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January 2 2023

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100 Journal of Commerce | J anuar y 2, 2023 EXECUTIVE COMMENTARY ANNUAL REVIEW & OUTLOOK 2023 Surface Transportation past four capacity crunches and will continue to influence the availability of capacity in the future. Wen-Parker Logistics John Singleton Chair and CEO Despite trucking and intermodal being strained by demo - graphics, regulation, and changing work/life balance issues, I believe the biggest challenge facing the US surface transportation network in 2022 and beyond occurs before that network even has a chance to work. Just three years ago, we could tell a customer exactly when they could expect their cargo. Today, they need cushions in many nodes in the chain. We need to find our way back to consistency and reliability. The lines and ports (ocean and air) and intermodal operations need to honor consistent schedules and capacity, delivering on expectations, with adequate capacity for returns to keep the supply chain moving. Swings in rates and volumes over the last three years have the shipping lines very conscious of sup - ply and demand. They have proven ready to lessen supply quickly, while adding back is a bit less prompt. These unplanned changes make arrivals in the US inconsistent and unreliable, forcing shippers to pad the schedule, extend their calen - dar, and buy goods early to get it "on time." This added time clouds planning and leads to unbalanced inventories, resulting in overstock and understock conditions. The recent West Coast port congestion, where freight could float off the coast for weeks and then be lost at ports afterward, has spread everywhere. Inadequate capacity has highlighted the need for better process and staffing. Even today, with volume relatively low, delays are common; it seems to have become the new normal. Getting back to reliable, existing contracts with carriers. In the capacity game, shippers also need to pay attention to legis - lation such as California's AB5 law and look to see which other states are planning to enact similar laws, while also keeping an on eye on what may happen at the federal level. These state and federal regulations are very important because they will change the landscape of the national contract carrier capacity. Shippers will have to be prepared for these new "proposed" regulations that could affect capacity in a number of states before the end of 2023 and into 2024. Carriers working as independent contractors for truck fleets need to act quickly to ensure their business keeps running smoothly. Shippers and carriers need to fully understand AB5-type trucking laws and how they might impact their businesses, as well as how to manage any necessary business model changes in California or other states as they are enacted. Legislation and FMCSA regulations are vitally important to pay attention to, as they have highly influenced the capacity and rate relief. How much it falls is still to be determined. However, base capacity should stay the same in 2023 and, combined with declining spot rates, shippers should feel less stress when looking to move freight. Contract carriers that haul full truckload freight are expected to maintain fairly high rates until the end of the year, because they didn't negotiate existing capacity on these contracts. However, con - tract rates are anticipated to adjust down in 2023, so shippers should plan accordingly as they negotiate new contracts or renegotiate their Union Pacific Railroad Lance Fritz CEO The biggest challenge facing US surface transportation is improving service as impacts of the COVID-19 pandemic are still being felt through - out the country and world. From a supply chain perspective, the impacts of last year's Omicron variant on the labor force were felt at our ports, as well as on highways and at distribution centers as customer demand increased. At Union Pacific, crew availability has been at the heart of our service issues. We recognize recruiting and retaining talent is essential. Over the past year, Union Pacific recruited and trained more than 900 train crew employees and exceeded our goal of hiring more than 1,400. We must continue innovative recruiting practices, such as our Second Chance Hiring program. We have also received approximately 13,000 new-hire referrals from current employees and have offered jobs to nearly 1,000 of those referred. Great people know great people! The current round of national negotiations with our labor unions included the largest raises for our union workforce in decades — a 24 percent pay boost that will push aver - age railroad salaries to $110,000 per year by 2025. Work remains to make our jobs attractive to today's employ - ees — especially the unscheduled, "on call" jobs. We are committed to rede- signing that work in partnership with labor leadership. Our comprehensive benefits program includes vacation and time off, medical insurance, Rail - road Retirement, 401(k), and other benefits useful at various life stages. The endgame is to provide jobs that are attractive to the best talent in industrial America. As a result of our hiring and our employees' hard work, Union Pacific made real progress to increase fluidity and better meet customer demand and must continue to do so to provide the service our customers require. At the same time, robust hiring is also needed to fill jobs at warehouses and to source dray drivers. Supply chain fluidity boils down to placing people in jobs to increase throughput capacity. "Work remains to make our jobs attractive to today's employees — especially the unscheduled, 'on call' jobs." "Contract rates are anticipated to adjust down in 2023 so shippers should plan accordingly as they negotiate new contracts or renegotiate their existing contracts with carriers."

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