Greetings. Welcome to Union Pacific second quarter 2021 conference call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It's now my pleasure to introduce your host, Mr. Lance Fritz, Chairman, President, and CEO for Union Pacific. Mr. Fritz, you may begin. Thank you, Rob. Good morning, everyone. Welcome to Union Pacific's second quarter earnings conference call. With me today in Omaha are Eric Gehringer, Executive Vice President of Operations, Kenny Rocker, Executive Vice President of Marketing and Sales, and Jennnnifer Hamann, our Chief Financial Officer. The team at Union Pacific continued to demonstrate their capability as we moved increasing volumes while dealing with challenging capacity constraints in some of our important supply chains. The result was the team delivered all-time record financial results. Our employees are making good on our strategy to serve, grow, and win together. Regarding our second quarter results, this morning, Union Pacific is reporting 2021 second quarter net income of $1.8 billion, or $2.72 per share. This compares to $1.1 billion or $1.67 per share in the second quarter of 2020. While comparisons to the second quarter of last year are skewed by the COVID impact, a comparison to 2019 further demonstrates the impressive results we achieved during the quarter. Our quarterly operating ratio of 55.1% is an all-time record. In addition, we set quarterly records for operating income, net income, and earnings per share. These records highlight how the team is running the Union Pacific franchise to deliver results, as we pulled all three profitability levers simultaneously, volume, price, and productivity. The second quarter also marked an important milestone in our quest to reduce our carbon footprint as we achieved a second quarter best fuel consumption rate. Locomotive fuel efficiency is the critical element to achieving our goal to reduce greenhouse gas emissions. We're helping our customers achieve their ESG goals, too, as they eliminated 5.7 million metric tons of greenhouse gas emissions in the quarter by using rail versus truck. While our financial results were impressive in the second quarter, our customers felt the impact of intermodal supply chain disruptions and costly rail equipment incidents. Within the intermodal space, we've taken numerous actions to mitigate the customer impact and are actively working with all parties in the supply chain. Even so, it's likely these issues will persist through the end of the year as the capacity to move boxes from our ramp to the final destination falls short of demand. Relative to rail equipment incidents, while the number and rate improved, their impact on the network was notable. We're redoubling our efforts to utilize best-in-class technology, training, and root cause analysis to keep our crews, our customers, and our communities safe. To that end, we'll start with Eric and an update on our operations. Thanks, Lance, and good morning. I'd like to begin by thanking the entire operating department for their support our customers through the many transitory challenges we faced during the first half of this year. While we don't see these events impacting us long term, there's real work to be done to get past them. Moving to Slide 4. Taking a look at our key performance metrics for the quarter, it's important to note that year-over-year comparisons are a little skewed. 2020 included a couple historically low volume months at the start of the pandemic. As Lance did, we've provided a 2019 comparison to give a little more context to more normal seasonal volumes. Freight car velocity improved from 2019 due to the execution of PSR principles that reduced freight car terminal dwell and improved train speed. We still have work to do to return to running a more fluid network with the goal to return this metric back to the 220-230 miles per day range we achieved earlier this year. As you can see, our service reliability, as measured by trip plan compliance, has improved over time in both service categories. Current quarterly metrics do not meet our expectations or that of our customers. Disruptions in the international supply chains, especially in the intermodal space, have impacted our network significantly. At the expense of our own service metrics, we chose to help reduce port congestion by moving more assets into dock operations. That West Coast port congestion has now moved east and is affecting some of our inland terminals, most notably in Chicago. We are working proactively with our commercial team and ocean carrier customers to address the congestion while continuing to sustain shipment volumes to and from the ports. To help alleviate the congestion and maintain fluidity, we also temporarily reopened Global III in Chicago for use as an inland storage. We are also working with our customers to develop additional storage and transportation options. We will continue to work with all members of the supply chain, our ocean carrier customers, beneficial cargo owners, port operators, chassis providers, and dray carriers to maintain the fluidity of international freight flows. During the first half, our network has been impacted by weather and costly rail equipment incidents as well. We have made good progress on reducing the frequency of rail incidents. However, the location of a couple of the incidents occurring on our east-west main corridor and our Sunset Route had a notable effect on both intermodal and manifest auto trip plan compliance measures. Ultimately, we recognize the importance of improving these metrics to support our customers and our long-term growth strategy. Turning to Slide 5. We continue to make good progress on our efficiency measures as both locomotive and workforce productivity improved in the quarter. Improvement in locomotive productivity was the result of running an efficient transportation plan that requires fewer locomotives. Workforce productivity was an all-time quarterly record, driven by an increase in daily car miles of more than 20%, while workforce levels remained flat. These improvements were also driven by our continued focus on growing train length, which has grown by 9% since the second quarter 2020 to just over 9,400 feet. Increasing and more consistent volumes provide the team with more optionality to adjust transportation plans. We will continue to focus on train length to run a more efficient and reliable railroad for our customers. Turning to Slide 6. One driver of the continued increase in train length is our siding extension program. Through the first half of the year, we've completed 7 sidings and began construction or the bidding process on more than 20 additional sidings. Through growing train size, other productivity initiatives, and technology, our fuel consumption rate was a second quarter record, improving 3% compared to last year. The operating department understands the important role we play in achieving our long-term greenhouse gas emission goals. Wrapping up on Slide 7. The entire team is focused on performing our work safer every day. Year-to-date, our safety results have been mixed. Rail equipment incidents have decreased, but personal injuries increased. To address personal injuries, we are maturing our peer-to-peer safety programs, which is a continuation and next level of our Courage to Care program. Recently, our network has been impacted by wildfires in Northern California. Our Dry Canyon Bridge north of Redding, California, sustained significant structural damage. The team is working around the clock to repair the bridge. Current projections have it reopening in late August. We are actively rerouting traffic in that area, which requires additional crew and locomotive resources, as well as adding transit time to those customer shipments. Ultimately, I have the utmost confidence that we will guide our network through these transitory challenges and return our service product to the level our customers expect and deserve. The team did an excellent job during the quarter in how efficiently we added volume to our network. PSR remains our guiding principle, the improvements you've seen in our productivity and operating efficiency speak to that commitment. Our ability to be far more volume variable with our cost structure is a testament to our employees who execute the plan every day. With that, I will turn it over to Kenny to provide an update on the business environment. Thank you, Eric, and good morning. Our second quarter volume was up 22% from a year ago as all of our major markets improved from the economic shutdown that we saw from the onset of the pandemic. Freight revenue was up 29% due to the volume increase, coupled with a higher fuel surcharge and core pricing gains. We clearly have easy comps this quarter versus last year. In order to provide a little more color into the current business, I will also share a sequential comparison to the first quarter as I walk through each of the business groups. Let's get started with our bulk commodities. Revenue for the quarter was up 19% compared to last year, driven by a 13% increase in volume and a 5% increase in average revenue per car, reflecting core pricing gains and higher fuel surcharge revenue. Coal and renewable carloads grew 6% year-over-year and 14% from the first quarter due to higher natural gas prices supporting domestic coal demand, Winter Storm Uri in the first quarter, as well as increased coal exports. Grain and grain products were up 22% year-over-year due to the strength in both domestic and export grain. Ethanol shipments also continued to improve as production recovers from COVID-related shutdowns. Fertilizer carloads were up 2% year-over-year and 23% from the first quater was up 17% year-over-year and 7% from the first quarter, driven primarily by higher consumer demand as the economy recovers from COVID, along with increased growth from truck penetration. Moving on to industrial. Industrial revenue improved 24% for the quarter, driven by a 15% increase in volume coupled with an 8% increase in average revenue per car from a positive mix of traffic, core pricing gains, and a higher fuel surcharge. Energy and specialized shipments were up 20% year-over-year, but were down 1% compared to the first quarter as strength in specialized shipments were offset by fewer crude oil shipments and seasonal LPG demand. Forest products continues to be a bright spot, as second quarter volumes grew 28% year-over-year and 7% over the first quarter. Lumber drove this increase from strong housing starts, repair and remodels, along with further penetration from products moving over the road. Industrial chemicals and plastic shipments were up 11% for both year-over-year and the first quarter comparisons. The sequential growth was driven by the recovery of the Gulf Coast production rates from the February storm and improved demand. Metals and minerals volumes was up 12% year-over-year and 25% from the first quarter, driven by increased rock shipments and stronger steel demand as the industrial sectors recover. Turning now to Premium. Revenue for the quarter was up 50% on a 31% increase in volume. Average revenue per car increased by 14% from higher fuel surcharge revenue, positive mix of traffic, and core pricing gains. Automotive volume was up 119% year-over-year, but down 4% compared to the first quarter, driven by shortages for semiconductor-related parts. Intermodal volume increased by 21% year-over-year and 10% from the first quarter. Domestic Intermodal improved from continued strength in retail sales and recent business wins. Parcel, in particular, benefited from the ongoing strength in e-commerce. International intermodal saw continued strength in containerized imports despite congestion in the overall global supply chain. Looking ahead to the back half of 2021. Starting out with our bulk commodities, we expect coal to remain stable for the remainder of the year based on the current natural gas futures as well as export demand. Our food and refrigerated shipments should continue to be strong as the nation recovers from COVID, coupled with truck penetration wins. We are also optimistic with our grain products business as ethanol shipments will improve from increased consumer demand and our focus in growing the renewable diesel market. Lastly, while we see positive signs for the upcoming grain harvest and strength in export demand, we expect tight supply in the third quarter as well as tough year-over-year comparisons in the back half of the year. As we look ahead to our industrial commodities, the year-over-year comps for our energy markets are favorable. However, there is still uncertainty with crude spreads supporting crude-by-rail shipments. We continue to be encouraged by the strength in the industrial production forecast for the rest of 2021, which will positively impact many of our markets. In addition, forest products volume will remain strong for us in the second half of the year. Lastly, for premium, automotive sales are forecasted to increase from 14 million units in 2020 to almost 17 million in 2021. However, we are keeping a watchful eye on the supply chain issues for parts related to the semiconductor chip. Now, switching to intermodal, on the international side, we expect demand to remain strong through the rest of the year. The entire supply chain continues to be constrained by, most notably, the haul away of containers from our inland ramps. I've been pleased with the collaboration between our commercial and operating teams as we work together to create solutions for our international customers to improve service and network fluidity. With regard to domestic intermodal, limited truck capacity will encourage conversion from over the road to rail, tempered by constraints on chassis supply. Retail inventories remain historically low, and restocking of inventory, along with continued strength in sales, should drive intermodal volumes higher for the remainder of this year. Overall, I'm encouraged by the improving economic outlook, but more importantly, by our commercial team's intensity and ability to win in the marketplace. With that, I'll turn it over to Jennnnifer. Thanks, Kenny, and good morning. As you heard from Lance, Union Pacific recorded record second quarter financials with earnings per share of $2.72 and an operating ratio of 55.1%. Rising fuel prices throughout the quarter and the two-month lag on our fuel surcharge programs negatively impacted our quarterly ratio by 210 basis points and earnings per share by $0.04. Below the line, a previously announced real estate gain and a lower effective tax rate associated with reduced corporate tax rates in three states added $0.13 to earnings per share. Partially offsetting that good news in 2021 is a real estate gain of $0.08 recorded in last year's second quarter. Setting aside the impact of one-time items and fuel, UP's core operational performance drove operating ratio improvement of 800 basis points and added $1.04 to earnings per share. These results are a clear demonstration of how we are positioned to efficiently leverage volume growth to the bottom line. Looking now at our second quarter income statement on Slide 15, where we're showing a comparison of this quarter's results to second quarter 2020 as well as 2019. This is to provide additional context to our results by comparing periods with more normal seasonal volume levels. For perspective, 7-day car loadings in the second quarter of 2019 were almost 166,000, versus only 133,000 in 2020. Then rebounding this year to 163,000. Not quite back to pre-pandemic levels. For second quarter 2021, the combination of operating revenue up 30% and operating expense only up 17% illustrates our efficient handling of volume growth to produce record quarterly operating income of $2.5 billion. Net income of $1.8 billion and earnings per share also were quarterly records. Looking more closely at second quarter revenue, slide 16 provides a breakdown of our freight revenue, both on a year-over-year basis and sequentially versus the first quarter. Freight revenue totaled $5.1 billion in the second quarter, up 29% compared to 2020 and up 10% compared to the first quarter. Looking first at the year-over-year analysis, volume was the largest driver, up 22% against the pandemic-impacted second quarter 2020 volumes. Fuel surcharges increased freight revenue by 425 basis points compared to last year as our fuel surcharge programs adjusted to rising fuel prices. As we experience a strong demand environment, our pricing actions continue to yield dollars in excess of inflation. On a year-over-year basis, those gains were further supplemented by a slightly positive business mix, driving in total 300 basis points of improvement. Looking at freight revenue sequentially, volume was again the largest driver of growth, up 875 basis points against weather-impacted first quarter volumes. Sequentially, fuel surcharge increased freight revenue 275 basis points. Business mix was actually negative sequentially, more than offsetting positive pricing gains and creating a 100 basis point headwind. Let's move on to Slide 17, which provides a summary of our second quarter operating expenses. With volumes up 22% in the quarter, our benchmark of success is growing expenses at a slower rate. As you have seen through our results, we did an excellent job of being more than volume variable with our cost structure. Looking at the individual lines, compensation and benefits expense is up 13% versus 2020. Second quarter workforce levels were flat compared to last year, generating very strong workforce productivity, as Eric described. Specifically, our train and engine workforce continues to be more than volume variable, up only 10%, while management, engineering, and mechanical workforces together decreased 5%. Offsetting some of this productivity was an elevated cost per employee, up 13% as we experienced increased overtime and, more recently, higher recrew costs associated with some of our network outages. Other drivers of the increase were wage inflation, the negative comparison against last year's management actions in response to the pandemic, as well as higher year-over-year incentive compensation. Quarterly fuel expense increased over 100%, driven by a 71% increase in fuel prices and a 22% increase in volumes. Offsetting some of this expense was a 3% improvement in our fuel consumption rate, driven by our energy management initiatives and a more fuel-efficient business mix. Purchased services and materials expense increased 8%, primarily due to higher volume-related subsidiary drayage costs as well as other volume-related expenses such as transportation and lodging for our train crews. These increases were partially offset by around $35 million of favorable one-time items. Equipment and other rents actually decreased 5%, or $11 million, driven by decreased rent expense on stored equipment and higher TTX equity income, partially offset by volume increases. The other expense line increased 21%, or $49 million this quarter, driven by last year's $25 million insurance reimbursement, higher casualty expenses, and higher state and local taxes. Lastly, as previously announced in an 8-K during the quarter, we expect our annual effective tax rate to be closer to 23% for the year. Looking now at our efficiency results on Slide 18, despite some of the operational challenges that Eric discussed, we continue to generate solid productivity. Second quarter productivity totaled $130 million, bringing our year-to-date total to $235 million. Productivity results continue to be led by train length improvements and locomotive productivity. As we stated at our Investor Day, a better long-term indicator of our efficiency is incremental margins. Looking at this quarter, we achieved a very strong incremental margins of 78%, demonstrating the positive impact PSR is having on our operating model. Turning to Slide 19, cash from operations in the first half of 2021 decreased slightly to $4.2 billion from $4.4 billion in 2020, a 4% decline. This decrease was the result of deferred tax payments last year. Our cash flow conversion rate was a strong 96%, and free cash flow increased in the first half, up $142 million or 9%, highlighting our ongoing capital discipline. Supported by our strong cash generation and cash balances, we've returned $5.4 billion to shareholders year to date as we increased our industry-leading dividend by 10% in May and repurchased 19 million shares totaling $4.1 billion. This includes the initial delivery of a $2 billion accelerated share repurchase program established during the quarter and funded by new debt issued in mid-May. We finished the second quarter with a comparable adjusted debt to EBITDA ratio of 2.8x, on par with the first quarter. Wrapping up on Slide 20, we are optimistic about what's ahead in the back half of 2021. From a volume standpoint, we are increasing our growth outlook for the full year to around 7%, which includes just over a one-point headwind from ongoing energy market challenges. We also see tough comparisons in both intermodal and grain, as well as continued impacts from the semiconductor shortage. As you heard Kenny mention, supply chain challenges in the intermodal space are likely to slow asset turns and impact loadings. On the flip side, we see growing confidence in the industrial sector, and the team is successfully executing on our plan to grow and win with customers. Looking at operating ratio, we're dropping the low end of our initial range and now expect to achieve roughly 200 basis points of improvement or an operating ratio closer to 56.5% for full year 2021. With that strengthening outlook, cash generation is growing, as is our plan for share repurchases, which we would target at approximately $7 billion, or $1 billion more than we had originally planned. Finally, I want to acknowledge that these record results would not be possible without our great workforce. Behind each of these numbers is a member of the UP team who worked safely and efficiently to attract new business and serve our customers. With UP's new employee stock purchase plan, the entire team has more opportunity to benefit from the company's success. With that, I'll turn it back to Lance. Thank you, Jennnnifer. As I mentioned at the start, we must improve our safety performance. It's foundational to everything we do at Union Pacific. The pace of our progress has to accelerate. As Eric stated, we're dedicated to improving our service product to the level our customers expect and demand. All of our long-term goals are predicated on a safe, reliable, and consistent service product. As you heard from Kenny, we're winning with customers and growing our business. You're seeing our customer focus and obsession in action. We've got fantastic momentum, and we're excited about the increasing opportunities that we are creating and uncovering. Given the workforce issues faced across various parts of the supply chain outside of UP, we'll likely be working to overcome that congestion for the remainder of the year. Our second quarter achievements set the table for continued strong results in the second half of the year. These results also provide a solid start toward the long-term targets we set for the next three years that we laid out at our Investor Day in early May. The future is very bright for Union Pacific. We're in a fantastic position to deliver value to all of our stakeholders as we win together. With that, let's open up the line for your questions. Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question, please press * 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press * 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time and so that we can accommodate as many analysts as possible, we would ask everyone to please limit themselves to 1 question. Thank you. Our 1st question comes from the line of Tom Wadewitz with UBS. Please proceed with your question. Yeah. Good morning. Let's see. I wanted to ask you a bit about the network constraints. Obviously, you took an action at Global IV that was unusual, but I know there was good logic, obviously, for that. Is that something where you're confident that will be reopened in a week? I guess, from a broader perspective, maybe for Kenny or Lance, is the broader rail network issues or service issues a significant headwind to your ability to gain share from truck and make that pitch a better service? Is this just extreme unusual times and you don't think it really hurts you on that share gain versus truck strategy? Thank you. Yeah. Thank you, Tom. I'll start, this is Lance, and then I'll turn it over to Kenny. In terms of network constraints, we view them largely as transitory. There's one issue which you pointed out in the international intermodal supply chain, which is about demand and inbound containers overwhelming the capacity for the ultimate customer to take the boxes off our ramps and get them into their warehouses and distribution centers. We think that's going to be around for a little while. The pause that we've taken at G4 is all about allowing those end users, those shippers, to ultimately be able to clean off that inventory so that we can start with a more fluid operation. Overall, I think, Kenny, that we've demonstrated in this environment, we can still convert truck with our current service product, but that's in no way saying the current service product is adequate or appropriate for truck conversion in the long run. Yeah, Lance, you said it right. Let me just back up for a minute and just say that this started with some pretty strong demand that we saw coming from international trade. I'll tell you, Eric and I jumped right in with our customers and all the supply chain members as soon as we saw this. What I mean by that is first, we went out, we added more short wells, we added more long wells, we added more chassis. We increased the train start. We sat down with our customers on a daily basis, flew out to the ports and had executive meetings there. We also held an executive forum with all of the international intermodal customers to work through solutions. That's where we came up with a solution of Global III. What people don't know is we also came up with off-ramp type solutions. Finally, we inserted Loops to help with the BCOs to try to offer up solutions for more drayage off of our ramps. We've been working hand in hand with not only our customers, but everyone in the supply chain. The pause that you see should help us balance the network. Now, on a broader level, this is transitory. We don't see this being around forever. We expect as the velocity continues to improve, absolutely, we're going to win more truck share. We've demonstrated that we can do it thus far, we feel very good about what we see in the future. Do you think that the halt is going to be done within a week, or can you comment on that? We're in the early stages right now. What I can tell you is that we're working on a daily basis to make sure that demand matches the haul. Yeah. Okay. Thanks for the time. Our next question comes from the line of Jon Chappell with Evercore. Please proceed with your question. Thank you. Good morning. Kenny, sticking with you, given all the service issues that seem to be grabbing the headlines, your pricing environment still seems to be incredibly robust pretty much across all sectors. Can you speak to balancing some of these service issues and your conversations with the customers to still being able to push through price on a one consistent basis going forward? Maybe even as it relates to coal, where you were super cautious back in April and maybe a little bit more balanced in July, is there a chance you're still even being conservative with the coal outlook for the back half of the year, especially on the pricing front? Thanks, Jon. You've got a lot of questions here. I'll try to answer them all. First of all, the pricing environment, we're going to price to the market, and there's tight dray capacity. There's tight truck capacity. You look at even the first part of this year, we feel good about the price that we were able to take. We've improved on that price acceleration as we moved now to the second half of the year. I do think it's important for us to look at our intermodal business and not call that or have a broad brush to say all of our challenges in the international intermodal are playing out in other areas, we are able to get more price and volume there. The last question is about coal, and as we look for the rest of the year, for sure, as we look at where the futures are, we think that the run rate that we see today will be consistent for the rest of the year. Got it. Thanks for your insight, Kenny. The next question is coming from the line of Brian Ossenbeck with JP Morgan. Please proceed with your question. Hey, good morning. Thanks for taking the question. I wanted to ask one about mix and how you see that developing here throughout the rest of the year. It looks like on a sequential basis, it was still weak, it ate away at most of your core pricing gains there. Given the commentary about the volume outlook in the back half of the year, I would expect that that should start to turn positive. Any thoughts on there would be appreciated and also the implications for fuel economy, which, as we've talked about in the past, has been also impacted by adverse mix. Yeah, Brian, I'll jump in here. You're right, from a we did have a little bit better performance there relative to mix as we saw the coal and the grain continue strong. Whether or not that continues, you heard Kenny talk about coal staying stable, that may help us. Our primary efforts relative to fuel consumption are really around how we're running our locomotive fleet, the technology that we're using, and mix is just kind of a benefit sometimes, but not something that we're counting on. We know that we need to drive that change ourselves. In terms of how we look at mix overall for the back half of the year, we do see some ongoing pressure, particularly with grain. Had very strong grain last year, grain plays a big role in that mix. As I look just at the third quarter, autos could potentially play a role there. It was beneficial a little bit in the second quarter on a year-over-year basis, but not sequentially, to your point. We're really watching that chip shortage to see what happens with autos. Intermodal is going to stay strong, and we're maybe losing a little bit of the top side there relative to some of these supply chain challenges. Those are the things to watch for, and obviously, you guys get good visibility to that throughout the quarter. Specifically on fuel, was there anything that you implemented this quarter, or was it just kind of accumulation of all the initiatives you've been working on? I don't believe there was anything special that we did this quarter. Eric, I don't know if you want to comment on that. No, I think accumulation of the initiatives, I mean, we've talked before about the fact that we've got more than a dozen initiatives. The big ones continue to be our work on modernizing locomotives, our implementation of EMS with 800 more units this year. Even things as we look at continuing to invest in our wayside lubrication, all those point in the direction of being able to continue to become more fuel efficient. Hey, Brian, the cool part about that [tax] rate is it hits two critical buttons for us. It's got a cost impact, maybe more importantly, it's got a greenhouse gas emissions impact. Mm-hmm. Exactly. All right. Thank you. Thank you. Our next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question. Thanks. Good morning. I wanted to ask about train length. I mean, obviously, you guys continue to improve that meaningfully. I guess I'm curious, can we see an acceleration in the pace of improvement in the second half, given the sidings additions? I'd imagine increased volumes help as well. I guess, can you get to 10,000 ft by Q4 or year end? Does all of this drive potential upside to the $500 million productivity target for the year? Thank you. Take that on? Absolutely. Thank you for the question, Allison. To your point, yes, the siding extension work with seven completed and 20 more to be completed before the end of the year certainly assists us in our efforts to be able to grow train length. As I've mentioned before, though, we also have our process improvement, which is really focused on our transportation plan and looking how we combine trains. I'm not going to guide you to a specific number by the end of the year. What I will certainly tell you, though, is that the entire team understands it's one of our single biggest levers to continue to drive productivity, and we're all focused on it day after day. I'll also point out that as we've been working through some of these transitory events, i.e., the bridge outage on the I-5, that will become a temporary headwind to us in the beginning of the third quarter. That does not stop all of our efforts, though, to continue to grow that through the rest of the year. Okay, perfect. Thank you. Thank you, Allison. Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question. Hey, thanks. Good morning. Jennnnifer, you guys referenced some equipment incidents. Is there any way to put some numbers around how much that's costing? When you think about operating ratio and incremental margins, do you think we should see sequential operating ratio improvement as we go into the back half? The year-over-year trends just start to normalize a little bit, do you think we can maintain this level of incremental margin? Thank you. Thanks, Scott. In terms of the equipment incidents, we would put all of our casualty costs together. Yes, we did have some equipment incidents. We had a little bit higher expense in terms of some of our environmental and personal injury accruals. I'd say all in, that cost us probably about $0.05 on the quarter. That's how I would size that. In terms of the operating ratio and margins, our incremental margins in the second quarter, 78%, very strong. I think we can maintain that pace through the back half. If you think about our operating ratio guidance, though, the 56.5%, just mathematically, that would say that we're not probably going to see sequential level improvements. We do have tougher comps as we move into the back half of 2021, and we see volumes being, I'll say, kind of flattish sequentially. If we could get some upside there, obviously that could help as well. Yeah, I just want to point out, Jennnnifer, that 55.1, 55x are terrific operating ratios. We're not satisfied. It's not like we're going to camp out there if there's an opportunity to improve, but that's a hell of a performance. No, absolutely. Of course, that all goes into our longer-term guidance that you're aware of, Scott, in terms of getting to that 55% next year and then having long-term incrementals in the mid-60s%. Thank you. Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question. Hey, great. Good afternoon. Good morning. Lance and Jennn, if I could just follow up on that incremental comment. If you think about the second half, you're increasing your volume target, yet you're kind of maintaining the OR target at that 56.5. Just want to walk through the leverage you see on the network. If you've got room still, you've been at 180,000 weekly car loads. You mentioned down at 163. It still seems like you've got operational room for benefit. You should have fuel catching up in the second half after getting a negative in the current quarter. Is there anything that wouldn't lead to a better than the 56.5 target that you've got, given the additional 100 basis points of volumes? Ken, you're kind of painting us into a corner there. I'm going to start and say that the full year operating ratio, of course, incorporates the first quarter, which I think was a 60 dot something. There's also the headwinds that Jennnnifer mapped out. There are tailwinds, but we got to be balanced in our perspective in terms of recognizing there's some headwinds that are going to be showing up in the second half. Yeah, to your point, Ken, we did up our volume outlook. If you look at that really says we're pretty flat from where we're at today in terms of ending the second quarter out through the end of the year. July is off to a bit of a slower start, which isn't unusual. You've got the Fourth of July holiday. Right now, our seven-day run rate for July is kind of the high 150s. We've got to see that pick up, and obviously some of these transitory issues that are going on in the intermodal space are having an impact on that top line. I feel very good. 56.5 would be a record performance and sets us up great going forward. Great. Thanks. All right. Thanks, Ken. Our next question is from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question. Hi. Yeah. Given the still very solid demand and some of the congestion issues, can you maybe reiterate your thoughts around resourcing, specifically headcount, and maybe touch a little bit on other inflationary cost pressures that may be lurking that you referenced second half headwinds, obviously congestion is some of it, perhaps cost as well? Thanks. Let's be clear. I think we've said this maybe even in our prepared comments, that as we look into the second half, our headcount right now is about 30,000 employees, and it's going to stay around in that ballpark as we look out into what we think the demand profile is going to be. We're going to have to hire here and there to fill in vacancies or take care of attrition. We don't see any significant hiring program or headwind in that headcount number. Yeah, that's exactly right, Lance. With regard to inflation, Jordan, you might recall our full year guidance relative to 2021 inflation is 2.25%. We still feel good with that. When you think about materials costs, those are largely contracted, and that really flows through our capital line. Obviously, our wages are set for the year, and other purchase services, we do those on contractual basis as well. We'll look and see what inflation looks like next year. Certainly, it's setting up that that might be greater. In terms of how we're looking at 2021, we're still good with that initial guidance. Thank you. Just as a quick follow-up, maybe you said this before, can you give the dollar amount for the real estate gain and the tax benefit? Thanks. The $ amount for the real estate gain, I think I don't have that right in front of my head. It was $0.13 together between real estate and the taxes is what the gain was. Of course, you'll recall that last year, we had an $0.08 benefit from real estate. Net-net, those came down to a $0.05 good guy. Okay, thanks. Thank you. Appreciate you taking my question. My question was on the pricing environment and how sustainable you believe it is going to be longer term. Are you seeing the opportunity to lock in higher rates for longer with customers that want increased certainty of rail capacity? Yeah. Thanks for that. I don't think I'm prepared to go out and forecast how long we think that strength will be there. What I will talk about is the fact that as we do have this reliable service product that Eric has put out in front of us, along with some of the market dynamics on the trucking side, it clearly has afforded us the opportunity to go out there and take some pretty robust pricing to the market. As it stands now, I would expect that this favorable pricing environment would stand at least throughout this year, and then we'll see what happens as we turn the corner into next year. You said something important, Kenny, that I want to make sure we don't miss on the call. We've talked about the transitory issues that we've got in the network. We showed some of the service reflections of that. PSR and the fact that we've transformed our railroad, has us in a whole different ballpark of performance than these kinds of issues would have us in three, four, five years ago. We shouldn't miss that. We're not proud of it, and we know we have an opportunity and an expectation to improve and improve rapidly when, for instance, we get the bridge back, et cetera. The overall performance, like we showed from 2019- 2021, is fundamentally different under our PSR transformation. Yeah, Lance, when we're talking to our customers, they certainly respect the recoverability. speed of recoverability that we have today that we didn't have a few years ago. Yeah. Thank you. The next question is coming from the line of David Vernon with Bernstein. Please proceed with your question. Hey, guys. Thanks for the time. Lance, we've heard the word transitory a couple times here around the issue of service disruptions. I just wanted to dig into that a little bit. We heard from one of the other railroads the other day that there's actually some issues staffing the railroad, getting resources to come back off of the inactive boards, maybe even having to reach into the checkbook and put some labor incentives out there. I'd love to, again, get your perspective on the ability to add resource to the extent that we see a better, stronger demand environment, Kenny's teams do well convincing people to use the rail. How do you feel about the friction cost that might come if we actually do end up in a better demand environment? That's a great question, David, and I certainly hope we do end up with a better volume environment, and it just forces us to keep bringing more resources in. Let's start with labor. Right now, we're really not seeing substantial problems hiring labor. We've got a couple of issues with very different skill sets. Most of those are in our non-agreement workforce, like data scientists or machine learning scientists. But when it comes to hiring T&E, the core team that actually runs our transportation product, there might be a spot like L.A. where it's relatively harder to hire than somewhere else, but we're not yet in a place where we think that's an impediment. We don't have to do anything at this moment special to try to attract people to the jobs. Now, longer term, for sure, we do have initiatives and understand that we've got to make our jobs more attractive over time so that we can continue to attract a really big pool to our jobs. That includes our national negotiation on right now, where we think taking somebody out of the cab of a locomotive and putting them on the ground actually makes the job more attractive. It makes it a job that stays at home and turns it into shift work. That kind of answers your labor question. Other assets, we think about bringing locomotives out to support the network. We're actually doing that right now because the reroutes require more power, and some of those locomotives are a little more costly to repair and get into operating condition. Again, that's a temporary thing. Once those reroutes are done and we're able to get the network back to its normal routing, those locomotives are going to go right back into storage. I just don't see anything other than maybe the international intermodal issue that looks like it's going to last for a little while until demand and supply gets balanced that's really going to get in the way. Yeah, and just to add to that- Okay, maybe just to follow up real quick. I was just going to add to that. Okay. We still have about 800 or 900 folks on the T&E side that are furloughed and a larger number on the mechanical and engineering side. that's always our first draw- to the extent we can. Now some of those folks have been off for quite a while, our retention rate is still, I think, 70% or so. Still a pretty good hit rate there. That's great. I guess, maybe just as a follow-up, you guys had talked about opening up some new intermodal services, new terminals, things like that. Has the issues that you're dealing with in terms of the international intermodal sort of impacted the ability to ramp up the pop-up facility in Minnesota, the new facility in L.A.? Is there any sort of delay in that domestic growth story that we should be expecting because of a knock-on effect from the temporal disruption of international? David, this is Kenny. We've been very excited. You look at Inland Empire, we've got a small group of customers that have been there. We started up in, call it, I think it was June 21st and started our first units on the 22nd, and that's been growing. We share the run rates at the Investor Day of where we see that. The same is true with Twin Cities. That started the first week in January. We've seen the volume increase throughout the year. We've seen more customers attracted to that product. On both fronts, we're encouraged, and we have not seen, aside from, call it, say, some of the wildfires, we haven't seen really anything structural impact that in a negative light. All right. Thank you, guys. Our next question comes from the line of Justin Long with Stephens. Please proceed with your question. Thanks, and good morning. Maybe a two-part question for Eric. I was wondering if you could provide your thoughts around the progression of trip plan compliance as we get into the back half of the year. Kenny, any update on new business wins, either from truckload or some of your rail competitors and how that could influence volumes in the quarters ahead? I'll start. If you look at the bridge outage in Northern California combined with the wildfires east of there, we've done the work to see the impact of TPC, and you're talking about five to eight points in percentage increase in that metric. After that, what's ahead of us, Justin, is really our continued work on variability reduction, looking at every opportunity as we think about dwell in terminals, as we think about train stops on line of road, how do we understand how to avoid those in the future, and then putting up either new process or new mechanisms in place to do that. Still lots of work ahead of us, still a team focused very critically on ensuring that we return the service to what our customers expect. Thanks for that question. We've been able to secure quite a bit of business that has been moving over the road. You think about some of the products like lumber and paper, we've been encouraged there. We just talked about the Inland Empire and the Twin Cities and the benefits that we've seen there. I think one of the things that have really opened up for us with this lower cost structure and more reliable service is really some of the markets that were shorter distances that might have been, call it less than 500 mi. We've seen a tremendous uptick there. We're excited about the piece of business that we'll see come onto our line next year. We got an opportunity to meet with the Knight-Swift folks, we're impressed with their management team and leadership team, we're looking forward to growth here in the near term and the future. The demand is strong, we want to take advantage of it. Okay, thanks for the time. Yeah, thanks, Justin. Thank you. Our next question comes from the line of Jason Seidl with Cowen. Please proceed with your question. Thank you, operator. Good morning, Lance and the rest of the team. I wanted to talk a little bit about the conversations with shippers as we look out to the future. Obviously, the executive order was a lot less worse than I think the original Wall Street Journal article had some of us believe. It does sort of bring the rails back into the spotlight with potential increased regulations. Is that going to change any of the discussions that you guys think you're going to have going on into the future with some shippers? I've spoken to a few, which I think are thinking about bringing it up when they renegotiate their next contracts. I'm just trying to think this through because clearly, we're starting to see some rail cost inflation in here, and you guys are going to need to push rates even higher to get that same spread going forward. How should we think about this as we look out into 2022? Yeah, Jason, this is Lance. Let me take a first stab at how we think about the EO and the relationship to the STB, where you're really talking about regulation, and then maybe some of the rest of the team have perspective on it. Baseline, you know that railroads perform a critical function in the economy. We provide affordable shipping for bulk product in large volume. We provide really high-paying union jobs. We help people reduce their carbon intensity and their carbon emissions, We do all of that investing in our own infrastructure. We're a solution to a number of the things that the current administration emphasize across their different departments, their different functions. We think when we look at the EO, the EO really needs to be looked through the lens of an all-of-government perspective. There's some things in the EO that looked like they would fight against initiatives that the Department of Transportation, the EPA, OMB, Amtrak are trying to accomplish with the help of freight railroads. Number 1 is we're trying to help all of the administration understand the impact of some of what they've got inside the EO in terms of urging the STB to re-regulate the railroad. Stepping back a little further, we've been helping the STB see the impact of potential regulation and the multiplicity of regulation and the retarding impact that could have on our ability, for instance, to help relieve highways, to take trucks off the highway and bring them onto the railroad, to continue to help industries reduce their greenhouse gas footprints, and doing it all with an ability to invest in our own infrastructure. This just says we've got continued work to do. I don't think it's more work. I don't think it's a unique set of new work. It's the same work we've been doing for years and years, helping the STB understand when they regulate, what the negative impacts could be if they get it wrong. Yeah, and all I'll add is, we have customers that from time to time will ask us what we think of the EO discussion, and we reflect the comments that Lance just mentioned, but we haven't seen any of our customers try to insert that into negotiations of our business. Well, Lance, well put, and Kenny, thank you for that color. One quick follow-up on all this. Kenny, as you look at the service product, and as you start to clear up some of the bottlenecks, clearly, it's a compelling one to take some trucks off the road. One thing also, when I speak to railroad shippers, supply chain visibility always comes into play, and we're seeing some improvement, I think, across the railroad space. Can you update us on what UP's doing to increase the supply chain visibility for the shippers? Yeah. A number of things. We've been pretty aggressive on that front. Rahul Jalali, our new CIO, has really sparked that, too. We've been, what I'll call, overdeveloped in terms of API development for our customers. We have a significant number of our customers that are utilizing APIs now. The value of doing that is not just what we're pushing for, it's not just on our rail line, but also from an interline basis. I talked a little bit earlier about the fact that even on our international intermodal side, that we work with the ports also so that we can see inside the terminals and what's coming to them. It's a key focus. The other part of that is customers want visibility. They also want to know what's going to happen if there is a disruption or something that is going to happen next. We've been working with Operations to also make sure we have proactive feedback from a technology perspective there. We feel really good about the visibility that we've inserted and that we're providing customers. Clearly, for the customers that are not as sophisticated, there's room for us to share that more with the receivers. We feel good about the work we've done with the larger customers. Yeah, Jason, very clearly, there is a strategic imperative that is right in front of us in the international intermodal supply chain. More transparency, more coordination across the whole supply chain probably would be addressing the issues that we have got today in advance. There is an imperative there. We see it. We are positioned to take care of it with our product portfolio and our platforms, and we are going after it. Well, that's great news for sure. Appreciate the update, guys. Thanks as always. Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question. Hey, thanks, everybody. I just had a couple quick ones. One is, we talked a lot about pricing, but I don't think you guys mentioned where we are actually in the pricing cycle. There's obviously inflation everywhere in the freight economy. I think it'd just be helpful to understand how closely your book of business today reflects the current market dynamics and what the runway is on that, if you can just update us on that. Kenny, there's just a lot of growth coming from intermodal, and that seems to be the place of secular growth. I think you mentioned you won the contract with Knight-Swift as well. The issue with that is, as you know better than I do, there's extra costs that come with that growth. There's lower revenue intensity, if I can call it that way, associated with intermodal. There are other rails. There's one particular other rail that's kind of proactively trying to balance out that secular mix dynamic through acquisitions of a trucking company, for example. What can you do aside from riding the wave of industrial production growth? There is going to be a wave over the next couple of years. Aside from that, what can you do proactively to lean into some of the higher value carloads that offset some of the intermodal headwind mix drag that you have? Thank you. Kenny, you want to take all of that? Let me jump in. I'll give the first part just to remind the folks of some stats in terms of what our portfolio looks like and what we can touch. If you look at our revenue portfolio, about 45% is under multi-year deals, and there's some amount of that that's churning on an annual basis. We have about 30% that's one-year contracts or less in duration, and then about 25% that's kind of our tariff or spot business, and that's primarily in some of the construction products and grain. Think of our portfolio in that sense when you think about pricing cycle. Kenny, I'll let you. The 30%, does the 30% re-rate towards the end of the year or before the year? How does that 30% break down? Across the year. Across the year. Yeah. Got you. Okay. Yeah, just real quick, all I can tell you is that we have seen acceleration from the book of business that we have been able to touch. Jennnnifer talked about that. We've been able to achieve more price on that as we move throughout the year. The larger question that you asked about growing that business faster than industrial production, which we've committed to over the long term. We feel very confident about the products that we have within our Loop network. We draw a tremendous amount of business. We do a lot of transloading for customers. We're playing in those areas today, so it's not something that we cannot do. We're also providing, whether you call it team tracks that are out there, whether you call it added services with chopping up some of the wood or aggregating some of the cement and rocks. We want to continue to build that out and provide more of those services. To someone that asked a little bit earlier, provide a little bit more of that shipment visibility to make it stickier for our customers to move on us. That's something that we will continue to do. That's something that we have to do. We have to make sure that to the customer, we look not just only like a railroad, but a logistics transportation provider. Got it. Okay. Thank you. Congrats on the results. Appreciate it. The next question is from the line of Cherilyn Radbourne with TD Securities. Please proceed with your questions. Thanks very much, good morning. Just a question on grain. You highlighted in your comments tight grain supply in Q3 and difficult comps in Q4, the outlook for grain and grain products is still characterized as positive overall. Just hoping for a bit more color there. Thanks. Yeah. All I'm saying is that the demand is strong for grain. It was very strong the back half of last year. To be above those comps are going to be pretty challenging, but we feel very positive and have a positive outlook about that demand and being able to capture it. Working with Eric's team, we want to maximize all the volume that's out there. Yeah, demand looks pretty strong, Kenny, and we're kind of starting to shift over to what's the crop going to look like that we serve. That's all for me. Thank you. Mm-hmm. The next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please proceed with your question. Thank you very much, and congratulations. A question for Jennnn. You mentioned that you're targeting about $7 billion in free cash on the year, which is amazing. You did about $3 billion in the first half of the year, so that implies $4 billion in the second half of the year. About $500 million a quarter, give or take, extra. The operating profits are not rising by that much, if I look at the updated guidance on margins and volume. Could you help me understand what's occurring that's helping drive a little more of that free cash flow generation in the second half of the year? Well, Jeff, just to clarify, when we talked about the $7 billion, that's related to share repurchases. Oh, okay. Thank you. Thank you. about the free cash flow generation. As you know, we are using our balance sheet and our EBITDA growth to be able to fund some of those share repurchases. I referenced we did the $2 billion ASR in May, and that was funded through debt issuance. We do see cash growing. Some of that in terms of the free cash flow fall is impacted by the fact that we did have, and I mentioned this in my remarks, taxes year-over-year relative to the CARES Act are higher and impacting some of that free cash flow a little bit more. The comments on the $7 billion were specific to share repurchases. No, that answers my question. I just couldn't get the math to work, so thank you. Thank you. At this time, we've reached the end of our question and answer session, and I'd like to turn the floor back to Mr. Lance Fritz for closing comments. Thank you, Rob, and thank you all for your questions. We're looking forward to talking with you again in October to discuss our third quarter results. Until then, I wish everyone good health. Take care and goodbye. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.