Oct 20, 2011
Executives
Robert M. Knight - Chief Financial Officer, Executive Vice President of Finance, Chief Financial Officer of Pacific Railroad Company and Executive Vice President of Finance of Pacific Railroad Company Lance M.
Fritz - Executive Vice President of Operations and Executive Vice President of Operations - Union Pacific Railroad Company John J. Koraleski - Executive Vice President of Marketing and Sales - Union Pacific Railroad James R.
Young - Chairman, Chief Executive Officer, President, Chief Operating Officer, Chairman of Union Pacific Railroad Company, Chief Executive Officer of Union Pacific Railroad Company and President of Union Pacific Railroad
Analysts
Scott H. Group - Wolfe Trahan & Co.
Ken Hoexter - BofA Merrill Lynch, Research Division William J. Greene - Morgan Stanley, Research Division Walter Spracklin - RBC Capital Markets, LLC, Research Division Cherilyn Radbourne - TD Newcrest Capital Inc., Research Division Garrett L.
Chase - Barclays Capital, Research Division Michael Weinz - JP Morgan Chase & Co, Research Division Matthew Troy - Susquehanna Financial Group, LLLP, Research Division John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division David Vernon - Sanford C.
Bernstein & Co., LLC., Research Division Christian Wetherbee - Citigroup Inc, Research Division Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division Christopher J.
Ceraso - Crédit Suisse AG, Research Division H. Peter Nesvold - Jefferies & Company, Inc., Research Division Unknown Analyst - Justin B.
Yagerman - Deutsche Bank AG, Research Division
Operator
Greetings, and welcome to the Union Pacific Third Quarter 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website.
It is now my pleasure to introduce your host, Mr. Jim Young, Chairman and CEO for Union Pacific.
Thank you. Mr.
Young, you may begin.
James R. Young
Good morning, everyone. Welcome to Union Pacific's Third Quarter Earnings Conference Call.
With me in Omaha today are Jack Koraleski, Executive Vice President, Marketing and Sales; Lance Fritz, Executive Vice President, Operations; and Rob Knight, our CFO. The Union Pacific team delivered solid financial results across the board this quarter, achieving an all-time quarterly earnings record of $1.85 per share.
That's a 19% increase compared to 2010. We also set best-ever quarterly marks in operating revenue, operating income, driving record year-to-date free cash flow.
We're clearly delivering on the benefits of our diverse franchise. Volumes increased in 4 of our 6 business groups.
The downside was weak International Intermodal and lower export grain. Overall, we're pleased with these results in light of the fragile economy and operational challenges related to the severe drought in Texas.
Although we deal with weather every day, the extent and duration of the drought did impact network operations during the quarter. Lance will provide more details on this in a few minutes.
Despite these challenges, we remain focused in delivering safe, efficient, high-quality service that generates value for our customers and translates into improved financial return for our shareholders. So with that, I'll turn it over to Jack.
John J. Koraleski
Thanks, Jim, and good morning. So let's lead out this morning with a look at customer satisfaction.
We've set a new third quarter record coming in at 91. That's up 1 point from last year and reflects a continued strong value proposition, even as our operating team battled lingering Midwest flooding and the effects of the severe drought in the South during the quarter.
Our volume increased 1% with the International Intermodal peak season weighing heavily on our growth in the third quarter, but interestingly enough, if you excluded Intermodal, our other 5 businesses grew 6% during the quarter even with the softer export grain market. Our core price improved 4.5%, with each of the 6 groups posting gains.
Those price gains, combined with increased fuel surcharge revenue and some positive mix from the decline in Intermodal and growth in Carload business, drove average revenue per car up 14%. The end result was a 16% improvement in freight revenue to a best-ever $4.8 billion.
So let me walk you through each of the 6 groups in a little more detail. Our Ag products revenue grew 9%, as a 12% improvement in average revenue per car, more than offset a 3% decline in volume.
During third quarter last year, UP's grain exports hit their third highest volume ever. So against that tough comparison and with increased world production this year, exports were down 31%, driving the group's overall decline in carloading.
A 7% increase in domestic feed grain shipments helped to offset at least some of the export softness, and we also saw a strength in Grain products, where shipments climbed 5%, with solid gains in ethanol, biodiesel and meals. Despite shaky consumer confidence and a weak economic indicators, the U.S.
vehicle sales were up 6% versus last year for the quarter, supporting a 10% increase in our Automotive shipments. The growth in volume, combined with a 12% improvement in average revenue per car, drove a 23% increase in revenue.
Our finished vehicle shipments increased 5% despite the lingering impact of the Japanese tsunami. But the good news going forward is that by the quarter's end, U.S.
production had returned to normal for all manufacturers, setting the stage for a stronger fourth quarter. As production increased in anticipation of improving sales, our part shipments were up 18%.
Our Chemicals volume grew 5%, which combined with an 8% improvement in average revenue per car to produce a 14% increase in revenue. The Petroleum Products business led our Chemicals growth as shipments increased 35%.
Most of that growth came from crude oil originating primarily in the Bakken and Eagle Ford Shale regions, although we also saw a solid growth in asphalt shipments. Elsewhere, the solid performance that we've seen across the major Chemical segments continued in the third quarter.
The one exception was fertilizer, where volumes slipped 5% because of reduced export demands. Energy revenue grew 21%, as a 13% improvement in average revenue per car combined with volume growth of 7%.
Weather, again, played a role as the impact of the Midwest flooding continued in July. However, almost all of that business was made up during the quarter, as was about 60% of the loads that we missed during the second quarter.
New business to the Wisconsin utilities, along with the new coal-fired plant coming online near Waco, Texas produced most of the 5% increase in Southern Powder River Basin tonnage, although volume actually was up to most of our utilities year-over-year. Colorado/Utah tonnage was up 9%, its first year-over-year quarterly growth since early 2008.
Supporting that volume growth was relatively strong international market demand and also the return to production of one of the mines that had been relocating to new reserves. Our Industrial Products volume grew 8%, which, combined with a 15% improvement in average revenue per car, drove a 24% increase in revenue.
Metallic mineral shipments doubled as our iron ore unit train business for export to China continued to ramp up. Drilling demand in the energy market once again drove a 39% increase in nonmetallic minerals, primarily frac sands, and a 13% increase in steel.
Our Intermodal revenue grew 8%, as a 15% improvement in average revenue per unit, more than offset a 6% decline in volume. The volume decrease resulted from a 12% reduction in our International Intermodal shipments, primarily the result of weak West Coast imports, but also impacted by the contract loss that we talked about in the second quarter, which cost us about 12,000 units.
The news is a little brighter in our Domestic Intermodal business, where volume was up 2% and strengthening through the quarter. We set a new 7-day volume record of 29,500 units during the last week of September, topping the old record set last November by 8%.
You'll recall in the second quarter, we talked to you about MCP, our Mutual Commitment Program, that was boosting margins but also was holding down our domestic volume. Well, in the third quarter, that commitment program was paying big benefits for our customers as we've had near-perfect delivery on our box availability commitments.
We're proving that we can keep our commitments, effectively providing MCP customers with needed capacity and reliable service, even as our domestic business tracks 6% to 7% ahead of last year's record volumes. So as we look to the end of the year, I have to admit that I've been disappointed by the weakness on our International Intermodal peak season, but the good news is that the diversity of our franchise should continue to provide opportunities to more than offset the challenges that we face in the fourth quarter.
First of all, in terms of challenges, the better world crop production and plentiful storage available for a smaller-than-expected U.S. corn crop shows that whole grain export shipments are still going to be soft in contrast to last year's record volume.
We're also not expecting International Intermodal to get any stronger. But here's where we do expect to see the offset.
September auto sales were at their highest seasonally adjusted levels since April, supporting the expectation that pent-up demand will sustain our Auto's momentum despite the economic headwinds. The new Wisconsin Utility business, the new plant in Texas should keep our coal volumes strong, together with improved Colorado/Utah production and the lower SPRB inventories, which right now still trail what would be considered normal stockpiles by about 7 days.
Energy-related drilling should continue to drive growth in nonmetallic minerals and steel in our Industrial Products group. And steel should also benefit from the continued recovery in the auto industry, and our export iron ore should also be a growth driver for Industrial Products.
Petroleum products should again lead the way, and fertilizer will rebound with seasonal demand, so we expect our Chemicals business to stay strong. And the recent strength in Domestic Intermodal should continue as well because retailers will be pulling inventory from West Coast distribution centers ahead of the holidays.
And I know many of you are already thinking beyond the fourth quarter, and we are, too. Barring any sort of unusual or unexpected event like a Japanese tsunami or a total U.S.
or global economic meltdown, we're thinking that the slow growth trajectory that we're seeing today continues on for the foreseeable future. And as we look at that, that spells real opportunity for Union Pacific.
Energy demand should remain strong and be a solid growth driver in terms of frac sand, pipe, petroleum, ethanol and biodiesel. Strong world demand for metallic minerals and other U.S.
natural resources, like soda ash, support a strong growth outlook in those fast-growing markets for us. Our Ag business will continue to pace with population growth, which provides a solid base load and also allows us to take advantage of global export opportunities should they develop it.
So with that foundation and a recovering auto industry, we're delivering record results in the year, where products like lumber, cement, rock and appliances are tracking anywhere from 30% to 60% below previous record volumes. So as we think about the future, even the smallest improvement in consumer confidence and consumer spending really offers Union Pacific additional upside opportunity.
So overall, our strong value proposition, underpinned by excellent service, positions us to take advantage of the opportunities offered by our diverse franchise. The resulting volume growth, combined with expected pricing gains, should continue to drive record revenue, not only in the fourth quarter but for the foreseeable future as well.
So with, that I'll turn it over to Lance.
Lance M. Fritz
Thanks, Jack, and good morning. I'll start with our safety performance.
In employee safety, we achieved a record third quarter reportable personal injury rate and best-ever year-to-date results. The continued maturation of our Total Safety Culture, our risk identification and mitigation and training and education efforts drove the improvement.
Our safety culture is especially important as we hired to cover attrition and volume. In terms of rail equipment incidents or derailments, our year-to-date FRA reportable rate increased 7%, driven largely by low-cost yard and industry-lead incidents.
In the third quarter, human factor and truck-related incidents increased compared to the prior year. We continue to accelerate investments in our yards and our terminals to get our exposure back on the right trend line.
Most encouraging, despite increases in rail and highway traffic during the year, our crossing accident rate improved 6% year-to-date versus 2010. We continue to help communities address risky driver behavior and to close grade crossings.
In fact, since 2001, we've closed over 4,000 at-grade crossings on the UP system in addition to educating the public about grade crossing safety. We remain committed to improving our safety performance on the way to operating an incident-free network.
Before getting into our service performance, I want to spend a minute on how we have managed the weather challenges you've heard us talk about. Operations improved substantially during the third quarter in the flood-impacted areas, and we are getting closer to normal business operations in that region.
Our team worked tirelessly and successfully to protect our service product through the floods. The South was a completely different challenge this quarter.
Extreme drought in Central Texas created unstable soil conditions and, when combined with record heat, generated a sharp increase in slow orders. These speed restrictions reduced capacity and velocity, requiring additional resources like crews and locomotives.
At the same time, our volume in the area grew by about 10%, putting even more pressure on the strained network. We reacted by applying surge resources and increasing track maintenance in Texas.
Slow orders turned the corner in September and improved another 17% so far in October. I anticipate continued improvement during the fourth quarter as we return to normal operations in Texas.
Network performance for the third quarter remained relatively strong despite these challenges, demonstrating our resiliency and recoverability. As carloads grew almost 5% from July to September, our network performance remains solid.
However, we did see about a 1 mile per hour impact on our quarterly velocity due to weather-related challenges. We gained momentum in September and continue to see improvement in October.
By applying the principles of the unified plan and utilizing our surge resources, we sustained the network's service reliability and demonstrated its resiliency. As Jack discussed, we continue to provide solid customer service at the local level.
Our industry spot-and-pull measure was 94% for the quarter, which nears the all-time record -- quarterly record of 95% set in the second quarter of this year. This is the first move and last move for our customer, and it's critical to overall customer satisfaction.
This performance reflects our continued focus on the fundamentals: improving network performance, service reliability and operational efficiency. Slide 17 illustrates some of those efficiencies.
Gross ton miles per employee were essentially flat with 2010 despite the addition of over 1,000 new hires in the training pipeline and an increase in employees working on capital projects and positive train control. Surge resources added to combat the impact of slow orders and speed restrictions that I discussed earlier also masked productivity gains during the quarter.
Those productivity gains included our work to improve train sizes. Train lengths for our manifest and intermodal traffic continued to increase.
The growth in intermodal train size this quarter is particularly noteworthy, considering intermodal volumes were down 6% in the quarter compared to 2010. And we continue to balance manpower with demand, with an average of nearly 500 employees per load during the third quarter.
If you look at current levels, we have roughly 700 or more employees on furlough status. The endgame is to realize the full potential of the UP franchise translated into these deliverables.
World-class safety results on the way to an incident-free network, growing the value proposition for our customers by recovering to record levels of service, continuing to generate network productivity for bottom line results and positioning for growth resulting from our solid service performance. With that, I'll turn it over to Rob.
Robert M. Knight
Thanks, Lance, and good morning. Let's start by summarizing our third quarter results.
Operating revenue grew 16% to a record $5.1 billion on the strength of fuel surcharge recoveries, core pricing gains and volume growth. Operating expense totaled $3.5 billion, increasing 17% or $516 million compared to the third quarter of 2010.
Higher fuel prices accounted for over half of the cost increase. Operating income totaled $1.6 billion, a 13% increase and an all-time record quarter.
Other income totaled $17 million in the third quarter, $8 million lower compared to last year. Quarterly interest expense declined 7% versus the third quarter of 2010 to $142 million, driven by lower average debt levels.
Third quarter income tax expense increased to $549 million. Higher pretax earnings drove this increase.
Net income totaled $904 million, increasing 16% compared to 2010. The outstanding share balance declined 2% versus last year, reflecting our share repurchase activity.
These results drove an all-time quarterly earnings record of $1.85 per share, increasing 19% versus last year. Turning to our top line, we achieved 16% freight revenue growth to an all-time record of $4.8 billion.
Slide 21 provides a walk across of the third quarter growth drivers. Carloadings were up 1%.
We also saw a positive mix impact driven by strong growth in higher average revenue per car moves. We achieved core pricing gains of 4.5% in the third quarter, which includes RCAF fuel escalators.
As you know, we calculate pricing gains as a percent of our total book of business, and with the bulk of our 2011 legacy portfolio coming up for renewal in the fourth quarter, it is not a major driver of our 2011 core pricing gains. Fuel surcharge revenue added 7 points to the top line, driven by higher fuel prices in the third quarter versus 2010 and a slight tailwind on the surcharge recovery lag.
In addition to solid core pricing gains, we saw improvements in our incremental margins this quarter. Of course, there are many moving parts impacting this number, including revenues and costs associated with weather-related challenges.
So adjusting only for higher fuel prices, our incremental margin was 41% in the third quarter. As we said in July, our second quarter adjusted incremental margin of 36% would be the low mark for the year.
This still holds true even with the lower volume growth that we've seen in the back half of the year thus far. Now let's turn to expenses.
Slide 23 summarizes our year-over-year increase in operating expense by category. As I mentioned, higher fuel prices contributed to over half of the $516 million increase in expense.
Other year-over-year increases include inflationary costs and volume-related expenses. We also saw additional labor increases driven by higher TE&Y training costs and drought-related expenses, as Lance just described.
With that, let's spend a minute and walk through each of these categories. Third quarter fuel expense totaled $916 million, increasing $308 million compared to 2010.
The average diesel fuel price, which increased 42% year-over-year, was the biggest driver of the quarterly change. The average barrel price of $90 rose 18% compared to last year.
In addition, conversion spreads, which cover the costs to convert crude oil to diesel fuel, tripled from 2010 levels to an average of $37 per barrel in the third quarter. Although our improving fuel surcharge mechanisms enable us to recover the majority of higher fuel prices, the resulting increase in expense and revenue created a negative impact of 1.7 points on our third quarter operating ratio versus 2010.
Fuel expense was also higher as a result of a 5% increase in gross ton miles and a 1% increase in our fuel consumption rate. Slide 25 summarizes third quarter expenses for compensation and benefits.
Comp and benefits expense is up 9% compared to 2010. Over half of the increase in expense can be attributed to inflationary pressures that we have discussed with you before, including health and welfare, unemployment taxes, wage increases and pension costs.
Looking forward, our initial planning for 2012 would indicate that labor inflation should moderate somewhat from 2011 levels. Training costs were up $17 million in the quarter as we continue to hire new employees to cover expected attrition and volume growth, and additional crews needed to manage through the slow orders and speed restrictions in the South drove expenses up $18 million in the quarter.
Lastly, the unusually large mix shift and growth in manifest traffic this quarter drove a higher volume impact on labor expenses. Carload growth of 1% and a gross ton mile increase of 5% resulted in a volume growth impact on expense of 2% to 2.5%.
Productivity gains of about 1.5% mostly offset this increase. Slide 26 takes a closer look at the change in our workforce levels.
Workforce levels increased 5% in the third quarter compared to last year. We again had more employees in the training pipeline and more individuals working on capital projects, including positive train control.
Base workforce levels also increased, driven by volume growth and the impact of additional crews needed to manage through the drought-related speed restrictions in the South. In July, we indicated that our full year workforce would be up roughly 1,500 employees depending on second half volume levels.
Currently, we still are on track with those projections. Now turning to other expense categories, purchased services and materials expense increased 9% or $41 million to $506 million.
Higher contract service expense was the biggest year-over-year driver. Locomotive and freight car maintenance costs were also up compared to 2010.
In addition, crew lodging and transportation costs increased with the growth in volume levels and weather-related challenges. Other expenses came in at $207 million, slightly better than our guidance of $215 million to $225 million primarily due to lower personal injury expense.
Versus 2010, other expenses were up $29 million. Higher property taxes and increased costs for damage equipment and freight drove expenses up in the quarter versus 2010.
Looking at the fourth quarter, we expect the other expense category to be similar to the third quarter results, again, assuming no unusual items. Slide 28 summarizes third quarter expenses for the remaining 2 categories.
Depreciation expense increased 10% or $36 million to $408 million, which is in line with our previous guidance. Increased capital spending and higher depreciation associated with hauling more gross ton miles drove the increase.
We should expect a similar rate of increase in the fourth quarter as well. Third quarter equipment and other rents expense totaled $293 million, essentially flat with last year.
Higher container lease and short-term freight car rental expenses were offset by lower locomotive lease expense. Bringing revenue and expenses together, Union Pacific's operating ratio illustrates the substantial improvements in profitability that we've achieved over the last several years.
On a reported basis, our operating ratio was 69.1% for the third quarter of 2011. Ongoing productivity efforts, core pricing gains and volume growth all contributed to this mark.
Higher fuel prices continue to put pressure on our operating ratio, creating a 1.7 point headwind in the third quarter and 2 points of headwind year-to-date compared to 2010. However, if you adjust for fuel prices, we still expect to see real improvement this year in our core operating ratio performance versus last year's all-time record.
Union Pacific's profitability in the third quarter of 2011 also drove record free cash flow after dividends. Growth in cash from operations more than offset increased capital spending and higher dividend payments.
Cash dividends paid in the year-to-date period of 2011 were up 39% from 2010 levels. We continue to see the benefits of bonus depreciation, which had a more positive impact on our cash flows in 2011 than in 2010.
Union Pacific's balance sheet remains at excellent shape, supporting our investment-grade credit rating. At the end of the third quarter, the adjusted debt-to-cap ratio was 41.4%.
This positions us well in a wide range of economic scenarios. Our performance is generating strong cash flow, and we are returning that to our shareholders.
During the third quarter, we bought back 4.7 million shares totaling $428 million, up from the second quarter purchases. Year-to-date, this takes our total repurchases to over $1 billion.
Looking forward, we have nearly 32 million shares remaining under our current authorization. When you combine our dividend payments and share repurchases this year, we've returned over $1.6 billion to our shareholders.
Dividend growth and opportunistic share repurchases continue to be key components of our balanced approach to cash allocation for the long-term benefit of our shareholders. Looking ahead, we see continued opportunities to grow and improve our profitability.
As Jack discussed, we're focused on continued year-over-year volume growth in the fourth quarter. Of course, this assumes that the economy cooperates.
We remain committed to achieving real pricing gains, driven by the increased value of our service, market demand and added benefit of competing for and repricing our legacy business. We believe that continued revenue growth and our ongoing productivity efforts should produce record earnings in 2011, allowing us to reward our shareholders with even greater returns.
So with that, let me turn it back over to Jim.
James R. Young
Thanks, Rob. Now before we open up to questions, I wanted to provide a quick update on the national labor negotiations.
As you know, the United Transportation Union, which is the industry's largest union, ratified a new contract earlier this year. We think the agreement is fair and equitable to both parties.
The remaining unions were released from mediation, which led to the creation of the Presidential Emergency Board. The PEB is scheduled to submit their recommendations by November 7.
In the meantime, the industry remains committed to achieving a negotiated settlement that reflects the patterns of the UTU agreement. Our employees are critical to the success of this company.
We currently enjoy good working relationships, and we expect that to continue as we move forward through the negotiation process there. So with that, let's open it up to your questions.
Operator
[Operator Instructions] Our first question is from Bill Greene of Morgan Stanley.
William J. Greene - Morgan Stanley, Research Division
Jim, so if we're looking at this, if it weren't for fuel and the weather stuff, you had an OR below 68, and I realize the third quarter is typically your best. But I've got to think that this kind of performance gives you a much greater conviction in your ability to hit the long-term goals regardless of kind of how the macro plays out.
Is that sort of fair?
James R. Young
I think that's very fair.
William J. Greene - Morgan Stanley, Research Division
So we've got a big legacy reprice next year. How does Union Pacific sort of think about updating that long-term guidance then?
Do you have to get there, and then you'll address it, or? We can sort of see these trends.
It's a big year next year?
James R. Young
Well, Bill, yes, to me, the real wild card is where do we think the economy is going. If you get some upside in the economy, obviously, we have a greater potential going forward here.
We'll stick with our current guidance, we said 65 to 67 OR, and see how things go. But we're feeling pretty good about the markets, the pricing we're able to get for the value we're providing and then efficiency.
William J. Greene - Morgan Stanley, Research Division
Yes, no it makes sense. And then just on pricing, fourth quarter pricing, we've been flat all year.
Given that the legacy is way at the end of the quarter, is that safe to say, for 4.5%, that there shouldn't be a big step-up, or we will actually see the legacy in the fourth quarter?
James R. Young
Not in fourth quarter. You'll see the impact of legacies next year.
William J. Greene - Morgan Stanley, Research Division
Okay. So the acceleration comes next year.
Operator
Our next question is from the line of Peter Nesvold of Jefferies & Company.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
Coal volumes were unusually strong in the context of the other Class 1s for the quarter, particularly Burlington. I'm just curious if there's any thoughts on the out-performance, whether just kind of where the relative flooding was geographically and you just kind of got the long straw?
Or was there some kind of market share gains or anything else that sort of impacted the flows during the quarter?
James R. Young
Peter, the prime difference there was flooding. Clearly, BN got hit much harder than we did.
Look at their announcement they had in their capital. That gives you an indication what kind of hit they had.
There wasn't much in terms of share shift at all.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
Okay, great. And then a follow-up, with the reprice coming up at the end of fourth quarter, any perspective on how volume-dependent the potential for yields are as you negotiate that -- or as that new contract goes into effect?
James R. Young
Well, again, the legacy deals that we have negotiated and are currently still negotiating will carryover, and really, you'll see the impact in 2012. I mean, the big spreads in some of these, obviously, are you look at what happened here with our falloff in Intermodal versus the other groups this year, but we've got very good opportunity next year.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
But you don't feel disadvantaged at all going into that process, the fact that volumes are much -- I mean, the volume growth has really slowed here in the last 3 years or so?
James R. Young
No. These are long-term propositions when you look at them.
You're making deals that are many years out, so the assessment is one on what is the value proposition that the UP franchise can offer.
Operator
Our next question is from the line of Chris Ceraso with Credit Suisse Group.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Just a couple of quick ones. First, on the wage and benefit front, can you give us a feel for what kind of inflation you're looking at over the term of the next contract?
James R. Young
Rob, go ahead.
Robert M. Knight
Yes. We're not going to get into the specifics on the contract, Chris, but one thing, just to comment on the overall inflation on the comp and benefits line, we said it's about 5.5% this year.
We expect that to moderate as we head into 2012, somewhere more in the, call it, 4%-ish range rather than 5.5%.
James R. Young
Chris, I mean, the UTU deal, if you look at it, it's 17% over 5.5 years. So you can kind of get a feel there in terms of the math.
The real key is healthcare costs, which is -- if you look at our contract, what was put on the table of contents, there's very little in there in terms of work rules, where we see the biggest opportunity long-term is, again, as most businesses in America is struggling with, is rising healthcare costs.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Okay. And then just one your Automotive business.
Can you give us an idea of how much of your Auto franchise is with the Japanese OEMs?
James R. Young
Jack?
John J. Koraleski
We have about 30% with the domestic Big 3 and -- so about 70% with GM, Ford, Chrysler and then about 30% with everybody else.
Operator
Our next question is from the line of Tom Wadewitz with JPMorgan.
Michael Weinz - JP Morgan Chase & Co, Research Division
It's Michael Weinz in for Tom. I guess to start with on coal, could you give us the actual stockpile levels?
You said that it was down 7 days year-over-year and that you guys had made up 60% of what you had lost in the second quarter. And is that expected to -- is the remainder expected to be made up in fourth?
James R. Young
Jack?
John J. Koraleski
We'll probably make up the rest of that in the fourth quarter, I would expect. And the other thing, Mike, I don't have the exact numbers in terms of 59 days versus 52 days, those kinds of deals, but there is a 7-day differential.
I would expect, as you look at those numbers -- that is the Powder River Basin stockpile situation. I would expect those tend to probably be more reflective of what's happening with the BN customers given that they were more severely impacted.
But we should still see fairly solid coal volumes here in the fourth quarter.
Michael Weinz - JP Morgan Chase & Co, Research Division
Okay, great. And for the second question, related to headcount, you had said that you're still expecting the 1,500 increase year-over-year.
Is that an end-of-quarter fourth quarter number or an average fourth quarter number?
James R. Young
End of quarter.
Robert M. Knight
End-of-quarter but fourth quarter projection.
Michael Weinz - JP Morgan Chase & Co, Research Division
So that kind of implies a slight decline from third quarter. Is that related to Texas?
Robert M. Knight
It is a slight decline, but it's just based on our projection of where volumes -- basically, it's what volumes have done here at the back half of the year.
James R. Young
Typically, we reduce headcount late in the fourth quarter for seasonal purposes.
John J. Koraleski
Some of your capital projects.
Operator
Our next question is from the line of Chris Wetherbee of Citigroup.
Christian Wetherbee - Citigroup Inc, Research Division
Rob, you mentioned the incremental margins and the ability to kind of get a little bit of an acceleration potentially. Do you need to see the legacy contract start to roll through, or is this the type of progress that you might be able to make in 4Q, assuming that you don't necessarily get hit with another type of weather interruption?
Robert M. Knight
It's kind of all of the above, but again, reminder for the fourth quarter alone, we don't expect to get much additional uptick yield from the legacy. That's mostly going to carry over into 2012.
So as we look in the fourth quarter, it's going to be volume, productivity, ongoing pricing initiatives that are under way. And just, again, a reminder, for us to hit our long-term guidance of that 65 to 67 full year operating ratio by 2015, that implies, on an annualized basis, as we look forward, that we'll be in that incremental margin neighborhood of about 50%.
And that's taking into consideration the legacy repricing as we look forward.
Christian Wetherbee - Citigroup Inc, Research Division
Sure. Now that's helpful.
When we think about furloughs, you take a look at the average number than what you ended the quarter with. Obviously, it picked up a little bit while volumes were starting to accelerate.
How do you think about that number for the fourth quarter? I'm just trying to get a sense of what's driving the furloughs.
Is it just timing issues, or is there something else behind it?
James R. Young
Lance, you're on.
Lance M. Fritz
When you think about the fourth quarter in furloughs, what's going to happen is as peak season starts bleeding off, typically, on the TE&Y side, our furloughs will increase. And likewise, as we start getting frozen out of some parts of the network from a maintenance away and capital project perspective, we start furloughing also on the maintenance-away side.
James R. Young
And, Chris, the big driver here, I mean, the surprise to us was one on International Intermodal. And if you look across our regions, North, South and West, the biggest brunt to the furloughs was out West, simply because there was very -- really no decrease in International business this year.
John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division
Okay, no, that's helpful. One final quick one.
Just, Jim, from a process perspective, we get the PEB recommendations in the beginning in November. What's the process after that, and what do you think about the timeline going forward after recommendations come in?
James R. Young
Well, you've got really another 30-day cooling off. I mean, the key date is around December 7 in terms of when the potential would be there for some actionable parties.
So as I said, November 7 is the date that the PEB recommendations come out, and both parties have to take a look at those recommendation and negotiate from there.
Operator
Our next question is from the line of Ken Hoexter with Merrill Lynch.
Ken Hoexter - BofA Merrill Lynch, Research Division
Lance, that was a great overview on the handling of the drought and kind of goes back to the middle of the 2000s when you kind of sat there going through El Paso and Phoenix, when you had problems, but it's great to see how smooth things bounce back now. But when you think about the equipment status, you kind of give the employee furloughs, can you talk about the equipment side?
What have you done on the locomotives part there? What do you need to do in terms of CapEx?
It sounded like you added a bunch of locomotives. What do you need to do now to get that back reset to ongoing operations?
Lance M. Fritz
Sure. So on the locomotive side is the South continues to come back to normal.
You'll see us being able to bleed off some of that locomotive count, put those back in storage. We're at about 600 units right now, and as the South gets normal and as volumes from the peak season start dropping off, you'll see that storage number grow.
Now the reason why we're buying locomotives next year isn't just a volume story. We've got locomotives in the capital budget next year for a number of reasons.
We get a pretty decent return off of them, driven by fuel efficiency, the fact that they're DPU-enabled, and that helps us on the train size productivity side of the story. And then I think we've talked to you before about Tier 4 requirements, another federal mandate that takes effect in 2015.
And purchasing locomotives now is a little bit of a hedge against the fact that the manufacturers of locomotives do not have yet purchasable locomotive that meets those 2015 guidelines. So there's a little bit of a risk hedge in that purchase as well.
Ken Hoexter - BofA Merrill Lynch, Research Division
And also can you talk about how the progress, I guess maybe Rob, also, on the progress of the UMAX domestic network? What have you done in terms of containers, and how has that progressed with CSX since you rolled that out?
James R. Young
Jack?
John J. Koraleski
We're having great success with UMAX. We're feeling good about it.
Like I said, our Domestic Intermodal volumes right now -- last year, we actually hit a record in terms of Domestic Intermodal during kind of the second phase of peak season. So if you think about peak season in terms of international phase goes first and then domestic, so now we're in the domestic side, we're 6% to 7% stronger than we were a year ago.
And it looks like that's going to probably continue on, at least for the next several weeks. So we've made some great product offerings with the CSX.
We've been running really well in terms of our on-time delivery despite things like the floods and some of those kinds of things. So we're well positioned.
James R. Young
Yes, we've got good programs with both, NS and CSX. There are no domestic container stored today in the UP side.
I think the other thing you want to keep in mind on demand here, the sales-inventory ratios are still very, very tight. And as you see in the domestic trucking sector, capacity grew tight.
So it'll be interesting to see how the rest of this year plays out given tight inventories.
John J. Koraleski
And we're pretty balanced in terms of the number of containers that we have in both programs. So it's a nice opportunity for us.
Ken Hoexter - BofA Merrill Lynch, Research Division
So, Jack, how should we read that, though? If you said that domestic, obviously, nothing in storage and that we've moved into the second part of peak and you're seeing that used, but yet the International remains so weak because of the short and brief peak season.
Is that just still all truck conversion that's still going on out West, or how do you read the differential?
John J. Koraleski
That's a really good question because when you look at what's happening in inventory levels -- if you look at inventory-to-sales ratios, you're not really seeing any improvement there, still historically low. So you're seeing a lot of product that's moving distribution centers to stores, a lot of what I would describe as more like spot purchases of retails, and we are seeing a lot of truck conversion in that process.
So that's been a very strong growth arm for us in terms of that highway conversion.
Operator
Our next question is from the line of Gary Chase of Barclays Capital.
Garrett L. Chase - Barclays Capital, Research Division
I wanted to see if I could ask a couple of Jack on the expert side. First, I saw recently that Russia was, and not a formal ban like last time, but limiting some of the exports.
I wondered if what your thoughts were on that if it was factored into your thought process about volume declines, continued volume declines in the grain export business in the fourth quarter.
John J. Koraleski
Yes, Gary. We are looking -- last year, we had a record fourth quarter.
We had all kinds of good things happening. We had the Russian drought.
We had the Ukraine banning the export of their grain and other problems around the world. The whole situation has turned around differently for us now.
So Russia is very strong in terms of their production capability. We have tough comps.
So we're actually expecting that we're going to see somewhere in the neighborhood of like a 5% to 6% decline in our export grain movements in the fourth quarter.
Garrett L. Chase - Barclays Capital, Research Division
Okay. And then I wondered, too, if the iron ore exports that you were referring to were higher-rated business than what you might see in the rest of the industrial book, because pricing there looked solid.
And there are some who are wondering if maybe some of the exports to China of iron ore will cool off a little bit looking forward.
John J. Koraleski
Our book of business for export iron ore is priced well. We're very comfortable with our profitability and the re-investability of that business, but that's also true of our other business in our Industrial Products world.
Garrett L. Chase - Barclays Capital, Research Division
You've got some pretty good visibility on those exports for the fourth quarter?
John J. Koraleski
Yes. We think it's going to continue to be strong.
Or we're going to continue to move. It's always kind of one of those deals where you have to watch China very carefully because they consume, I think, about half of the world trade in iron ore today.
So should they decide to change course here relatively quickly, we've seen how that can happen, but right now, we're looking for a solid fourth quarter.
James R. Young
Gary, the other thing you have to keep in mind, while we've got some of our international markets still pretty hot right now, as Jack mentioned, you have -- within the Industrial Products group, on the domestic side, we have markets there that are still 30%, 40%, 50%, 60% lower than they were in the peak. Anything related to construction is 40%, 50% below.
So while we've got some markets that are hot, that could cool off a little bit. You've got others that are barely alive, I guess, is maybe the best description, so...
Operator
Our next question is from the line of Scott Group with Wolfe Trahan.
Scott H. Group - Wolfe Trahan & Co.
So with the upcoming legacy opportunities, I'm wondering how much of that business is already locked in with new contracts. I guess I'm trying to understand if there's a rough percent of the business you feel confident that you're going to keep.
James R. Young
Jack, you want to take that one?
John J. Koraleski
We're making good progress on all of our legacy negotiations as it stands right now. And we're very comfortable that we're working hard to retain all of that business.
James R. Young
Scott, we have lost some of our business. If you look at repricing these legacy deals.
I mean, we're competing with the other guys, and in some cases, we've lost some of the business. And the key is we're setting some minimum returns that we look at, and if we can't get it, I'm willing to walk.
Scott H. Group - Wolfe Trahan & Co.
So in the cases in the past where you've lost a legacy deal, obviously, there's a volume and a revenue hit. But does there tend to be much of an operating income loss from losing a legacy deal?
James R. Young
Well, in short term, anytime you take out a pretty good chunk of revenue, we can't get cost out fast enough, so you do take some pressure in your operating income. On the other hand, though, we can redeploy some assets.
If you think about locomotives, some of the -- our track capacity is pretty generic when you look at the way products move. We also were able to take advantage -- we have a continuing attrition on the workforce side.
We're going to lose about 4,000 employees a year for the foreseeable future, so you can fairly quickly adjust your workforce. But I've got to tell you, the first quarter you lose that revenue, it usually has a negative impact on the bottom line.
Scott H. Group - Wolfe Trahan & Co.
Right. I guess I was just thinking that these are probably lower-margin, if any margin, business.
James R. Young
Well, they're clearly -- and some of these, we're losing money in every carload we handle from a long-term variable cost perspective. So I mean, that's why this sense of urgency and why it's so important that we've got to get this margins up in this business.
So you're right in that context. Longer-term, it isn't quite a big of a hit, but it's still a little bit of hit.
Scott H. Group - Wolfe Trahan & Co.
Great, that's helpful. And just second question, as you prepare for a continued slow growth, if that's what happens, what should that mean for headcount next year?
I'm wondering when you expect the headcount growth and the volume growth to come more in line. Is that an early 2012 event or not until late 2012?
James R. Young
Well, long term, what we would expect to see is -- again, let's assume you've got positive growth year-over-year. You will see headcount increase, but not at the same rates.
We got ourselves caught a little bit this year that we have a lot of people in hiring. The International Intermodal was much -- came in negative.
So we got caught a little bit with surplus resources, but again, long term you won't see the same kind of growth in volume in headcount.
John J. Koraleski
And Jim, I mean, the other thing that's going to normalize is the delta, just the pure delta in the training pipeline, which we've talked about several quarters, and the pure delta in the capital headcount there.
James R. Young
Now keep in mind, we're also hiring for PTC right now. That doesn't have anything to do with volume.
So you've got to separate out a little bit, and at the end of the day, we've got to recover that cost in the business. There's no excuses.
But where you look at kind of the pure volume-related numbers, we should continue to see productivity every year.
Scott H. Group - Wolfe Trahan & Co.
When do you think we normalize?
James R. Young
I think you're going to see that probably fourth quarter or first quarter next year. It'll be better comps on our labor and our force levels.
Operator
Our next question is from the line of John Larkin of Stifel, Nicolaus.
John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division
There's been a lot of talk about natural gas substitution at power plants in the East and also the impact of the new EPA regulations that are going into effect next year. Is there any risk to your Coal business next year or the year after from these 2 sources?
James R. Young
Jack?
John J. Koraleski
Yes, John, there's always some risk to that because of the grid and how it plays. Most of our utilities, our utilities are fairly modern productive, so in the overall distribution of things, we don't have that many that we see as potentially shutting down.
But anytime that any new utility is being constructed or things like that certainly with natural gas hanging in there in the $3 to $4 range, it's a pretty attractive alternative to building a coal plant. And I think we're going to be okay next year in our Coal business.
John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division
And then just on the NIT League's proposed reciprocal switching idea that is now sitting before the STB, do you think that gets any traction at all even as a test case?
James R. Young
Well, we'll have to see. I mean, we have we're obviously made our comments in terms of -- I mean, it's access.
You can call it whatever you want to, and I think we've been consistent in our message that anytime you introduce some kind of artificial competition, which it is, there could be a consequence in our growth in capital. So we'll see what happens in terms of ultimately what comes out of STB.
Operator
Our next question is from the line of Justin Yagerman of Deutsche Bank.
Justin B. Yagerman - Deutsche Bank AG, Research Division
I was curious, just an update given the backtrack in volume growth that we've seen here, where do you feel you are right now with the network capacity? Given the operating leverage you guys were able to generate in the quarter even with low volumes, I'm curious what a nice uptick in volumes would look like and how you'd be able to handle that.
James R. Young
Lance?
Lance M. Fritz
Sure. We feel very good about the amount of capacity we've gotten in fixed infrastructure.
Once again, our peak carloading month was north of 200,000 7-day carloads. Now as we've continued to invest in the right areas in the network, we've substantially improved the service product that we have in comparison to what we delivered during that 200,000-plus month.
But as we look forward with a capital program that we've got in place or planned for and the way that the network is operating, we feel very good about the amount of capacity that we've got in fixed assets right now.
Justin B. Yagerman - Deutsche Bank AG, Research Division
Are we talking 10 to 15, 15 to 20 in terms of being able to handle additional room?
Lance M. Fritz
John -- or Justin, I'm sorry. It's very dependent on where that growth occurs and how quickly it comes on, but in terms of any reasonable estimate of what we think is going to be happening as we look forward, we are very well situated to be able to continue to provide excellent service and handle the growth.
Justin B. Yagerman - Deutsche Bank AG, Research Division
Great. And just a follow-up question, I was curious, you called out on the Chemicals side the great growth that you guys are seeing off a small base in terms of crude opportunity in the Bakken and Eagle shales.
Can you give us a sense of what kind of indications you're getting? I'm assuming unit train business is pretty profitable stuff.
Where is the growth there for that business, and how long of a ramp do we have in front of us for that?
James R. Young
Jack?
John J. Koraleski
Overall, Justin, I think the growth potential for the business is excellent. I mean, the primary play we're seeing right now is Bakken, but Eagle Ford is just starting to come in on our railroad.
And so we're right and positioned well where from a profitability point of view. Rail actually provides some great flexibility for those customers that basically doesn't tie them into a single destination on a pipeline.
So even as pipelines get built and developed, we continue to think that for the foreseeable future, rail is going to have a play in this marketplace, and it's going to be a solid growth opportunity for Union Pacific.
Justin B. Yagerman - Deutsche Bank AG, Research Division
How does the profitability of that business compare to coal unit trains?
John J. Koraleski
It depends on contract to contract, but it's solid, profitable. It meets our re-investable criteria, and we're very happy with it.
Operator
Our next question is from the line of Cherilyn Radbourne of TD Newcrest.
Cherilyn Radbourne - TD Newcrest Capital Inc., Research Division
As we sit here, we're sort of in uncertain economic outlook, I wonder if you could just talk about the cost levers that you could pull in the event that volumes came in slower than expected. And just comment in the extent to which it's more difficult to adjust to a small volume decline versus the kind of big declines we saw during the financial crisis.
James R. Young
Well, if you look back at the -- I think a good model to look at what happened when we had in 2008, early 2009 when we had a falloff in the business, and that was pretty substantial. If you recall, I think second quarter of '09, we're down almost 20%, 25% in volume.
We have the opportunity, as I've said earlier, that we're losing about 4,000 employees a year through attrition. What happens -- and even in a small falloff in volume, we'll try to take advantage of, where we can, that attrition.
If that means we slow down hiring, which is what we have done here on the western part of our region, we can try to respond as quickly as possible. When it gets into locomotives and capacity, things like that, obviously, in the short term, you're not going to be able to do much other than put some in storage.
But again, a short-term blip, either down or up, you're not going to get as much response. The question is if you see this thing turning down here and you start looking 2, 3, 4 or 5 quarters, you'll see us being able to take more advantage of taking costs out.
Cherilyn Radbourne - TD Newcrest Capital Inc., Research Division
And what indicators are you guys relying on to assess the business at this stage?
James R. Young
Well, we start with our customers' perspectives. We're very close to our customers, trying to understand where they're making investments, where they're putting capacity, and there's long lead times in that.
And so far, it's still very strong when we look in several of these groups here. At the end of the day, though, we look every morning at what were loadings yesterday and it's pretty intense running the business daily.
And if we see things turn off sharply, we will respond. You try to be as proactive as you can, but nobody has perfect vision to the future here.
Operator
Our next question is from David Vernon of Bernstein Research.
David Vernon - Sanford C. Bernstein & Co., LLC., Research Division
Could we maybe talk a little bit about the Domestic Intermodal yield management efforts, kind of what kind of business is actually leaving the network and how that pricing discussion is going and what kind of a runway you look at on that Intermodal repricing?
James R. Young
Jack?
John J. Koraleski
Any business that you see right now leaving the network is being replaced on a fairly strong basis bases by truck conversions. So for instance, if you think about our little streamline subsidiary did 80,000 moves last year, it's growing 20%.
84% of that business in the third quarter is coming off the highway. So highway conversion is more than making up for anything that we lose for us in terms of our yield diversions.
And we're particularly seeing that now in the third quarter. Originally, in the early part of the year, we were having a little bit of a startup issue with our MCP program just because it was something new and different, and the idea of making a commitment was something that some customers weren't all that excited about.
But I think what they're seeing right now is we're doing such a great job of that. And they're already starting to talk about signing up for next year and giving us some strong indications with our service performance and the way we are meeting our commitments.
It'll be a solid path forward for us, so we're actually feeling quite good about that.
David Vernon - Sanford C. Bernstein & Co., LLC., Research Division
So does that mean that the full 6% year-over-year decline was International import/export then?
John J. Koraleski
Yes, actually...
David Vernon - Sanford C. Bernstein & Co., LLC., Research Division
Was it actually a little worse then, there was a domestic offset then?
John J. Koraleski
When you see our third quarter results -- so if you looked into our third quarter results, our International business was down 12%. Our Domestic business was up 2%, but that 2% is a weak start to the quarter that built to a relatively strong end to the quarter.
So the 2% isn't really -- like I said, right now, we're running 6%, 7%, 8% better than a year ago.
Operator
Our next question is from the line of Walter Spracklin of RBC.
Walter Spracklin - RBC Capital Markets, LLC, Research Division
So my first question here is just for Lance, perhaps. On your train sizes trending very nicely here, ticking up each year, can you talk to us a bit about what you see average train lengths being ultimately once you reequip your fleet with your current targets, both on manifest, I guess, and to put into context intermodal train lengths as well?
And touch a little bit on DP and what percentage your fleet is currently equipped DP compared to where you want to -- where your current targets are for percentage of your fleet equipped with the distributed power.
Lance M. Fritz
Okay. First, on train sizes.
The short answer is we've got plenty of opportunity to keep growing. I think that Intermodal number this quarter was something like 170-plus.
Depending on the intermodal lane, that can easily reach 200, 250, and we've probably got some lanes where it could go north of 250. So we've got plenty of upside there.
On the manifest side of the world, we've got upside from the high 80s number that we are recording right now. And when it comes to DPU strategy, every incremental road unit that we're purchasing at this point forward is DPU-equipped, and all of our current DPU locomotives are fully utilized.
I want to say somewhere in the 60% ballpark of our traffic right now is DPU-ed, and that's just going to grow as we look forward. And in terms of the total percentage of road fleet that's DPU-ed, I can't answer that off the top of my head, but it's a fair portion.
It's a pretty substantial portion.
James R. Young
Walter, keep something in mind here, though. We could significantly drive train size up if we sacrifice service.
I mean, the challenge that the operating team has is to run as efficient a train size as they can but meet aggressive service targets. So that's the balance you have to wrestle with here.
I'm telling you service pays off big time. We're seeing that in the market when we're redoing these deals and the value that's there, so we've got to always keep both of those in mind, train size and the service commitment.
Walter Spracklin - RBC Capital Markets, LLC, Research Division
And that is an interesting point in terms of that being the bottleneck. Your infrastructure is not the bottleneck.
Your sightings are long enough now to handle 200 to 250 car length trains. Is that a fair statement?
James R. Young
No. We still have opportunities on capital, particularly you look down in the South that we're struggling with today that we can improve the productivity and efficiency there.
Lance, you want to add anything?
Lance M. Fritz
Sure, yes. It's just very dependent again on the quarter and the specific route you're talking about.
Although, again, our current capital plan long-term and near-term takes that into account where we anticipate growth is going to be happening. And we've got a solid capital plan to enable continued productivity and service improvements.
Walter Spracklin - RBC Capital Markets, LLC, Research Division
Okay, that great. Second question here is just sort of a minor one.
Jack, would you be able to quantify for us the percentage of your book that is currently legacy? How much you think of that is going to get repriced in the fourth quarter of 2011?
And the estimated lift, you've talked about, about 100 basis point opportunity in average core pricing lift. Is that still the case?
John J. Koraleski
I'm trying to look at my choices here.
James R. Young
Walter, you've stumped us here. Go ahead, Rob.
Robert M. Knight
Walter, I would refer you back to the slide that you've seen us present in the past, we didn't have it in our deck today, that shows the breakout of legacy by year. In 2012, as a reminder, we said there's about $300 million worth of business up for renegotiation in our legacy book in 2012.
I mean, we break it out in multiple years beyond that. But we haven't provided specific guidance in terms of what the uplift will be other than if you look backwards, we've said we've gotten about 2 points of yield annually from the benefit of repricing legacy.
We haven't given guidance as to what that uplift's going to be going forward.
Walter Spracklin - RBC Capital Markets, LLC, Research Division
Okay. And if I remember correctly, I think 2011 was the bulk -- was the biggest year out of the next 3 or 4 years.
Robert M. Knight
Yes, 2011 was about $750 million, which was the back-end loaded comments that we've made.
Operator
Our next question is from the line of Matt Troy of Susquehanna Financial.
Matthew Troy - Susquehanna Financial Group, LLLP, Research Division
The export coal story has primarily been one dominated by the Eastern rails. We've recently seen some concerns about cooling export demand, which, I think, any sane person would expect off this year's peak, but we continue to think it's a multi-secular, multiyear secular run.
You've got a couple of terminals that have been announced or proposed on the West Coast. I'm just wondering, Gateway Pacific, Millennium Bulk, Port of Morrow, St.
Helens, Grays Harbor, Coos Bay, which projects have you been approached about or are you in discussions with? And when do you see them potentially coming to fruition, so you guys can move some export coal off the West Coast?
James R. Young
Jack?
John J. Koraleski
Matt, we're interested particularly in the ones up in the Longview, Washington area, the one -- I think it's called Ambre Energy, the Australian company. That one has some real opportunity for us, and virtually, any of the ones that we can access.
We're also looking at some Gulf Coast opportunities and even some possibilities moving down to Mexico. So I think the big question for us, particularly on the West Coast in the domestic U.S.
marketplace, is whether or not those construction projects will actually take place and whether the EPA and the environmentalists and things, I mean, they have put a lot of roadblocks up in terms of getting those projects approved and under construction. So that's the thing we're watching most right at the moment.
Matthew Troy - Susquehanna Financial Group, LLLP, Research Division
Got it. Second question was -- and my last question would be just on the exports again.
Obviously, imports were disappointing this peak season. I was thinking more on the export side.
You've seen some fairly robust numbers out of the Port of L.A. I think in the last 3 months, up north of 20% in terms of full box exports out of L.A.
Are you seeing any of that business, and can you just maybe clarify if you are -- what is it that you're moving to port that's going the other way?
John J. Koraleski
We're moving the iron ore business. We're moving a lot of export soda ash, export fertilizers.
And then in the boxes themselves, we're seeing everything from DDGS to grain. There's been some proposals -- well, scrap paper is also a big item.
There's been some proposals for commodities even like iron ore as a potential to go back, just about anything that will fit in a box and that's reasonably possible are things that a lot of the companies are looking at to take advantage of that excess capacity.
Matthew Troy - Susquehanna Financial Group, LLLP, Research Division
So fair to say that it's a lot of the different businesses and a lot of active discussions at present?
John J. Koraleski
Absolutely.
Operator
Our next question is from the line of Jason Seidl of Dahlman Rose.
Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division
Two quick questions. In terms of -- maybe not a legacy business left to be repriced, but what percent of your book of business was repriced, say, from December 2008 through maybe the first quarter of 2009?
John J. Koraleski
Jason, when you look at it, there's 60% or 70% of our business -- no, there's about 60% of our business that either moves under tariff or moves in one-year letter quotes, so all of that gets repriced every year. And then on an ongoing basis, when you look at our multiyear contracts, this year is a little bit of a larger group than what we've seen, but the number just right off the top of my head is something -- in the past 12 months is going to be somewhere in the neighborhood of $2.5 billion, $2.6 billion.
Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division
$2.6 billion, okay. That's good color.
James R. Young
That would include both the legacy and the non-legacy.
Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division
Okay, fantastic. Well, I'm looking at, obviously, your Domestic Utility business.
The question was asked if any of the regulations actually could hurt you. I'm going to ask it the other way.
Can any of them actually help you? Because obviously, the CSAPR regulations, they've changed a little bit over time, but we've been hearing that some of the utility buyers might have held off a little bit buying some thermal.
Do you think they could actually start changing the bases they purchase from going forward?
James R. Young
It could. It could be a positive for us.
It just depends on how quickly the evolution takes place and what is playing. One of the things we're seeing right now is actually kind of the side benefit of some of those regulations is the potential for moving either limestone or trona as a scrubbing agent to help meet some of those.
So when faced with kind of a long-term decision, the quickest and most immediate thing might be to just put in a quick scrubbing solution that doesn't cost quite as much like the trona manufacturers offer to the utilities, and that turns out to be a nice piece of business for us.
Operator
Our last question is coming from the line of Jeff Kauffman of Sterne Agee.
Unknown Analyst -
It's actually [indiscernible] in for Jeff. Just had a question if you could talk about some of the changes that you're seeing at the ports of call on the West Coast and if you're seeing a net benefit from increased containers being dropped off in Oakland versus Los Angeles and Long Beach?
James R. Young
Jack?
John J. Koraleski
We're not really seeing any major shifts or changes, actually. And they probably -- this isn't a good time for us to really see a lot of those because there's plenty of capacity everywhere.
Volume levels are below what they were a year ago in the third quarter. So we're not seeing any dramatic shift taking place.
Unknown Analyst -
And then one more question. Of the 7% increase in derailments per train miles, how much of that was related to weather and the heat and the drought?
John J. Koraleski
Some was related to the heat and the drought in Texas, clearly, a lot of very low value train derailments track caused in yards and terminals. And so there was a little bit of an impact there as well.
Operator
There are no further questions at this time. I would now like to turn the floor back over to Mr.
Jim Young for closing comments.
James R. Young
Well, thank you, everybody, for joining us this morning. I hope one of the things you recognized -- I think this quarter really reinforces the value of the diversity of the UP network, and we had some surprises in some of the areas on volumes.
But once again, the diversity paid off for us. So we look forward to talking to you again with our fourth quarter earnings.
Operator
This concludes today's teleconference. You may disconnect your lines at this time.
Thank you for your participation.