Canadian National Railway Company (CNR) Earnings Call Transcript & Summary

Good morning, everybody. This is Tom Wadewitz. I'm going to be moderating the fireside chat that covers the freight transports at UBS. We have Ghislain Houle, the CFO at Canadian National; and Paul Butcher, the Head of Investor Relations at CN. And they're going to provide some initial comments for about 10 minutes or so, and they have some slides. And so if you could follow along with those. And then after that, we're going to go into some questions that I'll moderate. There is -- on the conference website, you can submit questions. So if you want to do that, you're welcome to do that, and I'll try to weave those into the discussion as well. So Ghislain and Paul, thank you so much for joining us. Let me hand it over to you.

Well, thank you, Tom, to -- for having us, and thank you for people listening to us on the webcast and taking some time to hear our story. Butcher and I are in our conference room here in Montreal, social distancing. I think for us, we were social distancing before the COVID-19, so we continue that good practice going forward. So we do have some slides. So I'll take a small time to do some introduction. And then after that, Tom, as you say, we'll open up for your question. Well, thank you, Tom, for having us, and thank you for people listening to us on the webcast and taking some time to hear our story. Butcher and I are in our conference room here in Montreal, social distancing. I think for us, we were social distancing before the COVID-19, so we continue that good practice going forward. So we do have some slides. So I'll take a small time to do some introduction. And then after that, Tom, as you say, we'll open up for your question. If you turn on Page 3. To provide a quick business update, we can see and we feel that we've hit bottom in May with our volumes in terms of RTMs down 20% versus last year, and this is in line essentially with what we expected. However, we're starting to see a little bit of light at the end of the tunnel. When you look at it on a sequential basis, week-over-week, our volumes in terms of RTMs were up 4%. So if you look at the market drivers, and there's a few there, and I'll walk them through it. We're quite pleased and proud about our record shipments of Canadian grain. The RTMs in May on Canadian grain were up 22%, and quarter-to-date, they're up 10%. Same thing on Canadian coal, or May, RTMs were up 30%, and quarter-to-date, they were up 40%. There is a reopening of the manufacturing and construction, including retail stores that has an impact on various commodities, including lumber. When you look at lumber in May, the RTMs were down 35%, but then on a week-to-week basis, lumber is up 20%. Automotive, as some of you know, most of you know that automotive production is back up we feel it will probably be slow, we'll see. But again, automotive business in May volumes were down 80%, but on a sequential basis, now that it's back up on a week-to-week basis, it's up 60%. We're quite pleased with our domestic intermodal grocery products. And May, RTMs were up 3%, but quarter-to-date, they were up 5%, which again is another proof point that the -- our acquisitions of TransX and H&R are providing and delivering benefits. Obviously, low oil prices are impacting crude-by-rail. If you look crude-by-rail, RTMs, they were down by over 80% and quarter-to-date, they're down by over 70%. Same thing on frac sand shipments, May RTMs were down by 90% and quarter-to-date, down by 70%. If you turn to Page 4. Obviously, with this situation, we aggressively and are aggressively rightsizing our resources. We're quite pleased and quite proud of some of the productivity statistics that our operating team are delivering. And when you look at our train weight, on average, our train weight is 10,000 tons that's up close to 10%, and that's never been done on a consistent basis. And I've been in the business for over 22, 23 years, so that's quite impressive. And our train length are averaging 9,000 feet, and that's up 7%. We have currently 20,000 cars in storage, we have 710 locomotives in storage. We are idling some switching yards, we are reducing some mechanical activities in more than 20 locations. And I can assure you that some of these changes will be structural and will be permanent in nature. In terms of productivity, the crew starts were down 23% year-over-year, while GTMs, gross ton miles, or workload were down 21%. So again, we're keeping up in terms of rightsizing our crew starts with the reduction of volumes. We're quite proud of our fuel efficiency. We delivered an impressive 6% in Q1, and we'll continue to push on fuel -- and continuing to push on fuel efficiency in the second quarter and going forward. In terms of labor, we are 21% lower workforce year-over-year. That's close to 6,000 employees down, and then we currently have about 4,000 people on layoffs. On Page 5, we're quite bullish on our strategic pipeline of growth opportunities that are very specific to CN, and I'm happy to report that these are advancing even during the pandemic. There's a lot of boxes on that page, I'll cover a few of them. And obviously, we can't cover these growth opportunities specific to CN without talking about Prince Rupert. Prince Rupert container expansion continues with our good partner, DP World, 250,000 TEU capacity, planned to be delivered in 2021, and another 2,000 TEU capacity in 2022. And if you listen to the Port of Prince Rupert Authority, there's an opportunity to have another terminal that would bring the container terminal capacity at Rupert to 6 million to 7 million TEUs. We're quite pleased with the Ridley Coal Terminal that's now being owned by the private sector. Last year, Ridley did about 10 million tons, mostly of coal. With a capacity of 14 million tons, but a new dumper was installed that brought that capacity to 16 million tons. And there, again, there's an opportunity for a second berth that would bring the capacity at Ridley to 34 million tons. We have some propane export terminals that are there in Ridley, 1 from AltaGas, 45,000 barrels a day capacity, quite pleased about that. And another one that will be delivered early 2021 by Pembina at 25,000 barrels a day, but they already are planning to expand that capacity to 45,000 barrels a day. We're extremely pleased with our long-term strategic partnership with Teck Coal that could bring over -- about $1 billion of business over the next 5 years. So we're quite pleased about that, and that's scheduled to start in 2021. There are many high throughput new grain elevators being built in the country, and we're pleased that 70% of those will be or are on our lines. We are working with Hutchison Port to build a brand terminal in Quebec City, and the opening is planned for 2024, quite pleased about that. And also very pleased with -- working with PSA that purchased Halterm Terminal in Halifax, used to be owned by Macquarie. PSA is a strategic buyer, and both of these terminals will bring growth to our underutilized eastern network. This will be business that will be targeted to go to mid-U.S. and we'll be able to support that growth with very little if no CapEx at all. So we're quite pleased about these 2 opportunities on the eastern. And we want to replicate -- actually, in both cases, we're replicating the operating model that we have in Prince Rupert that's been -- that's worked out very, very well. Page 6. We continue to advance on our technology deployment, and we have proof points that are telling us that we are in the right direction. When you look at the automated train inspections, we have 7 portals that are operational. We aim to develop about 100 algorithms by 2021. Today, we have about 12 algorithms done, and with only 12, we were able to detect 22,000 defects year-to-date that would not have been found by the human eye. So again, quite pleased about that, and that tells us that we are definitely in the right direction. Same thing, same story for our automated track inspection. We have 8 ATIP cars. We're doing test program right now between Chicago and New Orleans. Again, we're finding many defects that were not -- have been found by the human eye. And the frequency of being able to inspect the track is 16x more than what we would have done otherwise last year at the same time. So quite pleased. And then we are deploying 11,000 tablets to our train crews and our mechanics. This will allow us to provide more accurate information for our train crews. The big thick rule book will be on the tablet, so much easier to find rules when people need to look for them. And again, this will be a big step for us to be paperless in terms of -- in our operations and reduce our environmental footprint. So in conclusion, we are focused on getting through this pandemic. We remain bullish on our specific growth opportunities. We have this -- we have a solid team in place, and we have the best investment-grade credit rating in the industry, and we are continuing to have access to commercial paper market at lower rates than LIBOR. So we are very well positioned to weather the current storm. We are -- we have structural advantages that will position us well for the recovery. I discussed the strategic pipeline, they're continuing to move forward, and these -- this growth pipeline that are specific to CN will not only deliver growth for the next quarter or 2, but for the next 10, 15, 20 years going forward. We're advancing on our technology deployment, and again, continuing to focus on ESG, and continuing to drive fuel efficiency even harder than ever. So on this Tom, I think I'll open up to questions. And looking forward to providing some -- as much visibility and transparency as we can.

Great. Thank you, Ghislain. That's a very helpful framework to start with and a lot of good information in the slides. So thank you for that. So we'll go ahead, and I'll just remind people that if they do have questions, they're welcome to submit them through the website. And I'll try to keep an eye for those. Ghislain, just to get started with, I think that there's definitely interest in trying to figure out the trajectory of volumes [Indiscernible] things. I think that railroad commentary in May has been -- had been somewhat cautious in terms of weakness in international intermodal and how that might be an offset to some improvement in other areas. I think automotive has been the one that is most visible that -- when you're down 90% to 100%, you can't get worse. And so you can get better as the plants come back online. So if you could offer some thoughts on how you think about international intermodal and what's coming into the ports, and how you think about the broader bottoming in volumes.

Yes. I think -- as I said, Tom, I think we're seeing the light at the end of the tunnel. Hopefully, it'll hold. I think it'll be slow. We can see now on the international intermodal, to your question, less blank sailings that we've seen before. We also can see vessels that have bigger discharges. So again, like -- the issue right now is the demand. As you know, we saw some blank sailings in January, which was the supply -- which was a supply issue. That was now China's factories and manufacturing factories not manufacturing because they were caught into what we are caught today here in North America on the pandemic. So now China is producing. And they're not producing 100 capacity, but all the manufacturing factories are open. They're producing at 70%-ish capacity, but now it's the demand. So as the demand starts to open up, as the stores starts to open up, as -- now the stores eat up into their inventories, I think you will see that from a year-over-year basis, I still expect this to be down. But from a sequential basis, you can see that -- and I hope that it will continue to be up. So I don't know, Paul, if you want to add anything.

Yes. So maybe the one -- the couple of things I would add. Number one, Tom, as you probably know as well, we are -- the ONE contract is going to shift over to CN -- or actually, it has shifted over to CN at -- in June here. So that will be a nice positive for CN. And even on the domestic side, intermodal, I think, what we're seeing now is I think just Ghislain, mentioned earlier, about some of the markets that did well during the last couple of months, whether it's grocery couriers. And now we're already starting to see, as some of the manufacturing is reopening, some of the industrial products that are moving on the domestic intermodal side is also starting to pick up. So some good signs here that we're seeing.

So Tom, just to finish on the data point, as I was saying in my presentation, week over week, sequential basis, our overall volumes were up 4%. When you look at international intermodal, they were up 12%. So whether that will hold or not, I hope it will, but at least it's positive. I mean we've seen this declining in May, week after week after week, which frankly, was quite depressing, but this is what we expected. But now we can see that at least week over week, it's starting to move back up.

So just to be clear, your comment on that is the most recent week compared to the prior week, and that's up 4% in total and up 12% for international intermodal.

That's right.

Correct.

That's right.

Okay. How much of that up 12% is the start of the ONE contract? Is that a factor in that sequential move up? Or what's the timing when you would expect that to come into the weekly numbers?

Yes. So I think maybe some of it would have started in May, but it would be pretty small. I would think the big chunk would have started early June. So you wouldn't see that in the numbers that we just quoted to you.

Okay. So it sounds like the broader idea of bottoming in May -- that we've seen the bottom, and we're starting to see improvements. And then we can see maybe obviously down year-over-year in June, but kind of a less worse trajectory in June seems like a reasonable framework.

That's what we -- that's what we hope. We hope it's going to stick. But yes, that's what we -- at this point, I would say that's correct.

What -- do you have feedback from customers in terms of kind of how the reopening is going and whether they're seeing demand ramp up? Or it's early for that?

It's early. I think people generally say that it's going to be slow. There is -- I mean there's all types of speculation out there, whether it will be a V recovery, a swoosh recovery. I was reading in the Wall Street Journal this morning swoosh recovery, whether it's going to be a hockey stick. I think my view -- personal view, Tom, is as long as North America will have to deal with social distancing, as long as people will be worried about a second wave, I think that my own personal feeling, I think, it's going to be slow. I think it's going to start gradually. I mean, I can see here, for example, in Montreal, the stores are starting to reopen, but they're not all reopening. Some of them will reopen next week. Some of them are going to reopen 2 weeks from now, 3 weeks from now. So it's not all a rush at the gate. It's gradual. So I think -- and then when you see -- and I've been coming in, in the office throughout. I live 10 minutes away. So I mean I can tell you about 1 month, 1.5 months ago, there were no cars in the street. It was like it ghost town. And I think a lot of cities in North America are the same. When you look at today, there's quite a bit of traffic, and the constructions has restarted. So again, you can see the orange cones in Montreal, which we are famous for. And so I think it's gradual. And I think people will tell you that -- like same thing, when you look at the auto sector, the reason why the OEMs shut down, as you know, is because the dealerships were shut down, so they didn't have any place to put the cars. So now all of a sudden, you say, okay, now the dealerships are reopening, the OEMs are reopening. Now the dealerships will have to eat through some of their inventory of cars. And then the big question, which I don't have the answer to is, well, with unemployment going from a record 4% in the U.S. going up to close to 15%, how many people are going to jump to buy a car quickly? I don't know. So -- but I think people -- I think that this is going to be slow. I think that -- and we'll see. So my view is -- to your point, we're starting at least to see some light. I hope it's going to stick. And to your point, June less worse than May, but still lower on a year-over-year basis. And then gradually Q3, a little -- sequentially, a little better, maybe better -- maybe a little bit more than we think. And then Q4, again, better. And we'll see. But that's my two cents. Paul, I don't know if you...

No. I think you said it exactly right.

Where -- which segments do you think are -- do you have the most optimism about improvement as you look over the next couple of months or into second half? And where would you say you have the most caution about improvement?

Well, I would say, where the -- to your point, you'll have improvement in automotive sector, for sure. I mean to your point, when you're down 90%, you can't go lower than that. So I think we'll see some improvement there. I think that you will see some improvement in international intermodal, as I mentioned, and the reasons I just talked about. I think grain will continue to be strong. We're very pleased with Canadian grain. I think the crop in and of itself every year is up 2% to 3%. So again -- and these elevators on our lines are going to deliver benefits for us. So we're quite bullish on grain. We're quite bullish on coal, West Coast. I mean -- again, Coalspur per that new mine, that's northern Alberta is ramping up and shipping way more coal to Ridley than it did the previous year, so we're quite bullish about that. The sector that we -- that are going to be tougher is obviously crude and frac sand. I think that with the price of oil, I think, that this will continue to be tough. Now the good news for us is crude and frac sand now are very small in our book of business. I think it probably they represent 1% to 1.5% of our book of business. And we've always said at CN that we were not counting on crude-by-rail over the mid- to long term. I think this business, if pipelines become available and have capacity, it'll go by pipeline. So I believe that it's going to be -- remain a niche business for the railroad. And especially us, we're fortunate we're moving. And if you look at last year, about 1/3 of the crude that we moved, it was the undiluted bitumen with no diluent that basically 2 things: number one, brings the rail economics very close to pipeline economics because now you don't have that diluent discount; and second, it's not a dangerous good. So we -- I think we're going to continue to move this. CanaPux is another positive story on crude. These are the hard pucks that we've developed that now we will move forward sometime next year, probably, with a new partnership that we have. And the other place that's going to remain tough is coal U.S. As you know, we move coal from Southern Illinois to Convent. This is thermal coal, and really relate us to the Index API2. And API2 is still hovering around USD 50 a ton. Companies and producers are not making a whole lot of money. So if you look at the volumes on coal U.S., in May, they were down 70% and quarter-to-date, down the same thing, 70%. And I think that's going to remain under pressure for this year. Have I missed anything?

No, I think the only thing I would add is, Tom, go back to the slide that we provided earlier on the -- all the pipeline of growth opportunities, right? So whether we're seeing some markets come back, some markets a bit strong -- or a bit weaker, we continue to focus on the opportunities that are on that page. One, in particular, for example, I know Ghislain talked about it, our eastern strategy in terms of Halifax, Quebec City. I think we're getting a lot of questions these days about changes in supply chains and near shoring. And I think if there's something potentially we could see is some of the production move out of China, go to other Asian countries. That would benefit the port of Halifax, potentially the port of Quebec City using the Suez Canal Road. So I think these are definitely opportunities that we're pursuing, very excited about. So there's a lot that's going on here, not just the next few months, for the next 3 to 5 to 10 years.

Great. So it sounds like maybe just one further wrinkle on that, and then I'll ask you a little bit about the near-shoring question. The -- it sounds like the areas that are the worst, so U.S. thermal coal, frac sand and crude, are at a very low level. Probably won't get worse from where they are. You maybe have cautioned about a ramp-up. But even if they stay at this kind of current low level, you have plenty of other areas that can ramp up and drive sequential improvement as we look to the next several months. Is that a fair assessment?

Absolutely. Yes. It is. It's like going fishing. We have many lines in the water. At one point, we'll catch a fish.

Right. Okay. What -- so on the topic that Paul kind of brought up that I had on my list here as well. How do you think about areas that customer groups that could see a change in-sourcing? And what would you think would be maybe more susceptible to moving to a broader North American sourcing, whether it's Mexico or U.S. or Canada, relative to being out of Asia at the present time?

Yes. I think we've had questions about this, as Paul mentioned. I think that when you look at the near shoring, what we believe at CN, and whether we're right or wrong we'll see and the future will tell us, a lot of what will be near shore is medical supplies and things that North America ran out of during this pandemic. We still believe that consumer products, dishwashers and washing machines, and products that have high labor content will be produced in countries that have lower labor costs. Now whether that is in China, to Paul's point, whether it moves to Vietnam, whether it moves to Malaysia, we feel that it will still be produced offshore. And then it needs to come in North America by a gateway. I think that we're well positioned because we have -- we're a 3-gateway railroad, Gulf the -- and then the West and the East. I think that Rupert, as we've mentioned many times before, has a structural opportunity because it's closer to Asia. To your point, if it goes now to more Southeast Asia, then Halifax becomes a play. So we're quite -- and remember that these gateways are not just there to grow with the economy, but actually, they're taking market share. So Rupert is actually a play to take market share from L.A. Long Beach. And Halifax and Quebec City is a play to take market share from the port of New Jersey and the port of New York. So these goods have to enter into North America some way. And I think CN, we're very well positioned to continue to grow. And when you look at it, Hutchison is continuing to -- they believe the same thing. They're continuing to be in the permitting process to develop a brand-new terminal in Quebec City. PSA is continuing to work on all term, and then DP World is continuing to expand. So our partners believe the same way as we do. And I think that we believe that these consumer goods, I think that they will continue to be built in countries with lower labor costs than in North America.

Right. Okay. Great. Do you have -- I mean I would think your customer -- maybe indirect, but you probably have some dialogue with the beneficial cargo owner as well. Are you getting shippers that are coming to you and saying, "Hey, we want to really revamp the supply chain, and we want you to be part of that discussion." Is that something that's occurring, or has that not really been the case?

Frankly, I would have to ask both our guys, James Cairns and Keith Reardon, both are our Senior VPs. Keith, being intermodal and James, carload. But I'm not aware of any of discussions. Paul are...

No. I mean, what I would say is we do have 50 CN people that are based in Asia. So they're always in constant communication with our major customers, the steamship lines. So I'm sure those discussions are potentially happening, and we'll be ready if we do see some changes.

But at this point, I don't see -- at this point, I'm not aware of having specific detailed discussions on changing supply chains from customers at this point in time.

No.

Right. Okay. So let me move over to one that's maybe a sweet spot for you, Ghislain. What -- how would you think about the cost? You've done a great job taking out a lot of cost, and it's been impressive how you've been able to adjust the network. And really, as you pointed to in your prepared comments about the train weight expanding, trade length expanding, which is really remarkable against such a weak volume backdrop, so how do you think about structural cost takeout? And when we get to the other side, I mean it leads to the question about incremental margin. But I guess building to that question. How do we think about how much resources need to come back when volume comes back? So when you eventually get to volume growth and volumes are up 10%, are train starts up 2%? Are they up 5%? How do you think that about that kind of broader equation of structural costs and operating leverage when the volume is growing again?

Yes. I think, Tom -- and I touched a little bit upon it in my prepared remarks, I think that as we see the light at the end of the tunnel and as the recovery starts slowly, we will be patient before we put back assets back on the network. We would be patient before we call back people. We would be patient before we put back locomotives back on the network, same thing on cars. So as much as when the volumes were going down very quickly, there was a lag in -- and we've said that to the market, there's a lag in our cost takeout because by the time you see the volume fall very quickly, then by the time that you now give notices to people to lay them off, by the time you go through the union process, et cetera, et cetera, sometimes there's a lag of a week or 2 before this actually happens. Well, that lag will exist, and rest assured, it will exist when the recovery happens. And frankly, I believe that a lot of what we've done, like in terms of closing down smaller yards or closing down some smaller mechanical shops, I think that those will be structural, and I think that those won't -- those will be done on a permanent basis. I can assure you, and we're having continuous discussions with the top of the house here, Rob Reilly, who I think him and the team are doing a wonderful job, JJ and others, that when we do bring back resources, it will not be on a one-to-one basis. So now to your point on operating leverage, I think that, again, our strategy has not changed, Tom, and this is something at CN that we have is we're very consistent. I think that when you look at our business, we want to grow. And I'm very pleased with the strategic pipeline of growth opportunities that are specific to us, but we want to grow profitably. So again, it's not about growth, it's about growing profitably. We're not going to chase business that is not profitable, or we're not going to chase price. We're going to -- we said and we are delivering inflation plus pricing. Even during the pandemic, we're going to continue to do that. We want to grow more than the economy. And then we're going to continue to deploy technology that will make us more efficient. And we are protecting the precision-scheduled railroading that we implemented 15 years ago, and that's our strategy. And by doing this, we believe that with a supporting economy, I think that -- and continuing to effectively deploy technology, I think we're very comfortable on a consistent basis to deliver in the high 50% OR. That's what we're comfortable with. So we'll see. And when you look -- we've said before that we are not and we're still not enamored with the OR. We'd rather grow the business, and we'd rather be a $20 billion at 60% OR than a $15 billion at 59% OR. I mean, just do the math. And I'll finish with this, our strategy is working. When Hunter Harrison left CN and Claude Mongeau became the CEO in 2010, I was around. And I was talking to Claude, we were talking as a leadership team. And we were saying, okay, guys, we need to protect the foundation of precision railroading. We called it scheduled railroading at the time, but we need to grow the business. Well, guess what? When you look at now, in 2000 -- from 2010 to 2019, we grew the top line by 80%. So we grew way more than any other class 1s. And then when you look at the foundation, our foundation in terms of OR in 2010 was 65.4%. And last year, as you know, Tom, we finished at 61.9%. So not only did we protect that foundation, but we slightly improved it. And we believe that we have way more room to improve it by deploying technology. These automated track inspections and automated portals, train inspections, they're going to change the way we operate in the railroad. I can assure you that, and I'm very, very pleased to see that we're in the right direction. So stay tuned, but that's our game plan, very simple game plan, and we're very comfortable we will execute on it.

If I -- so if I think about the performance of incremental margin for a railroad in kind of normal times, I think the railroads generally talked about a 50% incremental margin. Obviously, it depends how much is price, what's the volume. And you can have variability around that. But if you say, well, maybe that's kind of a normal conditions. When you have a big cyclical upswing, which hopefully will be the case in '21, you think there'd be potential to be higher than that. Do you think it's reasonable? Assuming that you think maybe somewhere around 50% is normal, can you be a lot higher than that, like you were in 2010, that it could be 65%, 70%? Or let's just say well above 50%. Is that high level or reasonable framework?

I think that we're not thinking in that way, Tom. We're not -- like what we're thinking about is here are the opportunities, the operating opportunities that we have. And Rob and the team are continuously focused on those from a day-to-day transportation standpoint. Here are the opportunities that we have on the technology. Here is the growth opportunities and the pricing and the contracts and the business that we get. And then the incremental margins will be what they are. But I think that at CN we know that results come out, and we have to defend those results. But we're managing to do the right thing. We're not necessarily managing with numbers and then -- and then because sometimes you got to be careful that when you manage too much for the short-term that you shoot yourself in the foot for the long term. So you have to have both views. You have to look at the short-term, and we're very cognizant that -- I have a 12-year-old son that gets his report card, and he's got to defend it. And I know whether we're going to have a good night with his mother or not when the report card comes in. We're very cognizant that our report card at CN comes out every quarter, and we have to defend it. But we're also very cognizant that shareholders at CN are long-term shareholders, and they're here with us for the next, hopefully, 5, 10, 15 years. And we're very cognizant to deliver value for those time frame. So to -- I'm not really answering your question, but I think I am a little bit is, we're doing the -- we're doing everything we can on the operating standpoint, transportation, technology, and the incremental margins will be what they are.

Right. Okay. So it does sound like some of the cost takeout is not going to come back, so that should feed into incrementals nicely. But obviously, you're focused on growth. So I think that makes sense. Ghislain, do you want to talk a little bit more about the -- some of the automation and the maintenance side? And I think one of the constraints for making changes can be on the regulation and the way the industry historically has been required to do inspections. How do you think about kind of the timing of some of the advances that you're making and the way that investors should think about how that would flow in, in terms of translating the technology to a reduction in labor costs or other cost areas?

Yes. Well, Tom, as we've said on the Investor Day, I think the technology benefit, we've said to people that they were in the range of $200 million to $400 million. I think technology, unfortunately, and this is with every project that you do, the benefits are typically back-end loaded because you need to build it before you actually get the benefits. So -- and that's the name of the game, but that's -- but I think that at the end of the day, as I said, this is going to change the way we operate. And frankly, the regulator has been -- and Paul, you can add some -- you can join -- jump in. But the regulator has been quite favorable and joined at the hip with us. Because at the end of the day, when you look at this technology, whether it's automated track inspection, automated train inspections or even those tablets, the first and foremost, it's all about safety. It's not necessarily like the reduction of people or the repurposing of people, et cetera, is more of a byproduct than safety. When you look at today, automated track inspection, we have people, not only us, but all the other railroads, that go in need a track warrant to go on the mainline with a pickup truck -- in our case, it's a white pickup truck with a CN red logo. They go in and visually inspect with park technology at 10 miles an hour track. So every time there's somebody on the track, there's a safety concern. And now, they eat up track capacity. Tomorrow morning, if you put that technology into a regular boxcar, that regular boxcar is attached to a regular revenue train that needs to occupy the track anyway. That train goes at track speed and now fully automates track inspection, where now, you get a better inspection, better inspection, then better preventive maintenance, better preventive maintenance, lower accidents, lower accidents cost. So this is -- this resonates to the regulators. So this is a step approach. So again, it's a phase, and we need to demonstrate that the technology actually is better than having -- doing it by humans. And -- but we are on our way, and we're doing our -- we're out of the lab, and we're doing our test run on the automated track, as I said, between Chicago and New Orleans. And we're keeping the regulator informed and in the booth with us. But I can tell you that at this point, it's very favorable because, again, they see the same as us. Like, remember, the train inspection, which is the other one, the portals, 22,000 defects that would not have been seen by the human eye. So again, now with better preventive maintenance on cars, therefore, lower accidents, lower accident, better safety record, lower accident costs and so on and so forth. So I think they're very favorable. I think we're moving forward. It's a step approach, but we're moving. I don't know, Paul, anything I missed?

No. I think the test program that we have in the U.S. is a 4-phased approach. And every time we move from one phase to the other, basically, we're compensating with less manual inspection and increasing the automated inspection, so that over time, we can go fully automated. So I think this is working out very well. We're also already starting some discussions in Canada from that point of view as well. So definitely some good proof points, some good developments on that front.

Great. Ghislain, Paul, we are at the time limit here. We're just a minute over, and we're going to try to stay on track. So I think we've covered a lot of ground and a lot of good information. We very much appreciate you joining us at the conference, and thank you for your time.

Well, thanks, Tom. Thanks for having us, and thanks for people listening in.

Thank you. Thank you.

Thank you very much.

Okay. Great. Thanks. Have a great day.

Thank you.

Thank you.

You too.