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

Good morning, everybody. It's Cherilyn Radbourne from TD Securities speaking. Thank you all for joining us on the line. We're very pleased to be hosting a discussion with CN this morning. And with me on the line, I'd like to welcome JJ Ruest, the company's President and Chief Executive Officer; Ghislain Houle, Executive Vice President and Chief Financial Officer; and Paul Butcher, Vice President of Investor Relations. JJ, Ghislain, Paul, welcome and thank you for being with us.

Well, thank you, Cherilyn, and thank you to TD Securities for organizing the conference, and thank you for everyone of you who are joining us on the phone today. I'm JJ Ruest. I'm the CEO of CN, and I'm joined today by Ghislain Houle, our CFO; and Paul Butcher, who is heading our Investor Relation. Many of you have been following CN, the CN weekly virtual conference call. We actually presented 6 -- in 6 conference in the last 5 weeks, during which we kept appraised investment community on the short term and how CN has quickly adapted and downsized our resource. From the very early days of the pandemic, everyone at CN has stepped up and pulled together as one team, and I couldn't be prouder of our colleague. In fact, our 20,000 or so operating employees never stopped coming to work every single day of the pandemic. We have exceptional railroaders who care about a community, and they understand and care about the essential role to the 2 countries that we serve. Having said all that, we thought that for today, we could focus the discussion on more longer-term projects and especially long-term vision for CN post the pandemic, post the short term. Freight rail is not only an essential infrastructure investment thesis. It is also an investment into the next evolution of the existing role of big rail in North America and its economy. So today, we will focus our discussion on 4 theme: first, we would like to share our views on the potential evolution of trade supply chain and how we, at CN, are pivoting our unique 3-course network as a differentiator to uniquely position us to convert this future trend in our favor; second, we will discuss some of the cost-cutting lever that we've used in the last 3 months and how some of these may or -- become permanent; third, we will talk about the deployment of the technology initiatives that we have and the solid progress we're making on those and our vision, our long-term vision for taking PSR to a modern level of automation; and finally, our ESG culture, which is solid and continue to progress at CN on all aspect, of the E, the S and the G. And of note, very pleased in the second quarter, pleased to report that in May, CN reached an all-time record in fuel efficiency, an all-time record for CN and most likely, an all-time record also for the rail industry in North America. So we actually improved our fuel efficiency 4% up from the prior year, saving the environment and a further 18,000 tons of CO2 emission versus the prior year. So thank you. And on this, I will pass it back to Cherilyn to guide us our discussion on some of what I just talked about in my intro. Cherilyn?

Great, JJ. Well, let's dive right into markets and talk about how you think the post pandemic economy may be different and how you're positioning CN to be ready.

So when we look midterm and long term, and to midterm and long-term at CN is things we cover in our long-term strategy, which 3, 5 and 10 years out. We want to look at the market as to where -- in hockey term, where the puck will be next as opposed to where the puck is today. And where the puck will be next is going to be increasingly toward the consumer economy. Our economy in North America is slowly progressively becoming more and more service, less and less manufacturing. And the consumer spending and the consumer disposable income will be an increasing opportunity for the transportation industries as a source of new freight or freight growth. So at the same time, when we look 3, 5, 10 years out, other segment -- historical segment, the rail industry in North America, like thermal coal for export or thermal coal for making domestic electricities, crude-by-rail, they may shrink or likely to shrink and likely to be less important to the -- our economic future in the rail industry. So what COVID-19 really did is basically, in the short term -- in a short term, it has drastically reduced demand from all sector, including the consumer, but it's also in the short term, COVID-19 has accelerated some of these phenomena, which were already taking place. So we -- post pandemic, we believe the U.S. economy will be a very strong economy in the world, that the consumer within the U.S. economy will be a very important part of that. And when you think consumer, you typically, by and large, think of the intermodal product, unlike when you think the crude-by-rail, when you think coal, you're taking heavy unit train. When you think about serving the disposable income by consumer, you're talking product, which are typically -- some of them still come from long distance, but they tend to move on the highway or they tend to move to origin destination, which are not physically rail-served. They are physically served by the highway. Therefore, you need an intermodal product to be able to participate into that. So some of the fundamental trends that are ahead of us that accelerated is: e-commerce, but that product still come in large part from quite distance; automation, automation of everything, including the rail industry; and the other mode that we compete with. Another fundamental trend is working from home. That's one of the thing that Ghislain is going to talk about that we too at CN are embracing and using as a tool to increase productivities and over time, lower cost. And more and more manufacturing is moving into other Asian countries, slowly leaving China, not necessarily because of the pandemic but because of things that were there preexisting -- prepandemic, meaning the labor cost and the cost of doing business in China and some of the more labor-intensive. So that trend is moving to other Asian country, not so much in the United States. United States currency is very strong, which we saw in the long term. And so therefore, at CN, we very much want to follow the trade in one of our 3 coasts. We can do that from the East Coast, using the Suez Canal or we could do that from the Gulf Coast, going to Panama Canal because we go to Mobile in New Orleans and on the East Coast, we go Halifax, Quebec City, Montreal, and we can follow the trade where the puck will be next as opposed to where the puck was. The one thing that pandemic has maybe created is some of the stuff that's been imported historically from Asian countries, medical supply mostly, anything of that nature is likely to become an in-country production, say, in 18 months from now, and that business will probably no longer require long-distance supply chain. But we weren't participating to that. Right now, most of that freight comes in North America by air cargo. And when you have the supply available locally in 6, 12, 18 months, that air cargo business will disappear, but I don't think the rail industry was really enjoying much of that in any ways. So we're focused on the 3 coasts. Prince Rupert and Port of Vancouver have been very much part of our success. We've always leveraged Prince Rupert and Vancouver together as a combination of tool to compete with -- in transpacific trade, to compete with other major player like in the Pacific Northwest, Seattle and Tacoma or Southern California, L.A., Long Beach. So it's a cluster of terminal, actually, 5 of them that CN served on the Canadian West Coast that are competing with dozens of cluster of container in the U.S. East Coast and really, again, targeting to serve the U.S. consumption of the consumer, mostly where the big populations are residing, which is the U.S. Midwest, in the case of Canada, Central Canada and having a container supply chain overseas and/or domestic supply chain that can rival with other land supply chain of other railroad and other port, but also can rival with long-haul trucking. And whether or not that comes more and more from other Asian country, which means that it would come from the Suez route over the Atlantic, and that's why we're focused on what we call the Rupert of the East or continue to come on the West Coast, where we believe the Port of Prince Rupert and Vancouver as well do have competitive advantage that have been proven here in the last decade. And those competitive advantage will remain true. And if the pace of growth in the West Coast slows down, we believe the pace of market share gain of our port will continue to slowly inch up. And if there is -- and as there is some movement from the West Coast trade to East Coast trade, that's why we're so bullish on working hard with the Port Halifax, namely PSA; working hard with Port of Montreal and their project in Contrecoeur; and also working hard with the Port of Quebec City. We're seeing it as a joint venture to build a 700,000 TEU container vessel focused on bigger ship, where the water is deeper in Quebec City, bigger train, up to 14,000 feet to compete with the U.S. Midwest market and compete hard with, namely, the Port of New York and New Jersey, which are obviously dominant player in U.S. Midwest. I think on the market side, these are some of the theme. When you look at the map here on Page 3, you will notice that we also have some logo on the TransX, H&R Transport, CSX and E&P. On TransX and H&R, it's basically an effort of CN to get deeper in the supply chain, where we want to sell our services more and more to the ultimate payer freight and have a, what we call, a retail transportation services in our owned company as opposed to only rely on wholesale. So in the case of wholesale, CN sell its services to a big logistics company. We sell it to the ultimate buyer, say, a big-box retailer, where CN does some of that, but CN also does a lot of the cases. We actually sell our services directly to the retailer. In order go warehouse to warehouse, which we call door-to-door service, those warehouse door-to-warehouse door. And for that reason, last about 12 months ago, we bought TransX, who is doing intermodal and trucking. We deemphasized the trucking aspects of TransX and really emphasized their effort on intermodal. That's where the synergies of the acquisition come in. In the case of H&R, we only bought the intermodal asset. We didn't buy the company. We bought the intermodal asset. And in both H&R and TransX, all -- both of them specialize in food product, which represents 70% of their book of business. And obviously, during the pandemic, that was very useful because food and food-related product continue to grow business. It was not affected by the pandemic, at least not at CN. So we have a desire to be stronger and better in domestic intermodal, closer to the customers by having a retail product and also working with other [ areas ]. So in the case of CSX, we've created a product with them to serve Central Canada on the Port of New York and New Jersey. And we do that in conjunction with CSX. We started just last year. This is really competing head-to-head with long-haul trucking that was in that corridor. And the E&P program is a multi-railroad program between CN, UP and NS, and that -- these are containers that connect from one railroad to another and could go pretty much anywhere in Canada and the United States. And it's another way of -- for us to participate in the consumer economy by having an intermodal product that can compete with truck that can be used by those who are in either brick-and-mortar supply chain and/or e-commerce supply chain. So CN will never be delivering a parcel to your door like FedEx or Amazon or UPS does. But what -- the role of CN in e-commerce is to deliver this volume to the warehouse, which is the last warehouse before you do the last-mile delivery. And whether that warehouse is last mile -- is before the last-mile delivery to a brick-and-mortar store or to you directly to your home, that's where our role and our sweet, sweet spot come in.

Great. Well, maybe we can pivot from there to talking more about the cost perspective and how you strike the right balance between managing resources to volumes without compromising your ability to accommodate a recovery, but maybe more importantly, how you take an experience like the pandemic and use it to find permanent cost savings and ways to do things better.

Yes. Cherilyn, thank you. I'll cover that one on Page 4 of the small presentation. We are managing the new -- to the new reality. When you look at our volumes in terms of revenue ton-miles in June, month-to-date, are down 20%, but our crew starts are down 23%. Our workforce, which includes consultants, is down 21% or 6,000 people on a year-on-year basis. We have currently around 4,000 people on layoffs. We are focused on improving efficiencies and running longer and heavier trains. Train load and train length performance is at a historical best. Our train lines are averaging close to 9,500 feet, that's, year-over-year, up 6% Q2-to-date and 12% June month-to-date. Our train weight or load is averaging close to 10,500 tons. That's up 6% Q2-to-date and 11% June month-to-date, and that has never been done on a consistent basis. We are idling some switching yards. We are reducing some mechanical activities in more than 20 locations. On top of that, we have currently 16,000 cars in storage, and we have 670 locomotives in storage. Our fuel productivity hit an all-time high in May, up 4%, as JJ just mentioned, very solid performance. And as you know, this is following a record performance in Q1 of 6%, which delivered $20 million of savings. Some of the actions we're putting in place now to cut costs during the pandemic will be permanent and structural in nature: idling switching activities in some yards and shutdown of some of the mechanical shops that I've just talked about; mobile devices deployed to train crews to reduce the need of booking and rooms; the ability now to perform remote training and recertification; permanent reduction of some of the G&A positions. We are adjusting to current environment while always thinking to the future recovery of -- and opportunities that can be gained from a fresh look at all of our costs. For engineering, learning from better planning of maintenance work, delivering lower unit cost to install rail and ties. We will be stretching the organizations as volumes recover and some of the head count reductions will be permanent. We continue to focus on fuel efficiency with long trains and heavy trains. We are optimizing facilities and consolidating buildings across our network, saving on utilities and other similar types of expenses. We are looking to vacate floors in our headquarters building with the new normal and remote work on a permanent basis for some employees. So when we do bring back resources, it will not be on a one-for-one basis.

From there, let's go on to technology. The rail industry arguably lags many others in its adoption of technology. So how big do you think the opportunity is to use technology to take PSR to the next level? And how important do you think it is that CN be a leader in that evolution?

Yes. Thank you, Cherilyn. I'll take that one as well. On Page 5 of the small presentation, we think actually, technology is very big. As you know, we did pioneer Precision Scheduled Railroading, PSR, 15 years ago, and our vision is to create the network of the future by becoming the first railroad to take PSR to the next level, deploying advanced information technology. We continue to advance on our technology deployment despite this pandemic, and we have proof points that are telling us that we are in the right direction. Let me say a few words on some of our specific initiatives. The autonomous track inspection program. With innovation and safety in mind, we are repurposing powerful sensor and artificial intelligence technology into specially equipped automated railcars used during our regular revenue train service to inspect our tracks at normal train speed. This will eventually replace visual pickup truck, 10 miles an hour current inspection. We're finding many defects that would not have been found by the human eye. And the frequency of being able to inspect the track is 17x more than what we would have done otherwise last year at the same time during our FRA test program that we're currently running in the Chicago to New Orleans corridor. The automated inspection portals or automated train inspections. These are high-resolution imaging hardware, coupled with powerful machine learning software, which will change how we inspect our trains. This features ultra-high definition panoramic cameras and infrared lighting that captures a 360-degree view of a train as it travels at track speed through the portal. We aim to develop 100 algorithms by 2021. Today, we have about 17 algorithms done. And with only 17, we were able to detect over 30,000 defects year-to-date that would not have been found by the human eye. This will eventually replace the manual-certified car inspection that typically takes about 1.5 hours, maybe even sometimes 2 hours in the yard. So the key benefit for train- and track-automated inspection is that when you get -- that you would get a better inspection. And by getting a better inspection, you've got better preventive maintenance, better safety record, lower accidents, lower accidents cost, and that will solidify our social license to operate. We are deploying 11,000 tablets to our train crews and our mechanics. This will digitize manual processes, increase safety, improve information flow and accuracy and drive productivity. For our train crews, the big, thick rule book will be on a tablet, so much easier to find rules when people need to look for them. This initiative is also a big step towards paperless operations and reduces our environmental footprint. On process automation, we are automating and/or eliminating labor-intensive and low-value repetitive processes and tasks, which will increase productivity. Our new Chief Digital Officer and the team is looking at a variety of scalable and repeatable technological tools, including robotic process automation and smart data capture, cognitive automation and agile orchestration technologies to enable employees to focus on value-added task. Finally, our smart network initiative. We are developing and systematically deploying an integrated digital scenario analysis and simulation tool to enhance capacity planning. The tool stimulates train movements to improve insight on network capacity, cost and fluidity. Stress-testing scenario analysis will help identify options and trade-offs to handle anticipated volumes and identify specific pinch points. This is actually adding capacity with technology. So these new technologies, as we deploy and learn and become smarter, I believe that we will uncover benefits that we didn't dream of. These automated track inspection and automated portals, train inspections, they're going to fundamentally change the way we operate as a railroad. I can assure you that. And I'm very, very pleased to see that we're heading in the right direction. The benefits are typically back-end loaded because you need to build it before you actually get the benefits. But this is, to us, the next leg of efficiency, and this is the next leg of PSR. Thank you.

Great. So moving on to theme 4. It felt like ESG was approaching critical mass prior to the pandemic. And my sense is that the pandemic may heighten ESG as an area of focus for investors and maybe even for beneficial cargo owners. So maybe you could react to that statement at a high level and outline some of the major elements of CN's ESG agenda.

That's right. I think, Cherilyn, the event of the last few months, including the last few weeks, I think, have increased the pace of change, change that was already in the making, but that change now needs to accelerate. So things we've done historically at CN that gave us kind of an edge first and foremost, on ESG as it relates to our carbon footprint. Being a transportation company, our carbon footprint is one of our major thing we can contribute to society in term of making that more efficient. So rail is much more fuel-efficient than truck. So the more intermodal we do, the more we actually reduce the carbon footprint of what consumer buying. But our focus has really been very hard on how do we make our carbon footprint to be most optimal that it can be as a railroad. And I think as investor know, we have the very best fuel efficiency of the rail industry. And when you talk about fuel efficiency and transportation, you also talk about costs. Being more fuel efficient means you have a lower carbon emission. Being more fuel efficient also mean you spend less money on diesel. So carbon footprint is one of our big focus. But also when you look at here, the latest trend that needs to happen, and that links back to our effort on operating technology and PTC and becoming more automated, it's cybersecurity. So we've beefed up our cybersecurity team. We've beefed up our own internal bar that we need to achieve, partly because it's obviously a very important need of the day but also will be a need of the future. When we talk about 3 to 5, 7 years technology strategy of CN, you're talking about more automation. More automation requires a much stronger and more robust cybersecurity team, and we're very focused on that. And when you talk about the rail of the future, in any company, including in transportation and CN, you need the best team that you can have. And to get the best team that you can have, you need a more diverse team. You need to be able to focus on getting the talent in the broadest and deepest pool that you can find so you can find as much of that talent that we're going to need in the future to achieve our goal and vision. So there's a strong focus on diversity, whether it's male and female. It's a strong focus also on all of the, what I call, diverse skill talent that we can have. So fuel, big component; cybersecurity, big component; gender equality, but also making sure we have -- we access to all of the talent we can. And then -- not only at the Board level -- at the Board, we have a lot of very public target that we've put in our public document, but also at the management level, and doing all of that. Then obviously, part of ESG is also about to do safety. Safety is a fundamental value in the rail industry and at CN. You can never be safe enough. Any accident is an accident too much. Every injuries, every fatalities is a preventable fatalities, no matter which way you look at it. They all have a solution that is possible. So with Rob, our new Chief Operating Officer of last, he came with a very strong safety culture, and we're very much building on that. Safety culture means eventually, you have more engaged employee. You also have a better ability to attract and retain talent. And in term of long-term regulatory front, it also brings a lot of positive aspect in terms of being able to keep doing -- having freedom to do what you need to do as a company to do that. So just maybe to wrap up on the carbon footprint, we've reduced our emission by 39% in the last 25 years. We're actually consuming 15% less fuel per gross ton-mile than the industry average. As I mentioned earlier, the month of May was a record at CN, and we think that was also a record for North America and the rail industry, and we are public with our goal for 2020 to 2030 to be 29% reduction in emission from the base of 2015 on a science basis. And also, we are exploring with a supplier of equipment to see and whether or not, at some point, we could do nondiesel powering. For example, we are buying electric truck for that. Some of them will come in this fall as a first step to see if we can move container from our ramp to the customer's door using a different equipment, an equipment which is not diesel based. And over time, we want to also do some more experiment on the railroad itself to see if we can find -- if we can cooperate with those who are working on either hybrid or other ways of enduring the power for these big heavy train that we move and the fact that big and heavy is obviously a huge challenge for finding a different source of power than diesel. But over time, this is what our industry needs to do, and we're very focused, and we embrace that goal, and we're very focused on that. I think that covers more or less the different aspect that we're focusing on. And ESG is, as I said, when we look at what CN wants to become over the long term, ESG is an enabler of that, either as a way to reduce cost, as a way to make sure that automation does not bring in new cybersecurity risk, also as a way to make sure that we have the best talent that's possible to be able to execute the things that we dream of.

Great. Well, I think that's a super overview, and we've got some time for Q&A now. We won't be opening the phone lines for the audience. But if anyone wants to e-mail me a question, I'll do my best to monitor those. I'll get us started, but I'll do my best to get you involved, and [ wheel you ] into the conversation. Maybe just going back to markets for the first question, JJ, and the strategy to add traffic density in the Eastern part of your network. Maybe you could describe for investors how Halifax, Quebec City and Montreal target different freight flows?

Yes. So what -- the reality is that I think we -- all boat will rise with the tide. So that is the economy actually in itself generates some incremental rail business for the rail industry. But because our strategy is to always outperform the GDP, we want to outperform the economic growth of United States and Canada. So in order to do that, we need to give ourself new tool, that tool that don't come by themself if you just sit and wait, hoping that they will come. So I mean, there is market share. There is growth -- natural growth in Western Canada, for example, in grain. And we're investing in grain or capitalize into that. But if CN wants to participate in the increasing size of the consumer in the North American economy, especially the U.S. consumer, especially in an environment when there's a long-term fundamental trend of manufacturing slowly moving out of China and going to other Asian country, then we need to follow that trade on the East Coast because it will come physically. Some of that growth will come physically from earlier course. It won't be transpacific. It'd be transatlantic. And the terminal -- port terminal that there is in Eastern Canada are not quite really modern enough of the scale to really be able to participate fully the way we do in Canada with the Vancouver and Prince Rupert. So to that point, we took a more active direct involvement position in Eastern Canada so that Eastern Canadian port can compete effectively and robustly against the U.S. East Coast port by getting ourself very active with PSA in Halifax, the new owner of the Halterm. PSA is a world-scale company in term of terminal operation and ability to also attract shipping lines to that port to -- for these -- and then working with them to modify the supply chain, rail supply chain to the Midwest, slightly away from how it's done today from U.S. East Coast port. Same thing in the port of Quebec City, Quebec City has deeper water. The Saint. Lawrence River is deeper in Quebec City than it is in Montreal. So therefore, you can attract some of these bigger ship, which can't make it all the way to Montreal. And by starting brand new with a greenfield site, we can also build a rail operation in -- from Quebec City to even make the rail cost of Quebec City more competitive by having an operation, which we're going to be focusing on 12,000 to 14,000 feet train, which will be as long as a train as can -- as there is out there on the U.S. East Coast, and at the same time, having a terminal, which is fully automated on the land side. So the terminal at CN will have 20% ownership and equity in the terminal. The -- all the rail operation of the terminal would be done by a CN employee who are going to be a second [indiscernible] the joint venture and rotate in and out so we have best-in-class rail expertise inside the container terminal. And all of the ocean and other terminal activities will be staffed by a PSA -- by Hutchison people because they are best-in-class in that trade. And the terminal being brand new, all the land side will be fully automated, meaning trucks will be loaded by crane or fully automated. And the train railcars will be fully automated. And where the water side, which is offloading the ship and loading the ship, will be done a conventional way by crane operators and the big crane. So meaning that the reason why we bought TransX and H&R, the reason why we are actively involved in port activities and the reason why we also might want to do a joint venture in other productivities related to manufacturing and natural resources is to be able to overperform the economy over and above what it offers, but also to proactively address the fact some of our natural market for the rail industry market that the rail industry is very good at, namely unit train of coal -- thermal coal, the unit train of other commodities like crude-by-rail, are less likely to have a good future in the years to come. So we need to be good at these other skill, port skill, terminal skill, supply chain skill, which, in many cases, involve the last step into a truck and/or participate in some of these more higher end, better-paying freight market like temperature control, which is the forte of TransX and H&R. So we want to outperform the economy. We want rail inflation plus pricing. And to outperform the economy, we need to also not only just invest in a railroad, but do some acquisition, do some joint venture with other partners, do some unique commercial partnership such that we can add to the organic growth and achieve our goal of outperforming growth in our North American rail space in the next 3, 5, 7 years to come.

And in terms of the opportunity that you see in intermodal broadly and e-commerce, maybe a little more specifically, can you give a bit more color on that in the context of the retail and wholesale intermodal offerings you have in Canada and how the approach-to-market in Canada differs versus the U.S.?

Yes. Our approach to Canada and U.S. market is the same. It's just that our approach on the Canadian side, we started over 2 decades ago to be more involved in retail. But you got to go back to the basics of any business. If you have too many players between you and the ultimate decision-maker who needs the freight, who's buying the freight, say, for example, Walmart sells to the consumer. So our target here is not to sell the consumer. We're not FedEx or we're not UPS, we will not deliver the parcel to the customer's door, but we would like to deliver the freight to the last step of the company who're actually going to sell the product to the customers door or give it to the customers at the brick-and-mortar. So we would like to have a brick-and-mortar retailer to be an account of CN as opposed to CN selling its services to a wholesaler who might sell it to somebody else, who will actually sell it to Walmart. So 2 things happen here. The closer you are to the ultimate customer, the more you could be astute in the marketplace, the more you understand the trend. The more you tailor-made your products, it stays relevant. And the more also you can actually control your future because you're not necessarily going to be auctioned out every 3 years when your contract come up. And also, you're not going to be as vulnerable in term of pricing being auctioned out because you actually are more of a commodity than a value-added product. So our focus on being more and more retail or having a bigger portion of revenue to be retail and retail being delivering from 1 warehouse door to 1 warehouse door or delivering from a port to a warehouse door and do that directly is to be able to learn the marketplace, outperform the marketplace, have more sustaining power in the marketplace in term of keeping some of the pricing, the value that we create, as opposed to being wholesale back and forth. And ultimately, we also need to increase our geographic footprint. So the -- we have a good footprint where the mine and energy and manufacturing is located. In order to capitalize on the consumer industry, we need to have a good footprint where the big cities are. So CN would like to find a way through either -- through acquisition, joint venture, commercial partnership or unique alliance. We would like to be able to compete with the long-haul trucking industry to be able to connect 1 big city to 1 -- another big city, even if this other big city is outside of the physical CN network. And you could do that with the E&P program. Or you could do that with some other innovative ways that we're working on that we hope 1 day we'll do that such that we're not just a piece of what the customers try to buy. We can actually put the piece all together or what the customers' trying to buy if this warehouse is in Ohio or if its origin is somewhere in the Asian country as plant and moving out of China. The future is not going to be the same as in the past, and we need to reconfigure how we go to market and how we create a network that's in line to where the market will be later as opposed to where the market was 2 years ago.

And if your revenue mix post pandemic tilts more towards the consumer-centric supply chain versus the rail-centric supply chain, which it looks like it might, is there any reason for investors to think that those broad revenue groupings have different margin characteristics or different capital intensity that would be relevant?

So we're not moving away from the natural resource of manufacturing. We're just saying that in order to outperform the economy -- manufacturing in North America is growing, but it's not growing fast enough. Natural resource is growing in North America, especially grain, but some other aspect of natural resource, namely coal and crude-by-rail, are negative. So we actually -- it's out of need that we need to be able to go -- be a bigger player in the world of the consumer economy and what they consume. So in term of CapEx, it relates to the missing pieces. So we have a lot of rail capacity and rail capacity, especially after during the pandemic and the slowdown economy, we're not short of capacity to move train of anything. We have locomotive. We have railcars. We have train-qualified people. We have network capacity. So what we need that if the trade is moving to slowly -- the transatlantic, what we need is either ourself or others who are expert in that field to really address the issue of the Canadian Eastern Canada port, which are not modern enough, productive enough to really compete to create solid, low-cost supply chain. So we work with partners to -- like the one in Halifax, we actually lobbied a number of terminal operator in the world for them to bid on the terminal and hoping that a world-scale operator, somebody with good commercial scale, good operating scale and a lot of access to technology will come in and buy it. So that's why we're so happy that PSA did it because now we have a partner who can actually address these weaknesses that's on our network. It's not even our network, but it's a critical part of making our network relevant in the East. And as you know, our Eastern network has lots of latent rail capacity. What it needs is more business. And to get more business, we need ports, which are really best-in-class and can compete. And then on the acquisition, when you make an acquisition like H&R and TransX, you're -- on day 1, you buy revenue -- you get a revenue stream. So the acquisition in itself, on a stand-alone basis, is accretive. But the reason to make it, it's because only it's accretive because the revenue stream in itself is profitable. It's because it's a tool to bring more business to the rail. It's a tool to make us a direct player in the food business, which is related to consumer spend. It's a tool for us to be able to do the retail door-to-door to be closer to the ultimate buyer, the large retail consumer -- retail company or the large e-commerce company will ultimately deliver it to your home. And that's what they do. They're very good at that. They have the market know-how, they have the skill, they have infrastructure, and they can help us accelerate, doing it faster that way through acquisition than if we keep trying to do it only on our own internal talent pool.

And maybe, JJ, I can add. On your margin question, Cherilyn, I would not say that this is lower margin than the average that we have at CN, not at all. By the way, as you know, we've had a pricing strategy that's been very, very disciplined. And we typically price above rail inflation. We need to cover our rail inflation. That's the key. And even through the pandemic, our team is pricing at that level. And this is not about just growth, by the way. What JJ and we are referring to at CN, it's profitable growth. So we're running after profitable growth, and that's what -- that's the key for us. And therefore, that's -- those margins are not at all lower than other businesses that we have at CN.

And I wanted -- on the cost question, this is where automation came in. Automation is meant to broadly reducing our costs. It's meant to making the railroad safer, which also has a cost component because any unplanned maintenance of the railman is very expensive. And also, automation is also a way to create capacity without CapEx. So you think of an airport, like a busy airport like O'Hare or Heathrow in London, you can either add more runway and the equivalent railroad would be -- you double track or you can make the distance between each plane landing tighter and shorter so you can actually fit more train and the greater you can fit more train -- more plane on your landing. Technology can do that. So if you spend $10 million on double track -- no, 2 mile or you spend $10 million of technology, I think over time, we would actually get more capacity created by technology, making better use of the track system that we have as opposed to only adding track and hiding locomotive. And also costs that eventually, the more we automate, the more eventually we won't be hiring as many in term of attrition, the more eventually, you could think that some of the train might be partially automated. First benefit is fuel efficiencies. Second benefit is wear and tear. Eventually, you get also [indiscernible] we could do with a 1-person crew. And then all of these things that comes with that. So whether it's the world of intermodal or the world of unit train, technology is the next lever of reducing costs. I mean if this technology existed 15 years ago when Hunter was with us, we were -- we would have used them. At that time, Hunter was very focused on using data, the data that we had at CN, and we created a dashboard called DataCity so we can actually have information available to us on a very daily basis in a way that we could turn this into action. But automating train inspection at that time was not even in the dream of anybody. It was not possible. But automating training section today is possible because we can steal technology from other manufacturing sector, where a high-resolution camera can turn into an algorithm that can actually visually inspect a train the same way, in fact, much better than the common. And over time, that creates a cheaper inspection cost. It also creates a much efficient inspection because now you no longer rely on skill. You don't rely on daytime or nighttime, summertime or winter time when inspecting train outside is very -- it's difficult under some condition. And then when you have a very good preventive maintenance program, you create a safer railroad. And a railroad actually has more latent capacity than a railroad which has a challenge from time to time. So technology is also tied into -- we need the best cost possible to compete with long-haul truck. And one of the way to do that is to adopt technology early on and make sure that we're not left behind as an industry because the word of long-haul truck is also looking at automation and better ways of controlling their costs long term.

Great. Well, that's brought us to the end of our allotted time here. We've covered a lot of ground. JJ, maybe I'll turn it back to you and just ask if you have any concluding comments for our audience.

Yes. Thank you. So just during the pandemic, obviously, we have to be very, very focused on the short term. So every week, we were looking at our trend and making decision every week on our costs. And as you saw, we've been able to reduce costs, people costs and other costs in line with the reduction in GTM. The growth -- the volume has now stabilized. And it's slightly moving up. But as we were doing all of the short-term thinking and all the short-term action and decision and reaction to what's happening in the demand side, we've been actually been very engaged in thinking long term. So actually, at CN, with -- in conjunction with our Board, we did a lot of it, long-term thinking about our long-term strategy. We've actually hired on the 1st of June a Chief Strategy Officer to help us think about the 3, 5, 7 years out. And I've talked to some of these themes, which are very much part of our long-term strategy. We talked about ESG as a carbon footprint; as diversity as access to a wider talent pool. We talked about technology. Technology will reduce our costs. It will create capacity. It will make a safer railroad, which is also important to our ESG program. And I was also thinking about acquisition, joint venture, unique commercial partnership or standard partnership, things that would help us to outperform the economy and address the fact that the market is moving slowly more toward the consumer, not as much on manufacturing and natural resource. We don't abandon natural resource manufacturing. In fact, probably our 2021 CapEx will have a heavy component as it relates to supply chain equipment for the grain industry in Canada because that's a good long-term business. But at the same time, we're very mindful that what made the rail industry successful the last 2 years, last 5 years will not be the same as what will make us successful in the next 3 to 5, 7 years. And that's why we've also beefed up at CN the chief -- the strategy side in our section and creating that small group under the leadership of [ Helen Corp ] who started June 1. So that would be my closing comment, Cherilyn.

Well, JJ, Ghislain, Paul, thank you so much for being with us this morning. Thanks again to everybody who joined us on the line. Be well, everybody.

Thank you, Cherilyn.

Thank you.