But there was a paragraph in there that caught my attention. In this paragraph 30, it says the Sunset Limited route has a total of 126 sidings on the UP-hosted portion of the route between Iowa Junction and El Monte, California. However, of the 126 sidings, only 24 exceed 10,000 feet. None of the sidings that exceed 10,000 feet is located in the nearly 89-mile stretch between El Paso, Texas, and Deming, New Mexico. And just two of the sidings that exceed 10,000 feet are located in the more than 640-mile stretch between Deming and El Monte. So are you saying that the lack of sidings isn't just a problem that they can't get out of Amtrak's way, are you saying that they can't get out of their own way?

Absolutely, yes. These sidings are designed for smaller trains, as are yard tracks. I mean, I listened to the CPKC's here, and you saw a presentation from CP where they said Union Pacific was building a, I think, a 10,000-foot train out on the main line because the yard tracks were only 5,000 feet. So this drive to run these ultra-long trains, you know, is a policy, it's a square peg fit into the round hole of the infrastructure that they currently have. And it, and yes, that creates congestion. I've talked to train dispatchers to say, what am I supposed to do? I have two trains heading toward each other and neither of them fits the siding. So what am I supposed to do? We've talked to shippers who sit there and say, I don't understand why my train is taking this route and all the way up here. And dispatcher said, well, that's because I can't put you on the siding. We gotta, but we gotta keep the system moving, so we're routing you somewhere other way to get there. I was on a call with Jeremy Ferguson, read an email from a conductor on a train who said, we have just passed a shipper's facility for the fourth time without delivery because we're told we have to be in motion. For the Amtrak scenario, you have a faster train coming up behind a freight train, so we're not going to talk about Amtrak, so but I'm just saying the issue with sidings, that's one of the things sidings do for faster trains to be able to pass them. But you also have head-on meets that those are designed to do. And it's this almost ideological commitment to long trains that we don't care half the system is structured, what the customer's needs are, or the fact of employees' problems with it. I mean, among other things, I've heard for example when a conductor has to go back and check a hot box, and technology, right, has to go back and march there, the thing is cooled off by the time they get there. So there are just numerous problems associated with that. But those things do contribute significantly to the congestion.

Thank you. Rich, thanks for being here. My question is related to going forward. You know, we just, you were just forced a PEB recommendation upon the union by way of Congress. You know, what's the attitude in terms of your, you know, that you're hearing from the membership going forward? I mean, is this something that is, you know, water under the bridge, or is this something that we as, and UP, should be concerned with, that, you know, labor concerns are not over yet?

Absolutely. You know, it's funny, when I pressed the board in April, I started off by saying that I thought in my 35 years of doing this, this was the worst labor relations environment and more importantly worst employee relations environment I had seen in those 35 years. And it may have sounded like hyperbole when I said it in April, but it turns out to have been an understatement. I don't think there's any way of overstating the fury of the workforce at the way they have been treated in the last years. I don't think, you know, you can't even calculate the fury over, you know, again, the lack of personal time, the lack of sick time, the furloughs of their co-workers. You know, before the Presidential Emergency Board, you know, the railroad said, well, you know, those are furloughed people, labor doesn't pay a price when things go down, when profits go down. And we said, no, they furlough people, that's labor paying a price when the company doesn't do well, they furlough people. And more importantly, those people who they furlough, they are the colleagues, the friends, the co-workers, the relatives of the people who remain. And they resent the reduction in the workforce that puts their friends or colleagues or co-workers out of work and then leaves them to do more work because that work is still there.

Well, that's, I appreciate that. Let's tie it into the embargoes. Yeah, embargoes that are happening now. I mean, with the attitude of labor right now and what you're describing as a continuing disconnect, do you see these embargoes increasing into next year because of that labor disconnect? Because they're not, you believe that there may be still fallout as a result of not truly addressing the sick leave issue or some of the other issues that have been on the table?

Yes, I believe that experienced employees will leave, probably a number leaving once they get their lump sum payouts. And so they will leave, and you can see there isn't a real effort to, you know, staff up. And as they leave, again, I just have to say something, you know, replacing a 12-year signalman or 12-year machinist with somebody who hired off the street is not, you know, the railroads may treat workers as fungible, but they're not. So as people will leave, people are really angry.

Okay, thank you. Rich, under the way the contracts are written, if you understand it, what's the timing of all this? In other words, when do those, we've been hearing this for a long time, that when there's a fear that when workers get their lump sum back pay payments, that's going to incentivize some to leave. When will that happen?

I'm trying to remember. I think it's 60, they're supposed to pay out within 60 days, I think, I believe. And I'm not sure how they're tracking that time from the unions that ratified, you know, this fall versus the ones that had that agreement imposed upon them. So I don't know what, you know, I assume for the ones that already ratified, they're beginning to process the payments. So I think it's not a hard deadline. There's a side letter that says we'll do everything we can to pay within 60.

I think so. If we were going to see this phenomenon, it's a few weeks off, it sounds like.

I would say, and you know, people may wait a little bit. And people, you know, again, you're talking about, you know, different categories of people. People in mid-career, which is unusual. You have people who are eligible to retire but who might have otherwise stayed, but say the hell with it, I'm not doing this here. And I would recommend you read that statement from that engineer and his wife, which is just really disturbing.

But Robert, Mitch, you know, there's my last question. You know, I also want to be sort of proactive. So, you know, what is it, in the opinion, again, you're representing a bunch of unions today, now, what is it that the railroads can do, or UP can do specifically since they're where this hearing is about them, what is it that they can do to improve relations and to build back that gap that is there now? I mean, we talk about there's a gap, we talk, I understand the anger that's out there, but again, I'm looking at it from a network perspective. I mean, the railroads have to succeed, and if they don't succeed, then, you know, the economy fails. And so in an effort to sort of understand what we have to do instead of...

Just pointing fingers and issues, you know, what do we, what would you, what can we see them? See, well, and look, we obviously we want the railroads to succeed. They employ the members of the unions, they provide jobs for these people, and they are historically good jobs.

You know, it sounds really basic, but first and foremost, I need to treat these people with respect. You know, I mean, and they need to respect the skills that they have and the dedication they have to the work. I mean, again, in April, I came to you with a bunch of statements from people who said, 'I'm being pressured not to work the way I was trained to work, not to work the way I expected myself to work, and I'm being pressured to do otherwise.' So that is one thing that is fundamental. And you know, there's almost this life disregard for that. Again, at the emergency board, we heard like, 'The workers make no contribution to our profitability.' You know, there were workers running around with t-shirts with that statement on it and stickers on their hard hats. I know I was told by the art, 'Well, we never said that.' Well, you know, maybe they didn't put those words exactly together and that's that stream, but that's what they said. And I know they said it because they said it in 2011 because I pre-rebutted it in this time. So they need to treat these people with respect first and foremost.

They should come up with some sick leave. They need to be able to do that. These workers need to be able to do that without disciplinary consequences. This is not a big deal for them to do. They need to do that and they need to think about the fact. I mean, I've heard, 'Well, these people, they don't want to work as hard as, you know, people who came before. They all want time off, you know, for self-actualization. They want to go to their kids' ball game and the dance recital and do whatever.' And they don't want to work as hard. You know, one of the things about that is, you know, in the 80s and 90s, a family could get by on the income of just a railroad worker. That is no longer the case. Many, many households have two parents working. The railroad worker may need to take off to go to the baseball game or the dance recital or whatever because the spouse is unavailable. It's not because they want to sit there. Yes, they ought to be able to sit there and enjoy the happy experiences of their kids and be there to be able to assist their elderly parents and all of those sort of things. They ought to be able to do that, you know, as a fundamental human right. But they need the time to do it because in some instances, nobody else to do it because that person's working too. And that needs to be recognized by the railroads. And they need to recognize, you know, the results. They talk about training people. They're like throwing people in front of a computer module and saying you're trained. You know, I mean, I did construction work for five summers and I worked with journeyman carpenters and they taught me how to do it. And they told me, 'You're a blanking blank college kid, but for now you're a carpenter working for us and you're going to work at the level that we demand of ourselves.' And that same thing is true of railroad workers passing the skills, experience, and expectations for good performance onto the junior people. And when those senior people leave, you've lost that and it's not going to be replaced by throwing a new hire in front of a computer.

Rich, thank you as usual for this additional information. It really helps shed light for us on trying to grapple with the big picture, which is why we're here. So we much appreciate it. I think you've said there are some other labor representatives who are speaking tomorrow from SMART. And I would say I will stay around a little. I have oral argument in the DC Circuit tomorrow morning, so I won't be here tomorrow. And I probably ought to leave here a little bit in the afternoon to finish prepping for that. The DC Circuit, we've never heard of it. Thank you very much. Thank you very much.

All right, we are going to break for lunch. The clock on the wall is, like most of our clocks around here, not accurate. It's 1:11 in real life. We'll meet back here at 1:45. Quick lunch, we have a lot to cover, so we will be recessed. Thank you.

And reconvening. The next panel up is Union Pacific. And just for our record, we have Lance Fritz, Kenny Rocker, Eric Gehringer, Bradley Moore, and Michael Rosenthal. And pardon me, they're all here. Just a reminder, when you speak, you have to turn your microphone on and then either pass the mic or turn it off because the camera will then follow the next speaker. With that, some of our witnesses are going to have some slides. It might make sense to put up the slide deck now so that we can page through them as the witnesses go. Oh God, is this the slide deck you sent in? I think it was this. No, there's a slide deck that was sent in on Friday. I think we have it up there. Well, different than it was sent in on December 6th. Yes, it is. These are slides to accompany the speakers' presentations. Okay, so we haven't seen this yet. I don't know what the office proceedings providing students will file them Friday, I believe. No, I don't think so.

Good morning. I'm Eric Gehringer, Executive Vice President of Operations for Union Pacific Railroad. I want to begin by thanking you for the opportunity to speak regarding Union Pacific's use of embargoes. In my testimony, I will address three topics: first, UP's use of embargoes to address accumulation of excess cars in local serving yards; next, UP's use of embargoes to address excessive private car inventories; and finally, our plans to use embargoes going forward. The definition of an embargo is found in the AAR TD-1 circular. An embargo is a method of controlling traffic movements when, in the judgment of the serving railroad, an actual or threatened physical or operational impairment of a temporary nature warrants restriction against such movements. When we think about the operational impairments that excess inventory creates, that is exactly what an embargo is for. Turning to slide two, let me start with embargoes related to serving yards. After experiencing significant congestion problems in the late 1990s, Union Pacific made a substantial investment in a system that we call Customer Inventory Management System, or SIMS. UP recognized many service problems began with the accumulation of excess cars in our local serving yards, which caused yard operations to deteriorate, slower service to our customers, and led to wider problems that the effects rippled across our interconnected network. SIMS was designed to prevent those service problems by alerting us to situations where customers were unable to process inbound cars as quickly as they were being delivered and excess cars were beginning to accumulate in our serving yards. We have naturally made some changes to our approach over time. Brad Moore will discuss the mechanics of the current process in more detail, but when you look at the number of embargoes issued by UP over the past several years, the vast majority involve efforts to address accumulation of excess cars in serving yards due to the inability of receivers to process cars as quickly as we are delivering them. This year, the substantial majority of UP's embargoes address excess cars accumulating in serving yards. UP has been careful to ensure that our serving yard embargo process is data-driven, narrowly tailored, and equitable to all customers. Our process is not designed to limit traffic. Customers can order as many cars as they can process, and we do not stop customers from releasing outbound cars. Embargoes only occur when customers allow excess inbound cars to accumulate in our serving yards. Now I would like to turn to the set of embargoes we began implementing in November. When I appeared before the board earlier this year in April, I explained that we had asked certain customers to take voluntary measures to reduce excess car inventories, but if they did not achieve the desired results, we might need to take additional steps to reduce our operating inventory further. Those measures certainly had a positive impact. Even so, the significant excess car inventory present on our network required additional measures needed to deliver the consistent and reliable service our customers expect. Turning now to slide three, as we discussed back in April, one of our key metrics is operating inventory, which is the gross inventory minus stored cars and cars placed at customers' facilities. Union Pacific understands the direct correlation between operating inventory and our service metrics, with lower operating inventory being directly linked to generating higher car velocity, train speeds, and improved service performance. Our April inventory reduction program helped to decrease a portion of the operating inventory on our network. These results were achieved exclusively through cooperation with our customers. Not one embargo was issued. Turning now to slide four, plan in April... April of this year, yes sir. Because my friends... that's looking over from 19 to current. Yes. All right. First, we worked hard to reduce operating inventory through a reduction in the number of Union Pacific-controlled cars on the system by storing bulk sets and storing Union Pacific system-controlled equipment. Second, we achieved our goal of hiring over 1,400 new train service employees in 2022 through new hire incentives, employee referral bonuses, modified advertising, developed new or additional hiring pipelines, signing and relocating bonuses, and adding resources. Third, we modified our transportation plan to generate additional T&E crews and improved our recruit rate. Fourth, we used bar routes in specific geographic areas that have difficulty hiring to partially offset those hiring challenges. And lastly, we deployed almost 200 locomotives to our network, adding locomotives into our most inventory-constrained locations. Despite all these efforts, Union Pacific continued to see elevated operating inventory. In November, our operating inventory was 189,317 cars. Car velocity was 189 miles per day, and dwell time was 24.6 hours. Those metrics did not meet the expectations of our customers, and Union Pacific began looking at steps to reduce operating inventory further. Ultimately, we rolled out our pipeline management tool. As a part of this tool, we established inventory fluidity targets for each customer location based on their average release rates and transit times. We have reached out to 311 customers who had inventories that exceeded their target. We asked them to reduce excess cars to the inventory target levels for fluidity. Of the 311 customers we contacted to reduce the excess cars in the network, 230 cooperatively developed plans with Union Pacific to reduce their operating inventory in the near term. For the 81 customers that did not respond or did not decrease their operating inventory, we issued embargoes with permits. Not one of the 81 embargoed customers was prevented from shipping altogether. These embargoed customers were provided permits for a minimum of 50 percent up to a maximum of 100 percent of their average daily release rates. These last-resort embargoes simply asked customers to do what most others have already done voluntarily. Like our process for serving yards, the pipeline process is not about limiting traffic. It is intended to allow customers to continue shipping while they address the excess cars on the network. Consistent with Union Pacific's overarching goal to provide the service product that our customers expect and deserve, we anticipate using both SIMS and our pipeline management system on a continued basis when warranted by the circumstances. Union Pacific has a duty to our customers to provide them the service they pay for and to make adjustments needed to improve service. Union Pacific system performance is compromised when excess inventory begins clogging our terminals. It then cascades from the terminals onto the main lines and slows the overall train speed and velocity. Congestion in the pipeline has similar impacts. Slower trains consume additional locomotives, crews, and increase the resource consumption on the system overall. Union Pacific agrees with our stakeholders that an efficient rail system free from excessive congestion and delay is vital to a robust supply chain and to the national economy. We know we can restore our service levels and grow car loadings by adding to our employee pipeline, being judicious with our crews, managing our locomotive fleet for current and projected volume, and eliminating excess inventory in the system. Thank you for your time for this opportunity to address our continued goal of providing the best service to our customers.

Thank you for the opportunity to address your concerns about Union Pacific's use of embargoes, particularly as they relate to our efforts to remove excess cars from our network. First, let me begin by saying Union Pacific is not blaming our customers for excess inventory levels. We view customers' actions of adding cars to the network as a natural reaction to slower velocity. We do not impose embargoes without first engaging with our customers in advance to find alternative solutions. We look to take steps together, railroad and customer, to get the network back to supporting consistent service levels. As we continue to take multiple actions to alleviate congestion with resources we can control, engaging with customers and reducing inventory through self-help is the best outcome. When we have exhausted all other means and have not been successful in reducing inventory, then and only then do we issue an embargo to address the issue. I want to spend time this morning talking about how we interact with our customers on recently imposed embargoes on outbound shipments because they are somewhat different from what we were doing before. As I previously testified, we have spent a great deal of time listening to customers to better understand their processes and how we can improve their customer experience. With this, the most important value customers seek is consistent and reliable service from their transportation provider. As we focus on the customer experience and the customer's journey when they do business with us, it is critical we plan for and manage the flow of rail cars. Last spring, Eric appeared at the hearing before you. He discussed our efforts to work with customers to achieve voluntary reductions of excess car inventory. Although many customers expressed frustration and a lack of understanding of the process we use to identify excess inventory situations, we appreciate the cooperation we received, and we were satisfied that we did not need to implement embargoes at that time. But after months of further monitoring and evaluating private car inventories, we recognized that we were not making improvements fast enough. We refined the process to identify excess cars in April to be more transparent and give customers a target that they could understand. The customer care and support team, led by Brad Moore, collaborated with my team to develop a solid communication plan to provide customers more transparency on our efforts to reduce rail car inventories. Our use of embargoes to limit outbound shipments by some customers is a step we needed to take to resolve persistent congestion on our network and restore the consistent, reliable service our customers value and expect from us. We have done our best to address customer feedback by developing processes that establish clear criteria for imposing embargoes and that allow us to share real-time data explaining our actions. Even where we believe embargoes are justified, we first engage with our customers to make sure we fully understand their specific circumstances and attempt to reduce congestion without resorting to embargoes. And in those cases where embargoes are necessary, we use them with flexibility, including adjusting to the customer's unique circumstances and giving permits to bring customer shipments back quickly as they reach their targeted inventory level. Also, it is important to know that we work to ensure that at no time any of our customers were at risk of shutting down their operations. Finally, because this is new and an evolving process, we continue to monitor the impacts of our approach and incorporate customer feedback. By working together with customers, we improve the overall fluidity of the network. And I want to thank you for your time.

Good morning. I'm Brad Moore, Vice President Customer Care and Support for Union Pacific Railroad. Thank you for the opportunity to address your concerns concerning UP's use of embargoes. The role of our customer care and support team, otherwise known as CCS, is to leverage our expertise and tools to educate, assist, and empower both our customers and the Union Pacific team to develop innovative customer applications, identify issues, overcome challenges, and implement solutions together. For nearly 20 years, our team has been using the Customer Inventory Management System, otherwise known as SIMS, to monitor and address elevated local serving area inventory. Over the last several months, we have also developed and implemented a pipeline management process to monitor and address customers' elevated private car fleets. You've already heard from Lance, Eric, and Kenny describe how UP uses embargoes as well as our efforts to engage with customers to avoid the need for embargoes. In my testimony, I will more specifically describe our embargo process. As Eric stated earlier, we use embargoes as a last resort to address physical and operational impairments. Our approach to embargoes is data-driven, narrowly tailored, and equitable. Turning to slide two, the purpose of SIMS is to prevent over-accumulation of cars in our serving yards, which helps to protect our first-mile, last-mile service performance. SIMS prevents a customer from accumulating excess inventory in the serving yard, which otherwise causes congestion and deteriorates service for all other customers in the serving area. My CCS team is responsible for executing SIMS. In SIMS, each customer facility has a maximum inventory threshold, known as MIT, which is the number of cars that can be held in its serving yard prior to receiving a warning or exception notice. MIT is based on the customer's release rate and our service frequency. We review our customers' release rates on a quarterly basis to update the maximum inventory threshold and ensure our system is taking into account any changes in demand. If the maximum inventory threshold is exceeded in the serving yard or projected to exceed MIT over the next four days based on the in-route cars, SIMS triggers an alert. SIMS benefits both Union Pacific and its customers by providing these timely and actionable alerts when excess inventory is being accumulated in our serving yards. Once an alert is triggered, Union Pacific evaluates our local performance. If first-mile, last-mile performance for the customer location is lower than 80 percent, we develop a service plan to address the issue. If our first-mile, last-mile service levels are above 80 percent, then we notify the customer and request a plan to reduce excess inventory. Customers are then given seven days to either reduce the excess inventory or work with UP to develop a plan for reducing the inventory. Options for self-help for the customer can include increasing the consumption or unloading rate, requesting special switches, reducing the pace of inbound shipments, and/or diverting inbound traffic to other facilities. Turning now to slide three, let me walk you through a customer illustration to better explain how we evaluate the inventory levels. Here, a customer has 31 cars on hand in our serving area, which equates to more than 22 days' worth of inventory based on their 1.4 car average release rate, and the location has an MIT of 10 cars. We can see that in the last two months, their release rate has been slowing, with an additional 17 cars in route that will increase the excess inventory. A minimum of 14 days prior, or I should say 14 days prior, SIMS triggered an alert for UP to evaluate. UP reviewed the industry spot pull rate, which measures our first-mile, last-mile service performance. At 100 percent, we could see that UP service was not an issue. UP then alerted the customer that their MIT inventory rate had been exceeded and coordinated with the customer to develop a plan to reduce inventory. That plan did not reduce the customer's inventory, and an embargo was issued, pausing new traffic while the customer works off the existing inventory, both the in-route and the existing on-hand inventory. Turning now to slide four, Union Pacific understands that the board is concerned with the increasing number of embargoes since 2018. Prior to 2018, a focus team was formed and utilized continuous improvement tools to address concerns with growing inventory in our serving yards. This led to a systematic review of our SIMS processes during 2018. We developed a more detailed process to proactively identify issues, which included the maximum inventory threshold calculation and a more formalized decision tree that made us more confident in applying our process objectively and consistently. Many customers utilize our shipment management technology tool to track shipments and manage rail car inventory. Union Pacific is also developing an enhancement to our shipment management dashboard that will soon provide additional facility inventory metrics and graphical trending analysis to further assist customers in managing their pipeline. Turning now to slide five, while SIMS protects our serving yards and last mile of service to the customer, the current rail car inventory challenges extend beyond the serving yard. That is why Union Pacific recently evolved our pipeline management tools by incorporating feedback from our customers throughout 2022, and we are using data to identify excess private car inventory across the entire network. UP's pipeline management process applies to private cars moving in manifest service. Inventory targets are based on the 14-day average release rate from a customer facility and the scheduled transit time with a 24-hour buffer. If the customer's actual inventory exceeds the target, we contact the customer to discuss their inventory and ask for ways the customer can work with UP to remove their excess cars or develop a plan to reduce the excess inventory. Turning to slide six, in summary, Union Pacific has utilized SIMS since the early 2000s. Our approach to embargoes is very data-driven, narrowly tailored, and equitable. The vast majority of customers will not be impacted by an embargo. A customer is given additional days and not moved to embargo status if considerable progress is made in reducing excess inventory. Only if a customer is not able to reduce excess inventory or develop a plan will Union Pacific embargo the customer location. When the embargo process must be triggered, our communication with customers is continuous and constructive, and an embargo is lifted once the conditions necessitating the embargo are abated. Union Pacific reviews each customer's operational needs with great scrutiny, taking into consideration the commodities and demands needed to protect customer supply chains. UP does not use embargoes lightly. They are a tool of last resort, narrowly targeted in both time and scope when all other levers have been pulled and customer communications have been exhausted. Union Pacific is continuously working with our customers to achieve better levels of service. I'm happy to answer any questions you may have. Thank you.

That concludes our presentation.

Well, I have a few questions. Lance, let me start out by asking you if it's fair for us to understand UP's policies in this area to assume that your executive suite members, the ones who are here, the ones who are not here, your Chief Financial Officer, when you all address investor conferences, speak for the company, and you're confident these people understand company policy when they speak?

Well, let me start with a statement made by Miss Heyman at an investor conference last month. I can't remember, it was one of the bank conferences. I think you know the one I'm talking about. Lance, she spoke at... off the top of my head, I don't, but she does address bank conferences frequently. Yeah, I have it here someplace. I'll tell you, it was in Manalapan, Florida. She said, as I am quoting, 'As a common carrier, we don't have other mechanisms to fully suppress volumes coming onto our network.' Familiar with that statement?

It was a Credit Suisse conference last month. So let me ask you this, Lance. I've read that sentence about 15 times, and I would like you to explain what part of the common carrier doctrine is aimed at providing railroads with a tool to, quote, 'fully suppress volumes.'

You're telling us that your common carrier obligation to everyone allows you to suppress volumes to some. Is that the way I should understand it?

Are you aware that the courts have held that if a carrier is financially—I'm quoting—'able to remedy the disability, the embargo becomes unreasonable and will no longer be valid.' You agree with that principle, I'm presuming.

I did. I'll give it so your counsel can have it. At GS Roofing Products against Surface Transportation Board, 143 F.3d 387, 8th Circuit, 1998. You agree with that? If the carrier is financially able to remedy the disability, the embargo becomes unreasonable and will no longer be valid.

The court went on, 'An embargo is an emergency measure that is justified where physical conditions prevent a carrier from providing service.' Which is exactly what happens when you have excess inventory that's overwhelming your resources. What makes it an emergency?

Whose emergency? The shippers or the railroads?

I'm talking about the shippers that are being embargoed. Are they creating the emergency?

The four shippers we heard from this morning said that their inventory is what they've been doing for years. Nothing excess about it in terms of how they operate their business.

With all due respect, that wasn't the question I just put to you. The inventory of these shippers here was not excess from their point of view. It was along the lines of their standard output, and you've been serving them with four years prior to 2017.

Well, the reason we're here today is why did this happen in 2018 and ongoing. So I'm going to go back and see if we can trace what happened using what you've told this board and others over this time period. In March of 2018, my predecessor, Ann Begeman, wrote you a letter in which she referred to the data indicating that Class I service was deteriorating, and she asked you to provide answers to a number of specific questions. This is pre-pandemic, pre-PSR. You wrote then that in a letter dated March 28, 2018, that rail car inventory levels began to rise last summer, in other words, in 2017, and that customers responded to sluggish service in turn by adding more cars to the network. That was five and a half years ago. In 2017, there were no congestion embargoes on your railroad through July. There were six in August, 15 in September, and then it dropped down to one or two the rest of the year until March of 2018. So if I just look at that time period when you told the board that inventory levels had begun to rise and customers added cars to the network, you were able to function for many, many months with virtually no embargoes compared to what we're seeing since that time. So if I could ask you to focus on that time period, the very same thing you're telling us today—that customers adding cars to inventory caused sluggish service and are now causing these embargoes—you weren't doing in 2017. Any... I have a hypothesis, but I'd rather have you tell me your view of why that wasn't necessary.

Well, actually, that's not what the data shows. The data shows that in 2017, your average weekly train speed in miles per hour was somewhere around 26 miles an hour. Today, it's just around 24, a little over 24. So it wasn't slower in 2017, it was faster.

Well, I do think your dwell is down, but it's down at the expense of currently this year over 1,100 embargoes. It's an awfully big price to pay, isn't it, to get down to the dwell number?

The same redesign that took out a lot of unnecessary work, it also took out a lot of customers' shipment. According to what Eric told us, you're down 22,000 cars in moving around your network.

I don't know that they're excess. I think you're supposed to be growing your car loads, not reducing them.

Let me move on. In the same March 28th letter, you told the board that you've increased your training pipeline. Your plan was to hire 2,100 more T&E and Y employees in that year. Then you said, quote, 'Despite our efforts, we have been falling short of our hiring goals due to a tight labor market conditions.' I've been hearing this all year from all the railroads about tight labor this year because of the pandemic, the great resignation. What was going on in 2018 that made it hard for you to hire the people you needed?

Well, we've been hearing it consistently since then, so I don't know what's changed. I will tell you that... well, let's move on. You, in fact, according to a second quarter—I'm sorry, according to the numbers you actually filed with the board in 2018, you added only 470 employees that year, net increase. That's what the numbers show that you filed with the board. And I might add, at that time, you had over 18,000 T&E employees and no embargoes. Okay. And then in September, you announced your Unified Plan of 2020, in which you announced publicly for the first time that you were going to implement PSR, purpose being to obtain a 60 OR in 2020 and an ultimate OR of 55. I assume you recall that.

So let's talk about that for a moment, because it was right after that that the embargoes began to increase. So having had a number of embargoes earlier in '18, in October you had 23. By January of '19, you were up to 31, and then it was off to the races during 2019. Ultimately, there were... my numbers in front of me... you had 140 embargoes in 2018. After you implemented PSR in 2019, you were up to 300 congestion embargoes. So how are we to separate the implementation of PSR, at least as UP implemented it, from the increase in the embargoes which have led us to this hearing?

Who made that choice?

Who's 'we'?

Well, what human beings made it?

Now, in our order for this hearing, we asked you to bring us documents relating to the increased use of embargoes. Would it be fair to say that when you said you completely reshaped your service plan, did were there any memos, internal analyses, or memos written on this subject?

Did you make a search for those memos in connection with the November 22nd order asking you to produce documents to us about the increase in the use of embargoes in 2018?

existed and I can't tell you the status of current search and protection, but I know that we're treating that as an order as such.

Well, the order said to preserve them, it also said to produce documents related to eight listed topics. One of the topics, and I read from the order, was the explanations for the dramatic increase in embargoes since 2017, including whether UP has maintained sufficient resources during that time period. That we asked you to produce documents on that subject in the very next sentence. Did you search for them in connection with responding to that order?

Well, the document that you presented on December 6 was a PowerPoint. When was that PowerPoint created?

Which part of the document that you filed on December 6 explains the dramatic increase since 2017? Would you like to show me?

We asked the question on November 22nd to provide us with information so we could understand what happened to UP after 2017 with regard to the increase in embargoes. I didn't find one iota of information in what you filed on December 6th that related to that very important question of how we got here. And if you have something that you can show me on a piece of paper rather than talking about the spirit, I don't find it in either the spirit or the specific slides. And I have to say, this board wants to get to the bottom of why we got here today. And it clearly started, we've shown some charts that there is a huge difference in how UP operated prior to 2017 and what's happened to UP since then. And it is not painless. We have been hearing from shippers this morning, we're going to hear from their associations tomorrow, and we've heard from shippers who weren't willing to come here and expose themselves to retaliation. So despite the pronouncements here that nobody's really suffered, shippers are suffering, they're not happy about it. We're not having this hearing to hear ourselves talk, we're having this hearing in response to problems in your network. And before this whole proceeding is over, we intend to get to the bottom of it. We aren't even close at this point.

Would it be safe to say that once you announced you're joining the PSR program, the plan was to begin reducing employees?

Well, on October 25th there was a 2018 earnings call which touted your initiatives, including a workforce reduction and a two percent reduction already in T&E from August to September of 2018. Isn't that what you told Wall Street that that's what you were doing as part of PSR?

Did PSR include, just to answer this question, did you tell in the earnings call that one of the PSR initiatives was a workforce reduction? Yes or no.

Yeah, just on this point, the transcripts of those earnings calls are available and that's what I have available. And I am quoting from it that one of the PSR initiatives, I don't know if you said it or one of your other executives, was a workforce reduction and you cited already having a two percent reduction.

Patrick, you had asked about it. You would ask about philosophy earlier. And I think Lance, you said that your velocity is better than 2017. Freight car velocity, what is your velocity now?

So the numbers that we have, I think are a bit lower than that, but that's almost exactly what it was in 2017 in your 10K. So I mean, should we be looking at your 10K for your 2017 freight car velocity or should we be looking at a different source? Because sometimes numbers are calculated differently if it's to the AAR, to the STB, or I guess in your FCC filing. But it looks like your freight car velocity isn't any better.

Right. So what was freight car dwell?

And '22 was lousy service in the middle of the year. Yeah, I just understood Marty's question to be that you didn't use embargoes then, but you're using embargoes now, but you know, the roughly similar performance. And so that's what I thought you might have been teasing out. And I'm just trying to follow along. Thanks.

4,100, yeah.

So you're down about 1,700 high horsepower locomotives from what you had in 2018.

Now, in the first few months of April of 2020, before the pandemic really took effect, you had another 213 embargoes. And your workforce had dropped from early '19 to the end of '19 by about 3,000 people. That sound right?

In the early part of 2019, your workforce was still, a date through June, you still had 18,000 T&E people. Okay. By the end of the year, you dropped 3,000 people. 3,000 T&E according to the numbers filed with us. Beginning of the year you had 15,031. The beginning of 2019 you had 18,251. Sound right?

I'm reading from the numbers that you file with the board and they got to be right. You had, well, I hope you're right. In June of 2019 you had 18,072 people. Okay. Six months later you had 3,000 fewer. Okay. How do you explain that?

Well, if in fact reducing the number of trains was supposed to reduce congestion, then how do you explain, I'm just going to go from the time from your high point in June. So in June of '19 you had 25 embargoes and 18,000 people and 188,000 cars in operating inventory. Does that sound about right?

All right. Well, I'm looking at the numbers, and these numbers come from your filings. Okay. Now, I'm just going to go through these months, Lance, and I want to understand this revision in your operating plan, what it was about, what it improved. So you're starting in June of '19. Well, you could start anywhere, but June of '19 was the last time you had more than 18,000 T&E people and you had 25 embargoes that month and you had 188,000 operating inventory. The next month, you were down almost 300, a little over 200 people, 220. Your embargoes rose to 42 while your operating inventory dropped to 176. The next month, you were down another 400, 350 people. Your embargoes again were at 42 and your operating inventory dropped to 169. You then dropped in September by another 600 people. You still had 37 embargoes and your operating inventory had dropped to 157. Then your embargoes the next month were 25 but your employees went down to 15,700. So we're now over 2,000 fewer than you had in June. Your operating inventory is down to 154, but you're still having 25 embargoes. And so on. And it keeps going until December when the embargoes went up to 37 even while your operating inventory dropped to 150,000. And that is the pattern which continues into 2020 prior to the pandemic. And then of course operating inventory drops beginning in April and your employees dropped precipitously down to 12,700. So you're almost 6,000 fewer people than you were less than a year earlier. And you didn't have many embargoes in May, June, July, but then they rose again as your operating inventory stayed in the 150s, much lower than it had been when you had 18,000 people. And the embargoes start creeping up again in 2020 and then they take off by mid-2021. And it is true that as the economy returned your operating inventory increased but your employees did not. So as I see it, there is a direct relationship between the reduction of employees and the increase in embargoes even while operating inventory is going down. And I don't see how, and your people themselves said in April when they were here that crew shortages were the bane of the railroad and causing these problems. And that is what I'm trying to get at. Let me ask this question: do people write reports to you internally about what's going on each month? We're still having trouble with embargoes, we're doing this, we're doing that. How does this information get transmitted inside your company?

Well, they're retained in UP someplace because they're not records for me per se, they're records for the company.

But they should be there.

And is there a discussion in those reports about whether the employee headcount is enough to provide the service that's needed?

When did you discover that you were a little too tight?

The first quarter of '21, '22?

Okay. Because Ann Begeman wrote you in May, on May 7th of 2020, as she did all the Class 1s, and asked you to report on your railroad's preparedness to meet anticipated future demand.

Was it the request for peak season reporting?

It was a letter in response to the great economic drop-off in the spring of 2020, right, when all of us, including Patrick and me, were quite concerned about whether the railroads, including yours, were going to be prepared, as we said in the letter she wrote, the letter to meet anticipated future demand, because the economy had already started showing signs of rebound. Do you recall how you responded on May 14th?

You said that UP, quote, is poised to respond when volumes rebound. Quote, UP has been preparing for the return of demand as the country recovers, even as we carefully manage resources to weather the downturn. To weather the downturn. And in a July 24th earnings call, this is two months after you responded to the board saying that you're poised to respond, I think you will agree that by July, rail demand had already gone up significantly from its low point in the spring.

Your memory is pretty good. The low point was May of 121,000 in inventory. By your July 24th earnings call, you were already back up to 144,600 and in August it was 154,000. And I'm just going to guess that UP knew it was going up from July to August because you stay in touch with your customers.

Were you all in the earnings call of July 24th with Jim Vena?

You recall Vena saying, we're not hiring. As the business comes back, we're going to have less people to operate the railroad.

What was the recall rate early on?

How far out?

Well, when did it drop to 50 in 2020?

We'll get to it. In that same earnings call, Ms. Haven, who by that time was on board as your CFO, and Vena, talking about recalling employees from furlough, said that UP was not, quote, bringing back resources on a one-for-one basis with volume. As Heyman said, UP won't bring back people on a one-for-one basis with business levels. So exactly what does that mean? Even though volume was picking up, you thought you had enough people coming back from furlough, but you weren't recalling them one-for-one. What does that mean, one-for-one?

The way I read it is that the reductions you made in the pandemic were going to be permanent reductions on a proportional basis. Is that a fair statement?

You mean productivity in terms of like car miles per employee?

I'm assuming that that is how you would explain then a statement in the October 22, 2020 earnings call that the T&E workforce was down 22 percent compared to the prior year, even though the volume decline was only four percent.

Well, you dropped from April to May, you dropped 2,000 people.

Right. But then they came back.

It wasn't my point, it was your point. But Vena is telling the earnings call in by October that the workforce is already down 22 percent, but volume at that point was year-over-year down only four percent. So you have 22 percent fewer people to handle almost the same volume. That's what you're telling us.

I just want to make a clarification. Yeah, I just want to, just because I want to make sure that we have the terminology. You know, I think, Lance, I hear you talking about productivity, which one can differentiate from performance. So from 2019 to 2021, for example, the time frame I think Marty, you're generally around right now, it's indisputable that Union Pacific's productivity skyrocketed from a car miles per employee standpoint or a gross ton miles per horsepower standpoint. But it's also true that your performance went down. So two things can be, your productivity can go up, your performance can go down. So in 2019 your car miles were, or so your car miles per day, which you would say is performance in a way, you could interpret it another way, but 209. And then in 2021 it was 203. And the numbers that we have at the STB show in 2022 you're hovering around 190 for most of the year for car miles per day. So your productivity is certainly, certainly each employee is moving, you know, more, every employee you have you're moving more car miles. And for all the horsepower you're using you're hauling a lot more gross tons. But you're doing so in a way that you're getting your, the aggregate, the overall performance is lower. Your trip plans lower, your car miles per day are lower, etc. So, you know, just to make sure that we're all kind of speaking the same language, because I think productivity and performance, you know, and I guess car miles per day can sort of span both categories, but just in terms of what the customer feels, the customer is feeling worse performance. You are seeing much higher productivity.

Right, but compared to 2019, you're still much more productive, you know, than you are.

Yeah, and I'm not trying to reframe your inquiry, but for how long? Think about it. When I'm, I mean I think about two comparison points that I'm hearing today. But it's, the first one is basically that they're not shared gains. That you all are seeing the gains from your productivity growth, but rail workers have to testify, you know, they're obviously with furloughs and fewer jobs and they say worse working conditions. But really the customers are seeing a worse performance product. So as your productivity is going up, they're not feeling those shared gains is what I'm hearing. And then the other kind of comparison point that I hear about is, you know, whatever the cost savings you have on, you know, the additional employees or the additional horsepower compared to the cost that all of the customers are feeling from the embargoes might not be aligned either. And that you may be saving four or five hundred million dollars in labor costs or even the 400 employees that were I guess maybe on the cusp of firing or not firing and you did, that though, that cost savings there compared to the resiliency you gave up and all the cost of the customers have experienced are not aligned. And that you may have saved 50 million dollars but the economy may have experienced much more than that in terms of harm. I think those are the two things that I'm hearing about is the delta between, or I should say the misalignment between your productivity enhancement and the performance product that the customer experiences.

What's the best measure of service product to you?

Okay. 202 today or 203 today, something like that. Most of the year you've been at, I'll just say that you were 209 in 2019 and you were right around in 2018, you were right around there. So, you know, I'm not sure that the service product is demonstrably better. I think that in 2019 we were already implementing the network, 2018. Compared to the numbers we've seen most of the year, which are mostly hovering around 190, which is not good. And I'm not arguing that's where we need to be.

I'm only saying that in 2017 you would say 201. So you've been, you know, roughly five percent worse on that key service metric for most of the year compared to where you were before you redesigned your service product. Your 10K has 201. And then our service metrics on car miles per day that you submitted to us, on your car miles per day, have you most of the year about five to ten percent worse, if I'm reading it correctly.

I know. That's all I'm saying is that your key service metric, you know, again, I could be misinterpreting the data, so I apologize for that, but it sounds like that's about right where 2017 was above, north of 200, and we're mostly, you're around 190. So if that's your key service metric, that's what I mean by shared gains, is that the customer's seeing worse service and your productivity is much, much higher. And so, like, is it lousy this year?

Right. I know. And that gets to the second point, which is, you know, who's bearing the cost. Certainly our customers are bearing the cost of bad service.

Okay. For Marty, before Marty gets on, I mean, I've got a much longer, so I'm going to wait till I'm already finished this, but I kind of take issue with, you know, that you just said the customer product is better than it was before you redesigned the network. We just had a panel of four people challenge that, and folks who've been here 20-plus years, going on 30 years, saying they've never seen it as bad as it is now. So, and what I say before about communication is, and what Patrick is alluding to, is that there's a miscommunication. You know, it's sunshine and blue skies where you are, but it's raining cats and dogs for your shippers. And somehow there's that disconnect. And, you know, I've seen it in how you state, you know, recently when you had your investor call, stating that fact and talking about how well you're doing, you're industry-leading. But if that were the case, honestly, we wouldn't be here today. If that were the case, the substantial increase in embargoes, and it is not, I do take issue once again, and again I'll get back to it when it's my turn to go, but everyone keeps saying that, you know, it's a last resort. Well, I don't know how long we've been living in the last resort, but it's been at least two to three years of last resorts where we're at almost 1,100 embargoes this year alone. That's a lot of last resorts compared to looking at the rest of it. And I'll provide this, I know you have it because you've seen it, where you're not even a blip, not even. And you were there, you were director of operations, so you were sitting where Eric was sitting, but yet there were no embargoes when the system was, like I said, during those floods, all, and that's catastrophic, that's not man-made, that's natural, covering eight states, more than the bridge that went out this year that you embargoed on. No embargoes, 14, the entire year. You know, then you look at the polar vortex, the implosion in 2013-2014, easily you could have said, hey, you know, Mother Nature just socked it to us, we got to set you down. Between those two years, 35. I call that operational efficiency there. Well, you're still keeping the network running, not freezing people and saying, hey, I gotta slow you down, I gotta embargo you, I gotta meter you. You know, we're gonna put things in place, and you did, you had a system in place. You know, it was a great article that talked about how you recovered without embargoing, without that. And I think it comes here where I'm just going to finish where Eric said, you know, again, not designed to limit traffic. Well, that's exactly what you're doing. May not be designed, but you are limiting your shippers' traffic. You're cutting back from their ability to ship and take care of their customers. So that is limited. You know, Kenny, when you said, you know, we're not blaming the customer, you're not, but they're bearing the brunt of that pain on them. You guys are still making money. I didn't see, I didn't hear any time they're saying, oh, because we're limiting or because of problems we're gonna take care of your rates. I know you don't. I read your financials, but they bear the brunt of that because they've got to cut production, they've got to cut back. So there is, as Patrick said, you know, there's not shared pain here. There really is. Your customers are feeling that pain right now. It's in the numbers of the embargoes. It's the numbers of them trying to explain to their customers that they can't make their shipments down. There's already problems on the network, but now it's worse because now I gotta hold back on what I ship out because I'll be embargoed, I'll be metered if I don't. So I mean, going back with what Patrick said, is that there is that miscommunication, there is that missing. Like I said, I've got this year's investor calls, I've listened to all the way back to 2021. I hear anybody say, hey, we're having trouble, this is a bad time, we gotta do something for our shipper community. It's like, hey, we're making money, this is great, we're going to have eight billion dollar buybacks last year, we're going to give money back, we're not going to invest to help, as Marty said, to help free up this congestion. We're gonna get the money back. Eight billion last year back. So for me it's like, how do the shippers respond? How should they worship when that money could be going in to help? And again, I'm not here and I hope no one else is here to just come here to berate you. I want to find answers. I want to figure out what's going on, why embargoes have seemed to normalize. And I do think it's normal. I said I'm going to, I want to talk about the AAR circular and what you believe it to be and mean. Because I think we're not really addressing, you're not really paying attention to that either. I think there's concern in that. I think it's become a normal standard practice for UP right now, and that's concerning. More so than any other. And again, you're saying that you're leading the Class 1s, you are in this respect. I mean, you're way above all of them combined. Which is one of the reasons, again, why we're here, because that's troubling. If you're using embargoes to save yourself, that's not what the embargoes were intended for. And, you know, again, I'll have other questions asked, but let me talk about it.

So you actually just said that productivity and service are both lousy and that you are bearing the cost and so are your customers. And I think fundamentally, for me at least, I don't know about the other members, something I'm struggling with is that we're, you know, we're at around a thousand embargoes and it's such a significant increase from your years past. And so it's, where do you see this going?

Just the question, Lance, is you keep talking about excess inventory. I think national policy is for freight rail to grow. How can customers grow their businesses if you're telling them you're putting too much stuff onto the rails, you don't have enough locomotives and people to move the stuff that your customers want to grow? We're going to get back into it, but I have heard this about reducing inventory and reducing congestion. We want more cars on the rails and off the highways. And I want factories in this country to make more stuff and put them on your railroad to sell and get their raw materials to make, not to suppress inventory.

Well, we may be, but I don't see it here. We're the only Class 1 growing this year. I'm going to give it back to Michelle.

You know, I heard some discussion earlier about the excess cars within the serving yard, and I don't think right now that that's a metric that we currently track. So I wondered if you actually could provide, you know, within the last couple of years, some data about the excess number of cars within the serving yard, and you know, perhaps maybe even starting in 2017 through today.

I don't mean to cut you off, but I guess if what we're talking about on a basic level is a higher number of cars on the network and the need for customers to reduce that higher number of cars, what I'd like to know or be able to see and track is, you know, how many cars were there in the serving yards in 2017, 2018 to today, where, you know, in 2017 we were at under 100 embargoes whereas now today we're over a thousand. And trying to see what are those car numbers within the serving yards.

Thank you.

Yeah, an observation. I've been sitting here listening to all of this and I haven't gotten as deeply into the numbers as our chairman has, and I'm not the economist that brother Patrick is. But this term excess inventory kind of bothers me. You know, if somebody walks into Mayor Hancock's office and says, sir, you got to tell the residents of Denver we got to have a boil order, and he says, what's that all about? Well, Univar has excess inventory on their railroad system. He is not going to understand what that means. I'm beginning to feel that what it means is you have more business than your system can handle. You were probably doing your level best to optimize the operations of your system through everything you can do, except the market or the market you're in really doesn't give you the incentive to grow as fast as your business could grow. You're not a supermarket with people lined up outside and say, well, I'm going to double the footprint of my supermarkets so that the guy down the street doesn't steal it from me. You're protected from competition, but you have customers that don't have anywhere else to go. And I'm really concerned about that. And I don't know that the answer is necessarily, you know, the board can make a finding that you're in violation of the common carrier obligation, then let all your customers sue you, and you know, at some point that will annoy your investors. But we, I think, have to figure out how to make the entire system work better, not just for Union Pacific but for all the other railroads and for the economy at large. This is a very, very serious problem. We know you're doing your level best, but we're not geniuses here and maybe there's some other way we can do it to make the most important sector, I think, of the industry, you know, in the United States, operate. The country finally woke up a couple of weeks ago to understand that railroads in this country are really, really important. And when I ask what I do and I now tell them I work with railroads, they say, wow, rather than, you do what? But I'm really concerned about it. And, you know, I'm committed to working with you and the rest of the industry to see if we can come up with a solution that gives the railroads the appropriate incentives to make the investments they have to make, not only in personnel but in infrastructure. And, you know, as we discussed this morning, there may be some infrastructure misalignments here too. You may not only be getting in the way of Amtrak, you may be getting in the way yourself. And that's an infrastructure problem, not just a people problem. So I just want to put that on the table. But this excess inventory terminology, this euphemism, it bothers me a little bit. So let's talk about that.

I don't want our highways handling more trucks, neither do I. How has your volumes compared to '17 and '18, excluding coal?

Are they up?

We have is that the growth is down excluding coal from '17 and '18. Okay. So it's not that, you know, when you look at the total freight that wants to go on your network or that is going on your network, it's not as though there are more drivers on the highway, for example. Like it's not like cars have gone up in terms of the throughput, maybe in aggregate, but I'm confident that if you go down south there are more cars on our highway than there used to be two, three, and four years. I know that for a fact, that's true. So, can I just really just drill down on the specific, we've been having a broad conversation obviously at the macro level, but just in terms of how SIMS works and the like, and Brad, you might be the best person to answer.

The first Last Mile allowance that you have for 80 industry spot pull, that is something that has long existed with your SIM serving yard. Is that if you're below 80, you create some sort of allowance or exception for the customer?

That applies to both or does that apply to just serving yard?

Exactly. Yeah, so the reason I'm kind of wondering is I read the, and correct me if this is not the right reading of it, I read the 80 and what I'm hearing from you just now is that when we're at fault, sort of speaking, you know, loosely defined, when we're at fault we're going to take it on ourselves to fix it as opposed to slowing you down or, you know, selling your production or so, however you want to frame it. And I hear the 24-hour buffer, but I'm wondering, have you, could you consider something kind of very objective that measures your performance in terms of creating some sort of additional allowance, not baking that into how you calculate the actual, you know, three components of SIMS, but just saying, hey, if our transit time has gone up by 25 or our trip plan compliance is below 50, maybe this isn't the customer that we should be applying our private car system to because the excess inventory is excess because of us. Have you thought about kind of a bright line metric like you do for SIM serving yard to provide some allowance for the customer?

I think that's great. And then another thing along these lines is, and I suspect it's related, when you do a manual look and you see that maybe Union Pacific was the root cause of it, I've actually heard good things from some customers about how you all worked with them to figure out how to get to another railroad. Or, you know, some contracts are confidential so no one really gets into it, but they sort of allude to the fact that you've provided some flexibility even though they might have some sort of commitment to you all. And so I guess what I'm wondering is, is there, when you look at the plan that a customer can engage in to reduce their inventory, how much do you offer your piece of the plan to be like, well, I will move you to a different railroad that I myself am congested, so I'm going to move you to another road who might not be as congested there, you know, and understanding that railroad's got a plan and they have assets and they might not, their performance might be worse than yours, but just offering that option, is that part of the planning process? So it's not just the customer coming up with the plan, but it's you all coming up with a plan to include potentially access like you've seemingly allowed in some instances.

When does the access point, the customer I presume raises the access point, and when do you, how do you assess requests for access to another railroad?

You were talking about adding a switch when the customer asks, but I'm saying for the, there are scenarios where you get a customer to another railroad, how do you think about that?

I will only, to those questions, I would only make the observation that where I've heard that you all have looked at your own performance to provide an exception and where I've heard that you have looked at access options in very limited situations, I've heard that that has pretty much mitigated the pain that customers have felt. So as you all are considering the SIMS program, I would ask you to consider things like transit time and trip plan compliance more formally so customers have a very clear standard like they do for first last mile at the serving yard. And I'd ask you all to consider whether or not access could be an additional part of the planning process when there is a problem. So thank you.

And I appreciate that. And you know, there's a bit of a collective action problem. As one service slows down and everybody does the same thing, congestion increases and congestion has exponential costs. So you have to take a measure to reduce those exponential costs because whatever the cost of that might be lower than the overall exponential cost. And so that's the alignment that you all are seeing, is that from your standpoint the cost you're imposing now are a lot less than the cost you would be imposing elsewhere. And you can't get crews overnight, you know, and understanding you might have an opportunity and we can have that debate, but just in the moment right now, you all are avoiding exponential costs and I get that. What I'm suggesting to, what I'm stressing is, you know, the different ways to avoid those exponential costs and the different exceptions that you can provide to lower the impact.

Just one quick follow-up on that question. What I think is that question, and then I want to get back to what we were talking about. As I read the slide presentation, if the industry spot and pull falls below 80 percent, that does not absolve the customer from an embargo. Only if your trip plan compliance falls below 80 percent, is that right?

Yeah, I'm not sure what that means. Does that mean you will not impose an embargo on the customer if the spot and pull falls below 80? Is that what you're saying?

Yeah, understood. And that's noted and agreed, Patrick. So one of the other balanced approaches that I did not talk about with SIMS for the serving area is that we do actually add a two-day buffer and that does help account for some of the items that you mentioned, such as budget.

I want to get back to employee levels. Lance, you said, I kind of got lost because we were moving here, that your furlough recall experience, tell me this again, in the first year is 75 to 85 percent, is that right?

Yeah, you're exactly right. And just to keep building on that, where we got into really April of 2020, that's when we started hiring again. And at that point we had 2,000 people still furloughed. And to Lance's point, we were getting that 65, 75 percent. It got down when we got to the last three, four hundred people furloughed, that's when we got down to like the 30, 35. So it was strong for the vast majority of it. Even when we had that many people furloughed, they were hiring. And I think one of the important things you noted, and it's been a part of the discussion we've had in terms of planning resources, we started the hiring engine for T&E in June or July, May of 2020, right, with 2,000 people furloughed and still recalling, but we knew we needed to hire them to start having graduates in the first part of 2022.

Well, I was, I thought you told me that over the years, not just in 2020, your experience, because what I'm trying to figure out is how you've made the decision to lay off 2,000 people in May of 2020 with the expectation they were going to come back. What was that based on?

Well, you're the only railroad who had that experience. All the other Class I's told me they couldn't get people back in the last half of 2020. They're the ones I've talked to at any event who had the major furloughs.

All right, well, I want to go through that and I want to go through what you've told us, what you've told others to see if I could follow along. There was an April 22, 2021 earnings call, Eric, in which you noted that UP has had a 75 to 85 percent retention rate on furloughed employees. That's what you're talking about. And you said that was April of 2021 earnings call.

I would agree with that.

Yeah, about the long-term past history, because I'm not sure we were following anybody yet.

You really were. I mean, we were having still furlough.

That's exactly right.

Well, what you said was a 75 to 80, April of 2021, you weren't recalling people by then.

75 of 2020. No, 2021. Let me clarify it. So April of '21, with about 1,500 people furloughed at that point, and only until we got down to three, four hundred did we get into those 30, 35 retention. So during that period you're talking about, yes, we were seeing strong retention rate, 75 plus.

Well, let's look at this. You dropped from 15.5 to 14.7 from March to April of 2020. And then you dropped to 12.7 in May and 12.1 in June. So between March and June of 2020, you dropped about 20 percent of your workforce, of your T&E workforce, from 15 to 12, a little more than 20 percent. In July, the numbers show that you had 13.1, so you had a thousand come back. Does that sound right?

Yes.

And those were all returning furloughed employees?

That is correct.

And then it goes up two or three hundred and stays there until December. Actually until January, it was pretty much the same, 13.3. February '21, 13.3. March of '21, 13.4. So did you stop recalling people after July of 2020?

No, at that point what we were doing was we were recalling people to offset attrition that we were getting from the time that you pointed out in the middle of '20 as we went through '21. We've said publicly before that we run about a thousand people a year in attrition in T&E, and it fluctuates, some years a little more, some years a little less.

Well, what employment level were you trying to get at? You had started the pandemic with 15,500 people on the payroll and then you leveled off about 2,000 below that towards the end of 2021 at 13.5. Were you just trying to stay there?

So you don't do a long-term planning on your workforce on a month-to-month basis, do you?

Yeah, when we look at a monthly cadence, we're looking out 18 months for our hiring plan.

I just want to jump in real quick. You know, in your, I got a transcript from your recent investor or earnings call, and Kenny, you had talked about how you're leaving demand on the table, that you're leaving a lot of demand on the table. So if you're saying that and you're saying that you talked to Kenny about how to staff up, if he's telling you that there's a whole lot of demand that's left on the table, it seems like you're still lagging behind that and you're not going to catch up because if you're always lagging behind where the demand is, and then you're talking about shippers saying, well, you know, we're trying to get more business going and he's trying to say that there's, you're leaving on the table, it's again, there's another disconnect because if you're not planning for that to take that off the table, if you're not projecting that you need employees and laborers at a point that's going to match the growth that you're expecting, then you're missing the mark. And if he's in here, he says specifically that we're leaving business on the table. And if you can't serve your customers now because of your operations, because of your lack of labor, how are you going to get that business off the table? I mean, even your analysts are asking you this question. They're saying your trip plan compliance is low, your labor is questionable, how are you going to grow? Lance said you want to grow, you can't grow if you're leaving stuff on the table and if you don't have the labor to actually accept the growth.

You're 100 percent correct. And I'll give it back to Marty, but I appreciate that. But you know what Marty was alluding to is that, you know, even from 2021, I mean, it's flat growth from there. You're covering for attrition, you're not growing to grow. And I want to ask you because you made a couple of statements in the earnings call that made me sort of question that in terms of how you approach hiring, what may happen if volumes slow, because we may be right back in the soup again based on some of the comments that we'll go over. But I just don't see it as, you know, I see other Class I's looking at, okay, you know, we got to have that slack. I don't see that slack. I don't see that mention of slack. I see, I talk about the AWAX, I talk about the old system maybe having a couple hundred people here and there, but I don't hear the conversation that others are talking about after coming out of COVID with their tail between their legs after, you know, poor service records of saying, we get it, we have to have a certain amount of slack, significant enough so we're not doing roller coasters. So we're not just depending on whether coal comes back, we're looking at other business interests so we can expand and grow and not try to look at areas that are stable now but maybe on their way out. It's already been estimated that coal will eventually go down and how do you plan for that. So I mean, I have others but like I said.

I would just say, and Lance, I just want to jump, I agree with you. I'm just saying that, you know, you can't go back to the, you know, if we've all acknowledged that we have a new workforce that's looking for a different thing, you can't go back to the old system. You got to be willing to look forward at what the new and also what the network requires, not just what, you know, again, reading in the earnings call, not what Wall Street is talking about, the numbers, and we'll get to that later, but the issue of what's in the best interest of the network and you growing within the network. I think that is a key component of making sure that your labor force is robust at all times, whether the volumes are high or low, so you can respond to issues that are out there. I mean, I have to say that, you know, the economy didn't tank or bubble or inflate until literally about a year ago, except for COVID. The economy was growing from about 2010 all the way until COVID. So there was no downturn. And so when you look at people, your layoff, you weren't laying off because there was a downturn, which you normally do. You were laying off because you're transitioning to PSR. You found a better model, but you were still growing. And that's where you started finding the difficulties of transitioning to PSR while cutting, because then you started seeing embargoes, you started seeing other issues. And then when COVID hit, you know, you had a reprieve for those three months. And then it all came back and it came back stronger and you couldn't recover. And I think again, lesson learned, let's not go back to the old way.

Do any of the five of you need a break?

You should have asked.

Take a 10-minute break. Thank you.

All right, we are back in session. I do want to get back to these employee numbers, but I want to ask you this, Lance, because you and I have had some conversations in the last few months about some of these issues. And you told me last summer that you thought one of the, I think you said mistake, but I'll let you characterize it, that was made was that you got rid of 400 people on the aux board and you wouldn't do that again. Am I right?

Right, you said you wouldn't do it again. It was partly, as I recall it, and the reason I recall it clearly is that I asked every CEO the same question. And I'm going to continue to ask until I get the answers I'd like to hear, some of which I am getting, and we'll get it one way or the other from you what your answer is before this hearing's over. But following up on what Robert said, I believe I phrased a question that when the Class I's as a group reduced the workforce by 45,000 people, has anybody rethought it and maybe said maybe it should have been 35 or 25 or some number other than 45? And your response was no. But the one thing that you do, would do over again, let's put it that way, is that you wouldn't have gotten rid of the 400 people on the aux board. And my question is, when did you come to that conclusion?

When was that? That would have been, I talked to you what, in probably July of this year. Was that the first time you realized you were short of crews? You would have had to know before that because we had the hearings in April where everybody said that they knew we were short. You didn't realize this last year, in 2021?

Well, that's really my question. Why didn't you bring the 400 people back from furlough in 2021 when you had people out there on furlough?

Well, I appreciate that, but I'm looking for a date as it relates to when I'm tracking the use of embargoes, because until we finish this hearing, I'm still trying to figure out how employment relates to embargoes. When did you conclude that your crew levels were tight, to use your word, and you in hindsight wish you hadn't gotten rid of those 400 people? Was that in 2021?

In other words, in 2021 you didn't see a problem.

Okay, let's pursue that. So I am looking at the, I started up on this just to pick up where we were and carry it forward. In the April 22, 2021 earnings call, Eric, you're quoted as saying that UP has at that time a 75 to 85 percent retention rate on furloughed employees, of which the count is 1,400 for T&E. And I'm looking at the history right here.

That's exactly correct.

Okay, so that's April 2021. If you needed 400, you could have recalled them. You had a good recall rate. You didn't think you needed them then, is that what you're saying, Lance?

Okay, so let's understand exactly what this AWAX board is. The whole reason an AWAX board is valuable is that if we, in the, let's call it the old model, and the old model of furloughing employees when you have no need, when volume isn't there for them to work, you'd pass employees through the alternative work and training board first, they're furloughed, but they are guaranteed eight days of pay a month and full benefits, which ties them closer to the railroad. And the other part of that quid pro quo is on a normal furlough, employees can have 20 plus or minus or more days to return. On an AWAX board, that's a much more abbreviated period so that they're there when you need them.

To avoid these service problems.

You don't, they were, you were recalling at a 75 to 85 percent rate, you said. So why bring the AWAX people back?

Why have, that's correct. All right, let's follow that along. I wrote you in May, I believe, of 2021, just become chairman, we were getting a lot of complaints about service. I said the board has received concerning reports regarding subpar performance and that the, I wrote, these issues may be related to or exacerbated by the broader trend of labor reductions over the past several years. And I asked you for an updated and detailed description of your preparedness to meet anticipated future demand. You wrote me back on June 11 and you said UP is well positioned to deal with the nation's economic recovery in 2021. You said our pipeline of train crew, yard and maintenance employees is robust. You recall that?

I'll let the rest of the evidence tell us if it was accurate. A month later, a month later after you told me that you were well positioned, your railroad was well positioned to deal with the recovery, on the July 22, 2021 earnings call, Eric said, quote, current quarterly service metrics do not meet our expectations or that of our customers. So where is it that you're well positioned in June and a month later you're not meeting your expectations or that of your customers?

So, staff appropriately in the summary of 2021. I think that might have been around the time frame that if we have that bridge.

Yeah, but Eric, one of the reasons that railroads need a cushion is that bridge fires happen. Pandemics admittedly only happen every 100 years, but bridge fires aren't unusual. Floods aren't unusual. So you have a bridge fire and it throws a whole network out of whack. I mean, that isn't attributable to running such a tight ship. You have no extra people to work around an outage like that.

But you did recall people out of furlough as a result of that bridge fire.

Yeah, so it's now according to the earnings call, you're a year out and you're still recalling people at 70 percent. But so I'm looking at, I am looking at the employment numbers that you file with the board, T&E, that's all I'm looking at right now, which isn't to mean, by the way, I've focused on T&E at this hearing, that doesn't mean, as we've heard repeatedly, that sales people, marketing people, maintenance people aren't just as important to keep the railroad running. But T&E are at least the people who drive the trains. In June of 2021 you had 13,399. In July you added 86 people, 13,485. By August you were down 60 people to 13,426. So what were you recalling from though at a 70 percent rate there? It doesn't seem to have held up. And you know, it fluctuated right around 13.4, got up to 13.5, 13.6 in November. The bridge fire still holding you back in November?

And in terms of your hiring, were you making your corporate decisions based on this retention rate of 75 to 85, now it's 70 percent, you were still experiencing that, so that's how you made your decisions on how many new people you had to hire?

Well, here's my problem with what I'm hearing. On June 23rd of this year, when UP finally filed with us the recovery plan that our order of May 6th of this year required, what UP said, and I don't know who wrote this but I assume it's somebody at this table approved it, at page three, UP said, since January of 2021, Union Pacific has experienced a 50 percent return rate for employees who were recalled from furlough, and that has not been enough. So I want to know whether you want me to believe it was 70 to 75 percent or 50 percent, because that makes a big difference on whether you got enough people to run the railroad. Why are you telling us in the recovery plan that since January of 2021 it was 50 percent and in your earnings calls, which you verified here, you told Wall Street that it was at least 75 to 85 percent, but that was at least 70 percent on July 22, 2021, that's more than the first half of that year.

So forgive me for thinking it is a little misleading to have a sentence in here that says since January of 2021 we've experienced a 50 percent return rate. It doesn't say for the whole year the average was 50. It was higher and then got lower. If I'm trying to figure out employment practices and whether you're acting in a way to meet your obligations, this is not informative. It's not even honest, to be frank. It's totally misleading. Well, obviously, because I have been told, and I'm sure I was told by UP, the pandemic was a whole new event, the great resignation, we never saw it before, we always had all these people come back. And then I hear, well, you knew by January of 2021 you weren't getting all these people back and yet you really didn't gear up your hiring. And so it leads me to conclude what I asked before, that at least Union Pacific was on a tear to lower its workforce and use the pandemic to go down even further and decided to use it as an excuse to stay there. And that's my impression. Now you disabuse me of it if you want, but one of the reasons I have put all this together is I've tried to figure out what was going on at the time, which is why I asked you to produce documents going back to 2017 and we will get to that in a little bit. So if you'd like to address what was going on here, I'd like to hear it.

What kind of records are those?

And how often do you prepare the three-year hiring plans projections?

What's LRP?

Do you, and you keep each version?

So all of those are still in existence?

Well, I think that's going to be revealing to us about how you were seeing the need for people really going back to 2017 or early 2018, or certainly by the time you adopted PSR in the summer of 2018, as to what the long-range plans were and what the revisions were and how that panned out all the way through the pandemic and thereafter. I think that's the mystery that I'm trying to unravel here. So I still have a few more points I wanted to finish in bringing us up to date, but I think both of my friends over here had some questions.

I just want to touch on, Eric, on what you and Marty were discussing. You know, with that letter around that time frame, you know, the August '21 time frame, you talk about the fire and the issues. I think where the deficiencies in how you view employment and your labor force sort of took effect, to me, tying this into the embargoes, is August '21, that month you had 67 embargoes. Since that time, from August '21 to today, there's only been one month where you've been below 50 embargoes for the month. If you look at August '21 all the way back to January 2017, there's only been one month above 50 embargoes. So you're going back four years with one, and you're going ahead today, a year, a little over a year, and just about every month except for one, you've been over it. Short, and I think the embargoes are indicative of that labor problem. And what I was saying before, that shortfall that you guys thought that you could make up for, just like a fire or any other natural disaster where you have pressure on the network and you need those extra resources to address that pressure, to relieve that pressure from those fires, from the bridges out, and you didn't have it. And you can see the numbers at the end of, you talk about how you lost it at the end of '21. So you go 67 in August, 89 in September, 81 in October, 108 in November.

106 and December 137 in January. So the furloughs are literally you guys basically again, you're using them to save yourself from yourselves. You don't have the people, you don't have the operational capacity to dig yourself out of that fire. So yeah, you're getting caught, but you can't get caught up because you don't have the manpower, and it only grows more. Because again, looking at your long-range plan, and I want to see that and how you're talking, is that if you're not talking about business and about growing, if you're saying we can sustain a labor, and in these reports you're saying you're sustaining them, you don't see a need for growth, you're not going to get caught up. And you can see the embargoes start growing again the following year all the way up to now. So there is a pattern that shows a correlation between labor and embargoes. And what I'm saying is that what you just said just shows that key point that there was acknowledgment that we had enough, we thought we had enough, so we didn't add them because we thought we could add them whenever we need them. Well, when it came time to really need them, you didn't have them. And that delta just only grew to the point now where again, you know, we're looking at a chart here where you were way below everyone else, but now you're approaching like I said over a thousand. And how it's hard to recover from that. I mean Lance, I get it, you want to recover next year, but you have a polar vortex in January and February, guess what, you're screwed. And the network's screwed until you can dig yourself out. You're not going to have the people. You're just not going to have the people to figure out if a natural disaster hits. You want everything has to be perfect from now on for you guys to get caught up, and we all know that the network is imperfect. And so that's the concern again that I have. That's your numbers, what you just said just proved it, and the numbers of your embargoes prove it too. You have to rely on embargoes now. There's no choice. But at the same time it becomes a normal part of your operation. And it's not what you want, I get that, but it is, and you got to admit that it is. I mean going back, I'm just going to touch on one thing, you know, we talked, you guys talked about the AAR embargo. And it says now, you said the definition of what is, but it says the prohibitions at the bottom, it is prohibited to issue embargoes, you know, one kind of raised mine as a permanent measure to control traffic. Now I don't know if it's permanent, but you guys are issuing embargoes that last a year. That's a lengthy amount of time. I've had customers, your customers come to me and show that the recent embargo in November were lasting until 2023. That's not short term, that's not limited amount of time.

It may be 15 days, but you're giving them the notice of a year. Now you may rescind it in 15 days or less, but when you tell somebody a year, again that goes back to their operations, their planning, and their production. That you know, if you give them a year, hey, that it could last a year if you wanted to, that's right, it's there. So there's a concern about that for the shippers and to react to that and have to then change their way of operating even if you don't. I mean that's like putting a gun to the head, like you know, it's Russian Roulette, it may go off, it may not, but you got to react to it. And the other part about it is another prohibition is number 10, it restricts, well the one is restricting business growth. I mean you're restricting the growth of those businesses. You can't allow those businesses to grow if you're metering or you're embargoing it. And if you're constantly doing it, if you're doing it at such a rate that you're doing it now when there is no natural disaster, there is no issue out there except for congestion, which now is questionable whether it's caused by you or caused by them, but you're still restricting that business growth for that shipper. And I think those two actually are concerns and they're listed here that you know, I really want to start looking at and I think we should look at because I think that is a concern for me if these are going to be regularly imposed, that we have to look at those two things, whether it's limiting the amount of traffic to be accepted daily or periodically, which is another one, that's number four. You know, and that's what you're doing. You are limiting the amount of traffic to be accepted daily or periodically. That's what the embargoes are doing. And here it says it's prohibited. And so we got to take a look at how that system might, I'm sure we'll get to that too. I see you raise your eyebrows, we can talk about it and I want to talk about it, but there's legitimate concern that you ask your shippers, they'll tell you, you know, are they being limited to the amount of traffic they can put online? I would eventually say yes. So we have to look at that. So I'm just saying that look, you know, I take this just as serious as you guys do, but I also think that there's concerns there. But I think also we have to look at how we're operating and how we're using it. Like I said, you say as a last resort, you know, the way these numbers are jumping, they're no longer a last resort.

I think I just want to make one quick observation on what on Robert's citation of the AAR. I think it's useful, but the AAR says are the guidelines for embargoes, but just speaking for myself, I do not construe those as to be equal to the law. The only law I have found in the most cogent statement is in that 8th Circuit decision I cited earlier. So whether you comply with the AAR guidelines, even if you were complying with, I think Robert points out, you or not, wouldn't absolve you necessarily for the proper use of embargoes. That's an open question.

Well, and I agree. I appreciate that, Maureen. I mean the reason why I brought it up is because it is your association. This is not the STB saying that's prohibited or limiting, putting these prohibitions in place. It's not the courts. I mean it's your own organizations, your own, it's the railroads who came up with this that said, hey, you know, this is what we think embargoes are, this is what we think are prohibited under what we believe embargo should be. So this is not STB, this is not the court, this is AAR saying, you know, when you're limiting the amount of traffic to be accepted daily or periodically, you're restricting business growth. That's not where embargo should be. That's not us, that's the railroad approach saying that, that's you guys saying.

Patrick.

Just real quick clarification and I want to maybe switch gears a bit, but I think on the one year, it could be that the AAR embargo OPST program, when a shipper sees it, the expiration date says a year even if that's not how the railroad views it in practice. And I think that maybe creates some of the confusion. So I should put that out there that as you're assessing the railing system, perhaps if the road has a different expiration date in mind, that might be helpful to customers because sometimes customers get hit without the full communication. I know you all try for that not to be the case, but I think that's some of the uncertainty Robert's rightly alluding to.

Right, and I wonder if there's a bit, but here's the however. That there is a point here. We've explored fairly thoroughly with BNSF their embargo of the Southern Transcon. And when BNSF announced that it was imposing those embargoes, it first said it had an end date that told the shippers, had told us, and it told it publicly, July 31st. And then in the course of it, they said we're extending it to August 31st, and they did. And they started to end it even before the end of August. There was an end date. Your embargoes have no end date. None. In fact, and I'll turn it back to you Patrick, but I think just the flow here, I'm going back to the June 23rd recovery plan that you filed with us. And what you said is actually consistent with what you've told us here today. You said at page 14, as inventory started to grow, we followed our standard process to manage congestion across the network. Then you go on to say what you said, you asked people to reduce their own inventory and quote, if customers do not reduce inventory, then an embargo is processed. You then say currently Union Pacific plans to continue to apply its embargo process in a manner consistent with our policies, what you just said and past practices. So you have somehow, and this is why I asked, why we asked in our order setting this hearing that we wanted to understand the increased use of embargoes beginning in 2017. How did that come about? What was the discussion? What were the memos? What were the emails? I think you have fair notice here of what we're interested in. We will put it in writing about how you came to decide that embargoes to suppress volume, to quote Miss Heyman, are UP standard practice. Nothing I know about the rail industry or the law involving the rail industry justifies a standard continuous practice, and Robert cited it, of using embargoes to suppress volume. You have demurrage to suppress volume. And Lance, you told an investor call, to jump ahead, I just had it in front of me, that you also, January 20th of this year, if we see volume overwhelming our ability to satisfy it, we've always got price as a lever that we could use that discourages some amount of that volume. So I'm not encouraging that, you've raised rates enough anyway. You have demurrage, you have pricing to control volume if you feel you have to do it. The use of embargoes, it strikes me you folks have pushed that to the envelope, through the envelope and over the cliff. But I want to get to Patrick because he had some questions and I want to get back to some more questions I have.

I can maybe segue. I think the way I'm hearing some of the objectives, or at least my objectives for the hearing, is to kind of think about things that UP can do to mitigate some of the impacts and then things UP can do to prevent an embargo in the first place. And I think we had a pretty productive discussion about potential things you all could consider in terms of exceptions as well as on the planning side of things and a couple other things of that nature in terms of the mitigation. You know, is there a way for you to provide a bit more certainty to customers about the end date as well as what the magnitude of the embargo is?

Yeah, yeah. And on the other track, the private car pipeline management, you know, you all probably have a projection for success, whether or not you're in, you know, when will your inventory level get to a position where you can say on the second track, the private car pipeline management, you can sort of turn off the system so to speak. You know, people are trying to plan their businesses and they don't know how long it's going to go on and they might not have the macro picture that you all do. So you know, providing an end date might help people plan their businesses and building in some success of your program.

What about on the private car? Does that mean that they can never put on any more cars than that 14-week average?

But what if their business through the year goes like that, and that's their regular business cycle, it goes up and down? How are they supposed to deal with that?

It should be. Yeah, Karen, you beat me to it. The seasonally adjusted 14-day average would seem to make more sense. If you look year over year, the shipment patterns, you know, there are different times of course in agricultural season that might shift year to year, but generally it seemed to me that it's almost that seasonally adjusted, commodity specific or customer specific, even considering that you have the historical volume levels, might deal with some of the variation that I think we heard in the first panel.

It sounds like that's a very positive adjustment. Another one that we heard in the first panel that I thought merited consideration is just the variation that's caused not by seasonality but by growth. Right, and so building in, you have a 14-day average, well accumulation of 14-day average is no growth, right? And so the, you know, if you build in seasonal adjustments and you build in that someone could grow their volume over that period, you know, by a certain percentage, right? And granted at a car basis it's probably going to be very small, but even just building that in at least accounts for growth. And that might be something also to consider on the variation standpoint is, you know, some sort of beyond just an average. And then I just, if I could switch gears to, those are kind of all in the category I think of mitigation, because I think the variation is sort of kind of exceptions and then we talked about planning and end dates. I do, I will note on the end date, I hear you on the, well I'll call it the MIT, the applied to the serving yard SIMS, but there's no such for the private car pipeline management. That is based on a sort of a macro view, right? And then it's drilled down to 14-car averages specific customers. That to me strikes me as, is that now, right? So gone?

If I could just very quickly clarify my question. So what I guess, how did the 30 get off is the question. Well, I'm thinking that so but those 30 are based on their specific 14-day average, correct? But the motivation behind the program in the first place was that you saw too many cars across the entire railroad. That's what I'm saying by the macro view, that's what's motivating the private car pipeline management. So whether or not someone engages in some other form to bring private cars off some way without an embargo, or whether or not they're in the category that's in the embargo, they're all geared towards reducing private cars. And I'm going to use the term because it's critical, excess inventory. Okay, we love private cars when they're productive, okay, we love that. And so I guess where I'm going with that is there will come a time that you can project that your inventory will be at a level that you no longer have to be operating the private car pipeline management. I'm suggesting on the end date that, you know, maybe SIMS serving yard maybe not as much, but on that program you can provide an end date to people so that they can plan their businesses better, couldn't you?

Okay, so, and maybe we'll have additional opportunity to clarify this. On the things to prevent, in your presentation you said new tech. What do you mean by that?

I understand, and I appreciate it. I think it is worth, and you've been very clear, I think Brad, in differentiating between SIMS and the serving area versus private car pipeline management. I have heard, you know, because there are other railroads that do serving area, probably management I should say, there are other railroads that look at serving area type embargoes. I mean you have a particularly high level obviously, but you know, one of the things that I know you've heard and I've heard is, you know, notifications about when someone is about to get at the threshold, you know, 80 percent, 90 percent, you know, to try and get that thing that we heard on the first panel about 30 days in advance. And it sounds like the enhancement that you're adding might have that capability to see how you're doing SIMS serving yard far in advance.

That's great. And just one other thing I do want to note is a kind of more of a general point. When I talk about access, I think it's just important to kind of say for the record that, you know, obviously the service problems that we've seen over the last year are not unique to Union Pacific. And I think on some service metrics Union Pacific has performed better than other railroads. And I view the embargoes as a particularly acute manifestation of a service problem or a way to deal with the service problem. But even embargoes of course are not unique to UP, the overall number. But BNSF embargoed a very large territory and the Southern Transcon embargo is very impactful. We heard about that on the first panel, first shipper I believe that's who he was referring to. And I say this to say that, you know, when I talk about access as a mechanism to deal with service issues, when it's a railroad-caused service problem, I don't think that type of framework should only be thought about within UP. Because if UP was the only one providing access but the other person's also having service problems, there's a bit of a disjointed approach there. Although I think it's a really good thing for you to work with your customers in the planning process and provide that where necessary. I just wanted to state that I think that actually what it points to, and it seems like you all have worked with your customers in some ways when the situation arises, is when service really falls below expectations, that industry-wide there should be a consideration of that type of thing. And that actually might provide some of the incentives I think that Member Headland was referring to as well. So I just wanted to state that, you know, I don't think the service problems are unique to UP, and I view the embargo as a sort of downstream of the service problems. And so when I talk about access, it's not necessarily unique to Union Pacific, although I think it's good that you all consider it.

Just kind of shifting gears a little bit. Back in June of '21, I think it was Kenny, you and Prince actually met with me about the bridge fire and the embargoes that you were putting into place. And I really appreciated that. And my vague recollection is that you guys were actually able to reconstruct that bridge way ahead of what you initially predicted and were able to get service back online, which was fabulous. The question that I have though is regarding those embargoes, were you able to actually provide customers with at least an estimated time period of the end of the embargo?

So in other words you weren't able to give them even an estimated time period?

Okay, yeah. Mr. Major, outages you start in a place in the first handful of days, you're trying to get the plan together, and then that can quickly translate into this is the forecast and that's what we're sharing with Kenny's team to be able to get to the customers. And we're revising that whether it's a derailment or a flood or something like that. So that's our primary tool to be able to communicate out, we're four days from opening, we're two days from opening. Just I think the reason why I raise it is, well first because you guys did such a great job in getting service back online which was great. But I guess the other distinction to me is that in that instance there was a time frame. And here what I'm hearing from customers is there doesn't seem to be an end date, there doesn't seem to be any way for them to have any control over the situation and they have no ability to project the duration of the embargo. And so I don't, you know, I guess going forward, do you see as this moves forward, do you see an ability to be able to project and provide that information to your customers where you could at least anticipate when or for the duration?

I guess I would just add an observation based on conversations with shippers is that the challenge that they're having is that really creates an inability to predict, you know, when service will return to what they have been accustomed to. And so it really seems to be an unpredictable situation for them. I promised Marty just two questions, so my second question pertains to notice. It's my understanding that customers mostly are receiving seven days notice. And in light of how long this has been going on, I was wondering if it would be possible for, based on your forecasting, to be able to provide customers with more notice. What they've shared with me is the process to submit all the required information is pretty onerous. It takes a lot of time to research out car numbers and all the things that you're requesting. And so in light of how long this has been going on, if it would be possible to maybe, you know, 14, maybe 30, whatever you think you can do.

Say, I'd answer your question, Michelle. I think so. I guess it just seems as if the amount of information is being requested in the time frame, if it's not something where today you can predict an end date as to when the system will get to a point where you don't need to use embargoes, it would also seem then that you perhaps could consider providing your customers with more notice in advance of when you're going to be requesting for them to reduce the number of cars.

Eric, just one quick question on this end date question, and Robert has some and I'll come back to me. At the April hearing you said, page 825 of the transcript, on the question of alleviating the congestion, you said quote, it will likely take the better half of the year to decongest the network, assuming minimal variability on the network in addition to our customers' crucial help in taking private cars off the network. That was eight months ago. So it's more than the better half of the year. We're not anywhere near done from what I can tell from this testimony and your reports and the data. What happened?

I don't see that. You are at 202 on your December 2 report, you were 188.

Okay. I still have a few more questions, but Robert, you wanted, you had some. Let me say this on timing. My thinking is that unless people want to work later, we should terminate around six o'clock today. Loads up to the board. And the, say it again? We lose air conditioning and heat, but the temperature is perfect. But we're probably, I don't know that we're going to finish by six with UP. I don't know who's available tomorrow. But these are important questions. So in a few minutes to six, let's see where we are. But that's, I just wanted to give people a thought based on the HVAC which apparently is more powerful than all of us. That's what it looks like for the moment. Robert.

Thanks Marty. And on that note I want to thank everybody for, you know, your patience, being here, being in a hot seat. I want to point out before I missed to say that, you know, Brad has been a part of our STAC for some time and he's been a valuable part and I do appreciate his input and being there. I think it's fair to say for those few people who aren't at our STAC, Brad takes a lot of incoming and not just from the board members and he handles himself with aplomb and is responsive. He does a great job at our STAC, I have to say, which isn't to say that UP is doing a great job, but Brad does a great job. Go ahead.

Yeah, you know, now I try, I try to start off Brad, I did, but no, no, I do appreciate it. That's all right. Now I do appreciate you being here and I thank you for that. Yeah, I'm going to be brief. You know, one thing I do want to say, Lance, is I did see your response and your letters that you sent back to us. I would be understanding if I didn't say I was a little disappointed. You know, I understand the legalese behind what we asked for and what we were trying to get at. We're not trying to play gotcha. I didn't feel like we were trying to play gotcha. But I also think that you got to understand that if we send you something that we deserve more than three sentences back saying that, you know, you got it, we'll talk tomorrow. So, you know, I know you and I go back to the Congressional days and you know as well as I do, you know, Pete DeFazio or whoever it was, Schuster, anybody would have had to trot on that. And I think we should continue that relationship. And Robert, there's no disrespect to this board. The intent was to say I think you're going to have a bunch of requests that are specific and we'll fill them. We think we told the story about why embargoes, but we missed the boat and we'll backfill that to the extent you want detail that we've talked about today. Thank you.

Let me just hold up today. Well, in 2022, I'm not sure what the number is right now, it's dropping rapidly. Quiet a little bit. Something 2023, it's expected to be minus half a point maybe.

But if you're not meeting your current customer demand, how much do you have to grow to meet your current customer demand, even though national growth, industrial growth might be flat?

I guess what I was trying to get at is, you know, how do you in terms of defining growth, in terms of your current customers beyond the stone and the coal and others. So if you have a customer who says, look, I want to grow next year by 30, I have the capacity to go by 30, can you take that growth and is that part of your growth structure in terms of what you're looking for?

Yeah, I'll start and then, you know, we take the opportunity to sit down with Eric's team and really the management team, not just Eric's team, but Eric's team's first. And we go through all the details of what's needed by month, by OD, by the number of lines to figure out what we need to do to handle that growth. And that may be the five critical resources that Lance talked about, maybe it's three out of five, maybe it's all five to help win that business and secure it. And when we go through that, we're taking that all the way down to the car cycle time. So again, without mentioning a name, we are working on one right now that has to do with autos and getting to a very specific car cycle time. And from that car cycle time comes your resource, whether it's if it's a unit train business or whether you're going to put it in your manifest network, all the way that goes into our transportation plan, which on the other end comes this is how it fits on the network. And we have to consistently revisit that throughout a year and every year because things change in the railroad. The customer may have expected X and they only brought X minus 10, we make adjustments for that. Sometimes it goes the other way, we're making adjustments for that. It's a constant process.

Okay, thank you. Because I mean, and the reason why I say that is I'm coming to that is because I think what we're presented with is a lot of organizations, companies or shippers who want to grow or even want to come to railroads, we're thinking about coming off trucks or others. You know, the question is how does their growth match what your growth is, Matt is talking about. And it gets back to how we look at the network growing. Again, we've had testimony earlier about companies who their production, you know, they want to grow. I've heard in our STAC, we've heard people saying they want to grow. But they see themselves stymied on the network because of the way the network's operating now. I mean, if you guys, we're at a point now we're embargoing where the network is congested, we just can't figure out A to B, then how are you going to accept another, if you're the example taking, asking them to take cars off the network, but they're saying but we're growing by 20 next year and we're going to need more cars on the network, how does that work out? And I think that's another question that we're going to get. I think again in the investor call that you guys recently had or had in October, as I said, a number of questions were raised again about leaving business on the table. You know, why would people come to the railroads if they want to grow, if you know, you're looking at trip compliance, you know, in the 50s and 60s, because that means that there's, you know, you're not looking at on-time performance and how you're going to get those shipments from point A to point B. So the idea of growth for me has to include that, but also that investment that you guys allude to a little bit, but also I think has to be more so than showing of just okay, we've got, you know, where we are today as to where we are, that long-term plan. I just think that we're challenged in that, which again shows some of the embargo. So that's one of the reasons why I wanted to talk about growth. And I do think, you know, the investors and the folks on Wall Street, they're recognizing that. Like I said, in your recent transcript, you know, most of the questions were about that, about growing, about business, about business on the table, about how you're going to meet that. If everyone's talking about growth, how can you meet that growth if we're struggling right now from an operational perspective? So I think that's one thing we need to focus on. The other thing, Lance, I'll get to from those investor calls is everyone's talking about 55, and you've mentioned it time and again going back earlier this year even before that, that is the goal, that is the Holy Grail, 55. You're at 59 and some people say 60. Jennifer, you know, the only disagrees and says, you know...

You're at 59, but the question is how are you struggling now, how are you going to get down to 55 and still put a good product, i.e., service on the table? Correct me if I'm wrong, I'm not an economist, but my understanding is the quickest way to a lower OR is either cutting labor or raising prices, and neither of them is a good alternative. No one wants less employees or stagnant labor, and no one wants to see a rise in the cost of doing business because you're going to get to a point where these guys are going to say, 'Well, go back to truck, their pricing is lower right now, so I don't need to go to rail,' and then you're losing that business. I'd like to hear your comments on what's so important about a 55 OR.

I appreciate that, but I am going to challenge you on that because I think within the transcript you guys go back to saying that you can still hit that 55 OR, or it's a long-term projection. But you think if everything remains in 2023, there's comments from Jennifer, there's comments from you, that that's a possibility.

I guess my question is, the way you're operating now, you're challenged, and I just don't see where you're going to cut costs or deal with labor. Even if you're going to raise prices, if you're saying you can do it through raising prices, you may look at that as growth, but I don't see that in terms of healthy growth within the network. Because if you're pricing too high and pricing people out of rail, that's not taking trucks off the road. I do have an issue, and you said it shouldn't be all a focus on OR, but through this transcript, there's a whole lot of talk about OR.

Just a quick note, car velocity has been sort of the second half has been worse than the first half. You hit April was really bad, but when you look at where you were for the first quarter of 2022 compared to this past fourth quarter, it looks to me like if you're to look year over year, the last three months of this year, the last 12 months, the first three months of it compared to the last three, the last three have been worse than the first three. Let's put December in the tank and then have that. The only thing I say is when your trip plan compliance is pretty much flat, and I only say this against I have noticed you all talking about growth more, and I've heard analysts asking about growth more. I've heard across the relevant industry a lot of talk about growth, and that's great. I've actually heard green shoots with new partnerships coming out. But you see the Eastern railroads, for example, improving by 20% in the last four months in their trip plan compliance, and it seems to me they're recovering quick. And we're correspondingly hearing a lot more from customers about new partnerships and new growth opportunities from the exact railroads that are seeing that market increase. So I just would observe, because you did mention where your service has been.

I appreciate that, and I think it goes back to what he said about productivity versus performance and how they've got to meet together instead of going one over the other. I just think for what I'm saying now, I think the OR is sort of something. I don't think 55 is the brass ring at this moment. I think if you can achieve good productivity and performance at 60, I'd give you a high five. If shippers can sit there and say, 'Hey, we got the service we need and you've got the velocity that you want,' that's a win-win. I don't think it has to be tied to a specific OR. I think it can be reached. I don't think we should be doing that. I think that's what got us into trouble. I think PSR was part of that problem of redefining what OR should be and the priority of it. So I just put that out. The last thing I just want to touch on is what we all touched on before, and I think is a real issue, is labor. I think labor is still an overarching problem that the network has to overcome, not just you, but you're here so we'll talk about that. So just a couple questions. I'm not going to beat a dead horse on this one. I know I'm 53, so I gotta figure that out, make that transition. Couple questions. I'll ask you or I'll answer the one, how many more people do you think you need to be, you know, to really get over this hump? I mean, everyone says 1,400, obviously 1,400 isn't the number because you've been hiring. What do you need to not only get over the hump but if there's a vortex, if there's something else out there that you're not seeing, you have the people in place to actually get through it and recover in a way that not only helps you but benefits your shippers?

What are you going to, when are you going to get there?

I think that's exactly right. I mean, you're telling me that you don't have enough for your unscheduled work. You're telling me that your other boards right now are deficient. So the issue is not about, again, here, and I know you want to keep, I'm not saying you got it, what you have here, but somewhere along the lines you got to come up with a number that says, 'Look, this is how much we can operate on, and we can take care of our unscheduled, we can take care of the other boards, and if there is an issue that's not related to our operations, that we can handle it.' Right now, you just don't have the people. Like I said, your furloughs have seen it from the time your bridge went out till right now. Your furloughs reflect the fact that you don't have the capacity to handle the operations that your service and your businesses are asking for.

I may, well, we can do that confidentially. Let me finish. I got a couple more. So on that point, you know how the economy is going and where we're teetering right now with inflation. If there's a recession next year, will you lay off people?

I mean, and the reason why I asked that again, because going back to what Marty was leading up to, during COVID, again, we didn't know how long and how deep it would be. It turned out it'd only be a few months and everybody went back to work. But you made decisions to lay off or furlough a lot more people than I think needed to be done. And I think if you look at your other logistic companies, a FedEx for example, they didn't do the same thing. So for me, the idea is the lesson learned. If we hit a recession, we can't go back to square one and say, 'Oh, it's a recession, time to lay off everybody and furlough because of volumes going down.' I mean, it's been in your report here where it says you're not going to match employment with volume. So you've already established that you're not going to hire according to volume. So one for one is what we say, which for obvious reasons. But still, you're still not meeting it. So the question is, with a recession, are you going to go flick the switch like you've done in the past? And that's why I'm questioning how you've done in the past. We're in a recession, we're furloughing, we're sending people home.

So you've got that right. My last question, and I am going to put you on the hot seat on this. With everything that just happened with the PEB and with your labor, and as I said before with labor's representative earlier today, the issues are still out there. And recently, there's been talk of your board and others bringing up sick leave and about coming forward. I mean, would you be in favor of adding that sick leave? I mean, we've talked about it here, and I think Marty's mentioned numbers. I think it's like 40-something million dollars for that from that sick leave aspect. So understanding the cost, but I think the cost is much more valuable. The net result of that is much more valuable to the network and to the railroad than just the simple cost of that sick leave.

All right. I have a few more. I may go a little past six, but I want to give you the opportunity, Lance, while you're here, unless you can come back in the morning, but I don't think you can. So we can stay as long as you want.

On this question, and I had forgotten this was in my notes, about when we knew that the furlough rate was going to be different in 2021. At the April hearing, Beth Whitehead said that the initial return rate of furloughed employees was 70%, not 75 to 85%. And then she said it dropped to 50%. She never said it averaged to 50%. Because if it had averaged to 50%, it would have had to drop to 10% or 20%. So I don't know what the furlough return rate was. I've heard so many answers today and in your writings and what we heard in April. You must have numbers. I think the way to get to the actual facts is put the numbers down and send them to us. There's a lot of things that I want to see on the question of your hiring plan. Those that you've talked about are crucial, but I want to reiterate that I want to see them in connection with those three-year plans that get revised periodically, not ones that were prepared for this hearing, but the ones that you've already got in place and how you operate internally.

Lance, when was it, I'm still not finished, so I wanted to defer to my colleagues here. When did you zero out the art board?

It was the very end of '19, very end of '19. And so before the pandemic. Going into really, I mean, the pandemic, nobody even heard of it until March.

Well, the reason I ask is that Lance, in your April of this year earnings call, you said it was during the second half of 2021 that UP began to struggle with crew availability. That's what you said. So if you knew during the second half of 2021, which by my way of thinking began July 1st, that you were struggling with crew availability, and you also said you had between 300 and 500 T&E employees out at any given time, would not that have been a time to rev up the furlough recall and try to replenish that art board? And why didn't it happen?

That seems like a fairly small amount of people on a workforce of 13 or 14,000.

On the question of hiring plans and your December 2 report to this board just last week, what you say is that you're currently at 13,173, this is T&E, and you're going to go to 13,300, that's 127 people by next April. Does that sound like hiring like crazy, which is what you just said? And 13,550, which is another 250 by November of 2023. So you're talking about a year to find those 300 people. And it just strikes me that's a year to find attrition plus 400 people, which we anticipate. 13,170 to 13,550, 13,550 is just under 400.

So that's not new, Eric, is it? I mean, isn't that the way it always has been on the railroad? It's always been that way.

No, that percentage changes some years, but right now, just to level set us, we're sitting at around 25%. So if you're 25% washout or retention, 25% washout, so to actually get 1,400 people in a year, you're hiring 2,000. And we have about 2,050 so far this year. So I think that gives some more perspective to when we say we're going to go up 450 people.

Right, but to Lance's point, you're adding inflation plus you're adding washouts. I mean, you could be at 2,000 people to be able to fill those roles. What are you doing? Well, haven't we learned that? So Marty.

So from a finding them perspective, right, we started, our Workforce Resources Group has been at the lead in this. We started really the end of last year coming into this year saying what are some new areas that are areas that either one we were in but we think from a new perspective we could be in them even more. So for example, we've always had a very close connection with the military. Coming into this year and throughout this year, we've upped that specifically to find additional women that want to come from the military to work for the railroad. We've gotten to more community colleges and high schools than we have in the past to be able to develop those relationships. We've funded scholarships, and Marty, to your point, it's not all about transportation. So those scholarships are largely focused on the mechanical side as well as the engineering side. These are scholarships for one-year associate's degrees or even skilled work sets like welding. So it's a plethora, it's a very strong portfolio of actions. We know we're going to have to continue to do those and be inventive going in next year on additional actions on top of the ones that Lance pointed out related to quality of life and scheduled work, hiring bonuses, changing things like just a host of activity to find people in hard-to-find areas.

You know, I'm having a hard time understanding whether we all agree in this room that the problems you're facing with all these embargoes and congestion are labor-caused or not. I thought we were past that in the April hearings. I thought everybody said the problem was labor. And in your June filing in your recovery plan, you say, page four, 'The staff shortages have caused trades to be held for crews and contributed to congesting the network. Furthermore, when you have fewer crews than desired, it is more difficult to recover from unplanned variability events,' which goes back to the fire from a year earlier. I read what you're saying, and then I read Lance saying in the July of this year earnings call that PSR and its attendant labor cuts did not cause the service problems of this past year. Now, either a shortage of crews caused congestion or it didn't.

I mean, Lance, a lot of labor came out of the network. The next sentence is crew shortages cause congestion. How are those not the same thing?

Why is it with all of this effort, the embargoes zoomed up again at the end of this year? By the way, Eric, you said there were zero embargoes in April of this year. Did I hear you say that earlier?

What I said was specific to our engagement of customers to voluntarily work to take out excess inventory. If we didn't embargo that population, there were 77. There were embargoes in the month of April, but this year, I mean, what led to this hearing, you're over 1,100 for this year, and many of them here in the last three or four months. 68 in August, 92 in September, 88 in October, 163 in November, and so far this month, well, I don't know how up to date this is, 21. So we continue to be going backwards. With all this effort and all of your SIMS program and all of this we've spent all day talking about, it's getting worse. And yet, you know, you're going to have 127 more people by next April. And I haven't heard a peep about locomotives, other than that you have 1,800 fewer than you had a couple years ago. So how could we expect that this problem is going to, you know, and then we say when's the end date? You know, and you can't seem to give us one. So I'm mystified by where we are at this point, what we've accomplished all day today.

Well, on that score, I'm not clear whether you get rid of the embargoes for the time being or not. That having embargoes as a standard part of your operating plan is lawful or appropriate. And on that point, let me ask Lance, if you asked for a legal opinion on this embargo plan that you use internally, and if you got one.

And you can reserve your response on this, but if you have a legal opinion that this approach to the use of embargoes is consistent with the law on the subject, I'd like to see it. If that is something you don't feel you can share on a privileged basis, I'm obviously open to hearing such a claim, so I'm not pressing you at this point. But I do want to see the internal documents and memos which led to the institution of this program, with or without the legal opinions about it.

All right. And you could waive privilege too. I'm not saying you have to, but that's a question I'm not pressing.

Well, you should be, I'm not your lawyer, but once you start describing things you may waive something. So we'll reserve on that. But it should be obvious to you that I find the way UP has both used the embargoes and the way it's described its own program very troubling and very problematic, given the whole law of embargoes and the common carrier obligation, which has been a large focus of my concern and I think many people on the board's concern over the last couple of years as we've struggled with these service problems. I actually think I have, there's a lot of other things I could talk about, but I'm going to wait to see documents. That's why I wanted some before the hearing. We may have to reconvene depending on what kind of information we get. I'm not saying we will, but I don't feel like we have finished this discussion. Let me say it that way.

Well, and I just don't want conclusions that you write for us. I want to see your actual internal documents, what you were discussing at the time, how you reached these decisions, were there debates about them, what was the policy. Let me just ask one final thing, and I think that Patrick had covered this, and if you've already answered it, I apologize, but I don't feel like this pointed question was asked. Maybe it was. Going forward, if you have a customer who wants to put more inventory on your line than you feel you can take, would you concede a reciprocal switch so that customer can move forward with somebody else?

You're not prepared to commit to the board that this is available to your customers who we think are suffering these embargoes?

Well, I know I'm specifically focused on those customers who are being told to meter their traffic or they're going to be embargoed, and they've got more traffic than you can take. In that circumstance, at least until we stop saying 50, 80, 100 embargoes a month, it almost seems that you're not in a good position to say we won't take your cars and nobody else can either.

But one of our witnesses from today said took out 130 cars, didn't change my production, didn't change the receipt on the customer end. That's the definition of I didn't need those 130 cars on the network. That's what we're talking about. I just have one final question, then Patrick, go ahead.

One of the other things that I think, and I think it's up to us actually to ask the railroads to give us standard reporting, is that I want to just give you a heads up to reconcile these numbers that we hear from labor and your numbers about employment. It really is confusing, and I don't feel like we have a particularly, you know, this is like watching Kornacki late at night getting the election, and you know, you're only 127 people apart, but seems to make the whole difference of whether the railroad is going to succeed. And I'm not sure that those numbers are that small, but if they are, then I'd like to know whose numbers are right.

I don't think it's a question that they're not accurate, Lance. I think it's a question of how they're being counted. That's the question. I'm not saying who's included, I'm not suggesting that anybody is giving us potentially giving us phony numbers or even incorrect numbers. It's just how we count them. Even in our 770 reporting, we have total employees, we have ones that are active, we have ones that are in training. I actually have one more question I want to direct then, Patrick, at you before we finish. I am a little concerned that we were told, I can't remember now where, maybe it was at an earnings call, that you have reduced your training for your new employees to 14 weeks. And we're not the safety monitors, but we are the people who are trying to encourage you, let's say, to put it euphemistically, hire what you need. And if the only way to meet the metrics you're promising us, I think this was in an earnings call in January of this year, we weren't going to force you to look for the words.

We did. Well, I think we're talking about two different things though. So when we came into this year, we extended the training time of a new transportation employee to 14 to 17 weeks. What that means is if you're not getting qualified for remote control locomotive, you're 14 weeks. If you're going to go through that additional qualification, which most of our people do, you're 17 weeks. We added in inside of that process about two and a half more weeks, which is reflected in the 14 to 17, for more what we call OJT or on-the-job training, being out in the field with trainers. What we've also done is taken down the amount of time it takes to onboard a new employee to Union Pacific by about 30%. That's been done through streamlining some of our processes from the hiring process to the paperwork and other things that all come before we get to the actual training, which I think we should be talking about.

I was also, Eric, referring back to if you go back four or five or six years, the training period for a conductor might have been 22-plus weeks. The issue being a large percentage of those, they weren't really being trained, they were waiting for available equipment to learn.

Some, totally agreed, that 100%.

It wasn't the training period at 1.6 months.

No, no, our training period, so I've been with the railroad for 22 years, our training period in that time, I don't ever recall being six months. I recall the longest period might have been 24 weeks, mostly it was 20 to 22. And again, when we really tore that apart to try to enhance the engine, we would put trainees into a yard and then just wait for the equipment to be available to learn something. And today we dedicate tracks and dedicate equipment, so you don't wait. You show up, equipment's available to you, trainers there, technical trainers there. And our technical trainers, by the way, they're not some yahoo that we take off of somewhere. They're craft professionals that have decided they want to train people, and we've tested them and they look like they'd be very good at it. So all of our trainers are very good railroaders. Just as an example, I was just in Houston the week before last and got a chance to sit down with 60 new hires who were out in the field with three trainers going through that exact process.

Well, you know, we hear from labor that some of the washout problems are people who get out of your class, that it wasn't specific to UP in general. We have had reports that people get out of the training classes, I think put them in a yard with a big train coming towards them, and they do not feel safe. They don't feel that they know what they're doing, and that is causing some of the washouts. I've heard that more than once. So, you know, I don't know, I don't think Chairman Nick can pick that up.

No, it's feasible, right? I mean, but for us, the washouts really occurred during training where they're not passing tests or they're finding out the work's not for them. Once they've graduated, it's a pretty damn tiny number, and mostly it's about the work's not for me. Sometimes it scares me, a lot of times it's I didn't know when you said I had to work, you know, midnights on Sundays, that you really meant midnight on Sundays.

Patrick.

I was going to show me a quick correction, Lance. I mean, you had talked a couple times about the one customer you said that where they took cars off the line and it worked. I mean, they removed 130 cars, but they replaced them with system cars. And so it's not like a fraction.

So what he was, so it's not necessarily a washout for them. They're losing cars and they're paying more for fewer cars. And so it's not an even trade. And again, that's also being the disconnect. Everyone says, 'Oh, that worked out well.' These guys don't think it worked out well. And he got a fraction of the cars back on and had to pay more than he was paying before to ship them. And there's still no guarantee those cars were going to move when they're going to move just because they're system cars. You know, they're still dealing with those operational issues. So I don't want to make it sound like, 'Oh, here's an example of how it works,' because he's at the table saying they did reach an agreement, but he walked away with less money in his pocket because of that agreement and with less access to the system and to the network because of that. Less cars, more money. And that's why I said in the end, you guys are walking away saying, 'Hey, high five, sunny day,' they're walking away saying, 'You know, is it raining or is it something else?' And so that's where we got to figure that out.

I'll just conclude. Just to be clear, because my name was invoked, when I was asking the question about access, I am not talking about access by right or because of a particular layout of the network. I'm talking about access in the context of UP or UP service performance, in the same way that you consider your below 80 first/last mile, expanding it to include things like trip plan and transit time and the like. That's the context that I'm talking about access, not by right. And then the other thing I was just going to add, we have discussed some of the actions that UP is taking to meet hiring plans. And I think Lance, you shared some additional ones on what's called an umbrella that is frequently termed work-life balance or providing better working conditions that go beyond just say onboarding, but of course relate to onboarding. I thought that the best comprehensive overview that I've heard on this was actually from Brad at our stack about all the actions that UP is taking. It really gave a full suite of it. And I think as you all indicated that you'd like to file your hiring numbers, I think that's really valuable context. To the extent that some of those are competitively sensitive, you know, we have under seal, I assume that some of your numbers would be under seal, but I think that context of the suite of actions that you all are taking is very useful. So thanks.

Sorry, I didn't have the microphone on. Let me repeat myself. Do you have an estimate of the amount of gross revenues you may have lost as a result of the embargo program, say over the last year?

I'm going to take you back to April going into May and June of this year. In April, we were at about 160,000 seven-day car loads. I'm going to, there's a time in there where that's the right number. Inventory is like 203,000 and car velocities like it gets as low as 178 or 177 miles a day. We talk to customers and say, 'Man, we got to get rid of some inventory.' They help, we get rid of some inventory, we continue to get rid of some inventory, and we get to a place in June that's 198 miles a day, 199 miles a day. Inventory is, I'm going to make this number up but I think it's a ballpark, right, 190 and a kicker. And carloads is 160 and a kicker. Inventory dropped, velocity of cars went up, carloads stayed about flat, maybe even it grew a little bit. From my perspective, that's a proof statement that if you got excess cars in the network, they're getting in the way of fluid, and there's zero impact on carloads.

I just have a hard time reconciling that with some of the testimony we've heard from shippers saying, 'In order to deal with this problem, I've had to put product on truck.' So I think you are losing revenue for short periods, you very well might be. And I just wondered if you'd ever taken that into account, calculated it in terms of estimating the overall risk for this program, not just for your shippers but for the company.

I thought the question was have you calculated what you've lost.

For the record, whatever revenue you may have lost, in 2019 you had 300-some embargoes and $8.3 billion in share buybacks and dividends. In 2020, you only had 200-some embargoes before the pandemic, and even though there was a pandemic, you managed $6.3 billion in buybacks and dividends. In 2021, when embargoes skyrocketed to over 600, you had $10 billion in buybacks and dividends. And so far in 2022, and I don't think we have the full year's account yet, the stock buybacks and dividends have been about $7.6, $7.7 billion. So whatever the revenue was, Karen, the shareholders are making out quite well.

That's why I was asking for gross revenue, not net revenue.

I share your thought that logic would seem that business is being lost, but not profits apparently being hurt significantly. And you can correct those numbers, but they come from your report, so I assume that I got them right. So with that, I think we really don't need to ask any of you to come back tomorrow. You have, I want to echo what Robert said, that we really appreciate your endurance, your patience, you're being here. Obviously, we have follow-up that we've talked about. We'll try to make that more formal so not to have any confusion. Before we recess officially, I have to ask everybody here, please pick up any garbage that you have disposed of in your seats or around there and put them in the trash cans in the back. We would appreciate that, but particularly our cleaning staff would appreciate it. With that, we will recess until 9:30 tomorrow for the next panel. Obviously, if you guys stay, you're welcome to stay, and you may want to stay because questions may come up there. We will allow you time to come back and answer them, but that's up to you. We had asked you to be here today. We'll discuss, there might be a cadre of us that stick around.

You sort of leave yourself at the peril of people that will say something that you want to answer. All right, thank you. Thank you all.