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

Okay. Good day, everyone. This is Fadi Chamoun, transportation analyst for BMO Capital Market. I want to thank everybody for joining us at this BMO Capital Market ESG and Growth Conference. Over the next 45 minutes, we will hear from CN Rail management about some of the key business highlights and ESG priorities. We will then have an opportunity to ask questions. [Operator Instructions] And I'll make sure to convert that to management over the course of the next 45 minutes. So from CN Rail, we have: Ghislain Houle, EVP and Chief Financial Officer; Janet Drysdale, Vice President, Financial Planning; and Chantale Despres, Director of Sustainability; and of course, Paul Butcher as well, VP, Investor Relations. So I will pass the floor back to Janet. I think she's going to kick off the CN presentation, and then we'll get back at the end with Q&A. Janet, the floor is yours.

Thanks very much, Fadi. It's a pleasure to be here today. I really mean that. A capital markets conference dedicated to environmental, social and governance issues is yet another indicator that we've reached a tipping point. All of us here know that money moves the world and the world is changing. 2020 has been a watershed year for ESG, in part due to inequalities exposed by COVID-19, but also Black Lives Matter, the #MeToo movement and the very real impacts of climate change, Australia and California are literally on fire. Investors, at least the ones attending this conference, recognize that including ESG and their fundamental analysis and valuation, drives better outcomes. So we really thank all of you for being here today. We have a good number of slides to get through this morning, so let me get to it. I will provide some opening remarks. Chantale, who is amongst the best of the best when it comes to sustainability practitioners, will carry us through our most material ESG topics. I've also had the pleasure of working with Chantale since we both started at CN almost 25 years ago, which is to say we were both very, very young when we started. Finally, we'll leave it to Ghislain, our CFO, to wrap things up with some commentary on growth and value creation. Next slide, please. Next slide. At CN, delivering responsibly is at the heart of how we're building for a sustainable future. It means moving customer goods safely, being environmentally responsible, attracting and developing the best talent, helping build stronger communities and adhering to the highest governance standards. At CN, we support all of the United Nation's sustainable development goals, but we focus on the ones where we can make the most impact: climate action, innovation and infrastructure, decent work and economic growth, sustainable cities and communities and gender equality. This is not a new agenda for CN. Sustainability is a journey that we have been on for some time. And with that, let me turn it over to Chantale. Next slide, please.

Thank you, Janet. This illustrates a little bit of our journey at CN and my role was created in 2010. With Janet, I was working in the sales and marketing team on the commercial side of the business at the beginning of my career. And I've been around, as Janet pointed out, for over 20 years. So it's been a great journey. In terms of our sustainability agenda, we've tried to pioneer in the sector, and that started with some of the first responsibilities that I had, which were around sustainability reporting, not having a sustainability background, but being a marketer myself. I've relied and the company has relied a lot on international standards to provide guidance. And we were the first railroad in North America to issue a GRI-aligned report in 2010. And the journey then began with a focus on environmental sustainability and understanding our carbon footprint fully; Scope 1, 2, 3; our waste footprint; our water footprint. And then also as many other kind of sustainability practitioners and you probably well know, this is a journey where we need to go together to go far. And we've engaged internal employees along the way, starting with an employee engagement program called EcoConnexions and then extended that externally to our customers and to communities where we operate, we are -- where we are partnering to further advance sustainability agendas. Just a few kind of notes to point out other than those key points. CN was the first railroad in 2017 to set a climate science-based target. So we take this topic seriously, and we have for a very long time. We were amongst the kind of first 100 companies really in the world to set that target, and we're really proud of that. It's an aggressive target, and we're on it. And more recently, we issued our first TCFD report, which works hand-in-hand with this client -- Science Based Target. Next slide, please. Just an overview about some of our key kind of sustainability targets and where we focus. And we really spend our time on material issues to our sector. We have a 2020 target on energy efficiency, which is 1.5%. Our science-based climate target to achieve 30%, 29% reductions in intensity performance by 2030. We had a mid-term target to carbon efficiency. We work with Transport Canada through a Railway Association of Canada memorandum of understanding where we set a target of 6% intensity performance based on 2017 by 2022. So kind of that mid-point range. And hand-in-hand with that, there's a narrow emissions target of 6% as well to 2022. Safety, super important issue in the rail sector, and we have our FRA personal injury ratio target of 1.5% and an operational safety target of 1.8% this year. Janet alluded to, at the beginning of her opening remarks, to how the world is changing, and particularly in the last 12 months where we've seen people of the world take to the street, whether it's the children marching for climate change or women marching for women or Black Lives Matter. And of course, in Canada, we have a children reconciliation filed with aboriginal people. That's also very important. So we're really seeing significantly, as you likely do, the emergence of the S. I'd say we -- for me, particularly 10 years ago, was a lot about the E and focusing a lot on environment. And the last 12 months, I think the world is seeing this emergence of the S. And there -- these issues are intrinsically linked. And I think what we've learned through COVID-19 is that it's the most vulnerable populations around the world that are impacted by all of these issues the most, which has elevated the topic of the S, including climate change that will impact our most vulnerable people around the world in a more significant way. And then, of course, this all rolls up to governance and how well we manage these issues, and we take our leadership from the Board who is focused on Board diversity and gender diversity, and we want to push that through kind of the organization as well. Next slide, please. Just a bit on reporting because that, too, fits in the journey, and it keeps evolving with all of these kind of international framework. So a lot of my time in the last decade has been spent on sustainability reporting. And a lot of my time and my team's time is still spent on sustainability reporting. We understand the importance of it. Janet likes to say, and everybody else, what gets measured gets managed. And a lot of the groundwork that was done at the beginning was just to understand our most material KPIs and set base level and have that information. And again, not being a sustainability specialist myself when I began my journey. We've depended a lot on international guidelines and framework, and we've aligned with those, and we've learned a lot by working with the CDP, for example, about climate change. And we've been on that journey with them for over 10 years. We produced a GRI-aligned report for over 10 years. And most recently, as a request, sticking with our investors, we completely and fully align to the SASB standards as well. And again, at the request of many of our investors, we've also aligned with the TCFD. We live in a world where there's been a lot of emerging kind of frameworks and organizations that are looking at the sustainability topic, and we're really pleased to see that they're now collaborating and working together. And that we -- I think we're all gaining a much better understanding of materiality, i.e., not everything matters as equally to all industries, and we're getting a really great, good solid handle on what's material in the rail sector by working with these frameworks and also by receiving feedback from our various stakeholder groups on this. Next slide, please. It's very topical, as Janet mentioned, climate change. And I just wanted to touch a little bit on our low carbon transition plan. And really, you'll likely recognize the framework here is the framework of the TCFD. So we are aligned with the Paris agreement. And we -- through our work with the CDP has been also aligned with the TCFD's recommendations. We're focused on the governance on this topic at the highest level, meaning that the Board is engaged and our Chief Operating Officer, as well as Ghislain, on these issues. Strategically, our target is set at a 2-degree climate science scenario. And we're actually, right now in the process of resubmitting and working with the SBTi, the Science-Based Target Initiative, to set a new target for several reasons. It has to be reviewed every 5 years, and we're getting close to that mark. And the world now knows that a 2-degree scenario is not quite enough and that we need to keep climate change to well below 2 degrees or even 1.5 degrees. So we're in the process of resubmitting a new target that will likely come out in 2021. In terms of risk, we have our assessment, and we understand the risks and opportunities and we go into the details in our disclosures through the CDP as well as the TCFD report. And again, that science-based target is set to 2030 and 29% intensity performance production is what we're looking for there. Next slide, please. Next slide, please? This is one of my favorite graphs, and we've had it for a while because it really demonstrates CN's track record in terms of a long-standing kind of history of efficiency focus and a decoupling of our growth from carbon emissions, which is really what that gap is demonstrating. So from 1993 to 2019, a 40% intensity improvement. When you consider that we're running locomotives on steel rails over all of those years, it's pretty impressive. It's an avoidance of 46 million tons of carbon. And we do it pretty well. To this day, we're still 15% more fuel-efficient than the industry average. So we've been the pioneers of precision-scheduled railroading, and that benefited us a lot, and we continuously kind of look to push the agenda in terms of extracting as much efficiency out of the system as possible. Next slide, please. Moving forward, this 29% intensity performance target is ambitious. And there's no silver bullet kind of solution. It's more of a silver bucket kind of list of a lot stuff that we're tackling to kind of get us there. These new locomotives that we're procuring that are replacing older ones are a lot more fuel efficient, and that's very helpful. And then there's all kinds of technologies that we add on to the locomotive fleet, like anti-idling, for example, that really help drive further efficiency. We also have data telemetry system. We're learning a lot by collecting information and slicing and dicing that big data helps us understand where we can extract even more efficiency out of the systems. And we have this in-house tool called Horsepower Tonnage Analyzer or HPTA that really helps us match the right power to the tonnage that we're pulling. That's also helping us significantly reduce our fuel consumption. Just like when we drive our cars, operating practices are important. There's a human factor to all of this. And as we're learning through big data analysis, and that's impacting our operating practices and the training that we do with our locomotive conductors and engineers. And then the other kind of lever that we see as critical in the medium -- well, the short, medium and to get us to 2030, for sure, is the greater use of renewable fuels. And we're seeing that today through the regulations that exist across the various jurisdictions where we operate. In Canada, for example, we have a clean fuel standard that's going to be implemented next year and a renewable fuel standard currently in place that calls for producers of fuel to blend 2% renewables in the diesel that we buy. But across the various jurisdictions where we operate, there's also provincial legislation or state legislation. So for example, in British Columbia, we're already seeing 4% blends in renewables. Manitoba will see 5% blends next year. And then through the clean fuel standard, we're expecting up to double-digit percentage blend to 2030. So that's really an important kind of part of our pathway in terms of decarbonization, extracting as much efficiency out of the system of the locomotives as possible and then putting cleaner fuel into that. And it's what's going to get us to the 29% and the improvement by 2030. Next slide, please. So we're playing our role and I think this is important in the transition to the low-carbon economy. We are an enabler of trade and a backbone to the economy. And we are working actively with our customers to position the environmental benefits of rail. We happen to be a benefit and in style right now. Shipping by rail reduces emissions by up to 75% relative to moving heavy goods over long instances by truck. And so we have this great environmental advantage that we talk about a lot and that our customers are recognizing, and we're working with a lot of them to help them decarbonize their transportation supply chain emissions by looking at rail for the long-haul heavy freight. We're also partnering with our customers. These issues that we're tackling are bigger than CN, climate change being one of them. And we recognize that to go further faster, we need to partner internally with our people and externally with our customers. And to do that, we've created this EcoConnexions program. And at the center of it is this model shift kind of discussion and opportunity with our customers and supply chain partners where we can really help them decarbonize their transportation supply chain emissions. And then we seek other ways to partner with customers to advance sustainability, and we have this interesting partnership with Kruger, for example, where we shift our used old ties, and they use them to generate energy in their plants. And so we're looking to do more of these types of partnerships through that program. And then in terms of the goods that we shift, we're seeing the transition itself. When Janet and I started our careers, we weren't moving wind towers as a company. So we saw those being moved for the first time. We move ethanol or we're moving wood pellet. So as the economy is transforming because we are that backfill, we're kind of seeing it happen live on a day-to-day basis. Next slide, please. And as mentioned at the beginning of this discussion by Janet, the last 12 months, in particular, has witnessed the rise of the S in ESG, with an increasing focus on social issues. And on these topics, there seem to be headlines in the media on a daily basis. It's hard to keep off, quite frankly, on those days with what's happening around the world on the topic of sustainability and particularly around social issues. And so we understand, and we take these seriously. And like many organizations around the world, we're very focused on diversity and inclusion. And we're working hard there, where the approach is really to take our leadership from the Board. We've been focused on these issues for a few years now where we had set targets to achieve 33% representation of women on the Board along with the Catalyst Accord. And we've signed on to the new Catalyst Accord looking for that representation at the executive level and then on down through the organization. The goal for us is really to look like the communities and customers we serve from a diversity and inclusion perspective. We've embarked on a journey of unconscious bias training. And Janet, I believe, and our executive team has been through that training this year. I'm scheduled to take the training next week, and that too is cutting across the organization, and we're moving forward with that next year. One of my colleagues who's been around for a long time, has just been appointed to a new position of Director of Diversity and Inclusion, which is also very exciting. And some of the other -- and some of the other initiatives that she's working on are the establishment of employee resource groups, these ERGs, where we'll have more open and honest discussions inside our organization on these topics. That leads us to a focus on equal remuneration where we make that information public, and we're closing some of the small gaps that we've had along the way. And then the continuous focus on developing our people as a means to further engage them. And then we really see the sustainability agenda as a way to further engage our work group. And personally, the EcoConnexions program that we've launched internally has been some of the most fun that I've had in my career and the most inspiring kind. I can tell you that our workforce is extremely engaged and believe in doing the right thing, and I see them demonstrate that every day. And with that, I'll turn it over to Janet to talk a little bit about safety.

Yes. So we can go to the next slide. I think we've covered the EcoConnexions. We can flip again. Next slide. I think, Chantale, you touched a lot of the community aspects as well. We'll go to the next slide.

I'll talk to this Janet.

Yes. Yes.

So from a community perspective, we're extremely focused on safety, and we're a nation-building company. We're moving the goods that people need in their communities. And we're also employing many people in communities. In 2014, we launched this EcoConnexions engagement program with communities. And that was really as a result of the success that we had with the employee engagement program. And the opportunity there is really around reforestation and engaging communities and planting trees along our network. Many trees are cut down to make rail ties that we use every day to maintain our railroads. And trees are also important from a carbon perspective, and we recognize that it's an opportunity for us to tie that back to our climate change strategy. We planted over 2 million trees since 2012. We're pretty proud of that track record. We're the biggest tree-planting organization outside of the forest products industry in Canada. And that's really a legacy that we're meeting behind with these communities and building more resilient, environmentally sustainable communities along our rail network. Next slide, please.

Thanks, Chantale. So I'll jump in on safety. Safety is a core value at CN. We are committed to the safety of our employees, the communities in which we operate and the customers that we serve. We also fully appreciate that what matters most is results. We have made solid progress this year in terms of our key safety metrics, but we are committed to continuous improvement. And to achieve that, we're leveraging training and leadership, including support from external experts to drive improved outcomes with respect to human behavior. One example is CN's Looking Out For Each Other program, which is an integral part of our safety culture. It's a vital safety mindset that employees are taught and encouraged to integrate into their daily practices. It also aims to recognize employees who embody the mindset by going the extra mile to ensure that everybody goes home safely at the end of the day. We're also investing in technology to improve the quality and frequency of our track and rolling stock inspection, and this is really in a concerted effort to prevent incidents. We also actively engage key stakeholders, including the communities in which we operate. Next slide, please. I'll touch quickly on the G of ESG. CN has a strong foundation of ethical conduct and integrity that really underpins our sustainability approach. As Chantale has mentioned, we align to global best practices, including linking executive compensation to long-term ESG drivers such as operational carbon efficiency and safety. Next slide, please. So ESG is a journey. We are very proud of our leadership position, but we are also well aware that the bar continues to rise. We aim to be among the world's best, and we are, therefore, committed to continuous improvement. Let me wrap up by saying we welcome investor feedback. With that, I'll pass it over to Ghislain, who will provide a few highlights with respect to our pipeline of growth opportunities that will help us drive sustainable, profitable growth and long-term shareholder value creation.

Thank you, Janet. Maybe next slide, on Page '18. So Fadi, we have shown that slide before to investors and many times before, and we remain quite bullish on our strategic pipeline of CN's specific growth opportunities that have continued to advance despite the pandemic. Now what really sets CN apart, aside from the amazing people that work here, is our structural advantages. Our network is quite unique, and it has access to 3 coasts, as you can see here from the slide. We are very well diversified from a commodity standpoint with our biggest commodity group being intermodal. We're also well diversified from a geographic standpoint and from a customer standpoint as well. Let me touch on a few boxes here. There's a lot of them, but I'll touch just on a few of them. DP World continues to plan to increase its capacity at Rupert by 450,000 TEUs over the next few years from its current 1.35 million TEU today. And I must say that it's already operating at its nameplate capacity as we speak on an annualized basis. The Port of Vancouver has been and will continue to expand with another 815,000 TEUs expected by 2022. On the other side of the country, Port of Halifax and PSA international are also continuing to expand, expecting to add 290,000 TEUs by 2023 from 550,000 TEUs today. The port can now service 2 ultra-class vessels simultaneously, and they are seeing container ships of over 15,000 TEUs this year. And in fact, they just received one yesterday from CMA CGM. What's great about intermodal is it presents a huge opportunity to convert freight from road to rail, and it is a stable segment. People need to consume, not like crude, which is up and down like a yoyo. As Chantale said, moving freight by rail instead of truck reduces greenhouse gas emission by 75%. In fact, trains, on average, are 4 to 5x more fuel-efficient than trucks and one single freight train can replace about 300 trucks from the road. So to sum up, we're moving the economy. We're enabling trade, and we're focused on sustainable, profitable growth. On this, Fadi, we'll open up for questions.

Okay. Thank you very much for this very thoughtful and detailed ESG presentation. I really appreciated that. I feel really it underscores how important those factors are and how seriously you're taking them in your business. So I'm very happy to see that. Maybe one question kind of follow-up on some of these slides and more business related. Like are you seeing this kind of ESG-focused behavior on the customer side as well? Is this becoming a differentiator, a greater point of differentiator for the railroad mode of transportation versus other modes? Are you experiencing that? And maybe if you are giving us a couple of examples where this has been a factor where business have gone to the rail instead of something else because of those issues.

Yes. Maybe I can kick it off, and then I'll pass it over to Chantale. But the very short answer is, yes, absolutely. I think, first and foremost, customers look at pricing and they look at service, but increasingly are adding ESG as a lens, and particularly in the context of their efforts to decarbonize their supply chain. So we've seen a steady, steady increase in the amount of customer requests that have been coming through to us, including supplier surveys, aligned with some of the international frameworks that we talked about. And I think Chantale, I mean, we've kind of taken off this year, in particular, in terms of the customers that are looking at their supply chains differently.

Yes, I absolutely agree. And I think as everybody is kind of like completely woken up to the issue of climate change, we see increasing request from our customers. My team and I have spent a lot of time doing carbon calculations and scenario analysis for customers who are looking at how they're moving things, how much cargo they might save if they move things in a different way using different transit, rail relative to truck, where they should potentially build their plants, for example. If it's rail served, with the carbon emissions that comes with that. So we spend a lot of time doing scenario analysis with customers. We also have a carbon calculator available on our website, and we've recently asked our web team for the statistics, and they're 4x as high as they were last year. So we know that our customers are actively kind of doing that analysis themselves, but this message that we've been putting out for over 10 years, which is the environmental benefits of rail and the benefits that we've all covered here today have been heard by our customer base. In Québec, we also -- the Québec government is being quite progressive on this topic with their PLEBEAU. They have these interesting programs that promote the greater use of rail and moving freight over water as well, PREGTI and PETMAF programs. They've been around for a decade. They've just announced that they're renewing those programs. So we have Québec-based kind of customers calling us, looking to potentially become rail served, for example, and the government of Québec provides funding to enable that. So we've been helping some of our customers who are Québec based on those kinds of topics. And then as Janet has alluded to, we live in a world of emerging responsible procurement, which is really the ESG lens on the supply, on the products that we all buy and services that we all buy, of course, our customers are screening us. So my team and I spend quite a bit of time responding to those questionnaires that we receive from our customers. So we know that they're looking at us with that lens and that, as Janet mentioned, we move freight, we have to do it well and on-time and be reliable, but they're looking at these ESG issues and our performance on them and including that in their decision-making factors, and we're helping them respond to those questionnaires as well.

So it's another dimension that we can see evolving quite a bit from 10 years ago.

Absolutely.

And they will continue to evolve.

Absolutely.

Okay. That's great. Maybe we can hit 2 birds with 1 stone with this question is, when you think about kind of the 3 more consequential technologies that you see affecting both your cost structure, but also your goals on ESG, what are those three? Where are they in kind of -- in terms of implementation and becoming commercially viable and affecting really both ESG factor and your cost structure?

Maybe I can open up and then you guys can jump in. But as you know, our big technology initiatives, and we've talked about it, Fadi, quite a bit with investors, the 2 that I'm most excited of is the ATIP cars, which is the automated track inspection and the automated train inspection is the portals. This, first and foremost, is all about safety. I mean if you can automate, fully automate those inspections, let alone, not having somebody that has to be on the track to visually inspect the track at 10 miles an hour and needing a track warrant, and all of a sudden, you get a better inspection, better inspection, better preventive maintenance, lower accidents, lower accident cost and really solidifying our social license to operate is the key. That's safety, and that's, therefore, ESG. The cost structure will be a great by-product, a great price, let alone, creating capacity because these -- when you have somebody on the track, they take track capacity. When you have this train sitting in a yard that has to wait for 2 hours for somebody to visually inspect what we call a certified car inspection, now all of a sudden, they can go, then you create yard capacity. So first and foremost, safety; second, grade by product called efficiency cost and the famous Fadi, as you know, continuing to improve OR and that's what it's all about at the end of the day. And then, of course, solidifying our social license to operate is key on this. And then capacity is the last piece that really it will create -- I think at one point with technology, it will help us on capacity more so than just adding another siding or another double track. I don't know, Chantale or Janet, if you want to jump in.

Yes. I'll jump in I think -- because I think you touched on exactly the key point that the investors are actually understanding and that is ESG needs to be embedded in the business. It is directly related to cost.

That's right. Exactly.

When we talk about sustainability, fundamentally, we're talking about the sustainability of the business model over the long term. So I think that's exactly it. And maybe, Chantale, you could touch just on some of the emerging technologies that may help us on our long-term goals with respect to decarbonization.

Yes. I mean we see decarbonization happening in the transportation sector really in ways, and we all know it's already happening live with electric vehicles, EVs, are available. And we're looking at all of our fleet, and we're looking at the electrification or decarbonization of these fleets in ways, starting with the smaller engines, smaller fleet first. We have announced a partnership with Lion here in Montreal, where we're piloting brand-new heavy equipment, heavy-duty trucks, which are new around the world. So we're participating in that pilot. And then, of course, we always get the question about what's the next kind of technology for railroads. Is it going to be hydrogen? Is it going to be catenary electric or battery electric? And quite frankly, we don't really have a clear view on what it's going to be. What we can tell you is that we are actively working with the government of Canada through the Railway Association of Canada Memorandum of Understanding, we are working on pathway work. So what is the pathway to decarbonize the rail sector in Canada? And participating with Transport Canada and ARCAN, ECCC, our colleagues on the passenger side as well to explore and eventually pilot and adopt alternative propulsion technologies in our country.

Okay. It's great. I'll maybe try to squeeze in a couple of kind of questions about the business and the outlook, Ghislain. So I mean in 2019, we had the effect of the 2018 pre-buy, and we had this global slowdown in the industrial economy. And obviously, this pandemic pushed the freight volume even lower this year. So looking forward, I mean, it seems like we're starting to come out of this downturn. We've seen very strong sequential improvement in the third quarter. And in the fourth quarter, volumes are turning positive. The economy looks in a better footing next year. You have a lot of cyclical exposure. You have a very strong consumer segment. Do you feel -- I mean, your volume are probably going to be down 8% by the end of all this compared to 2018 levels. Do you think we have the opportunity in the next 12 to 18 months to kind of recover that? You have some unique opportunities to you. Maybe you can give us an idea, how do you think about volume in 2021? What are kind of the biggest driver that is going to make the volume recovery a little bit more stronger at CN, which is kind of what we're accustomed to from you.

Okay. Well, that's a mouthful, Fadi, but maybe I'll open up and Janet is, not just ESG, but she's VP Finance, so she has a lot of that detail as well. But to your point, I think volumes are coming back quite strong. I mean if you look at our RTMs, and we provide RTMs and carloads every week to the street. I think our volumes are up, Q4 to date, about 12%, 13%. So I think it's coming on quite strong. I -- for a volume forecast of next year, stay tuned because we will be probably providing financial guidance at the end of January in our earnings call, but maybe give you a little bit of color. I think we can see very strong port business. I think that when you look at the intermodal coming in, either international or domestic, it's quite strong. When you look at the Rupert, as I said, they're actually, right now, at their nameplate capacity. So we see that continuing, Fadi, because people need to consume. People -- now people spend less money on restaurants, spend less money on traveling, but they're consuming. So now they're buying maybe one more iPad. My son just got his fourth iPad and PS5 and God knows. So people are consuming, which will be very, very, very good for the intermodal. Now we like intermodal because it's very stable. But as you know, intermodal margins are thinner or tighter -- not thinner, but tighter than the margins coming from crude. Why? Crude is a nat -- nat product, so it commands more pricing, but also there's less work events on a crude unit train going from Alberta going to the Gulf, 27th -- 2,700 miles of length of haul, where it's a straight bullet and you never touch the train. Whereas intermodal, then the box comes in, you need to pick it up from the terminal. You put it in an inland terminal, then you may have to ship the box a few times before the trucker -- trucking comes and picks it up and so on. So hence, why we said, Fadi, that we will really focus now and have started to focus more on yield management and on pricing, and we will be quite aggressive on pricing in 2021. So strong port business. As you know, we have a record grain crop in Canada, and I'm happy to report that we're in the ninth consecutive month now that we're moving record grain. Thank God to the investments that we've made in our western franchise in '18 and '19. We continue to invest this year, and that allows us to actually move that grain, and we're quite pleased with that, and that will continue. Lumber, as you know, is very strong. We had -- we have a big lumber franchise. When you look at the price of lumber, it's at -- it was at an all-time high a few weeks ago, Janet, at $1,000, 1,000 board feet, we never seen that. And now I think it's back down a little bit at 700. But the western producers are making money at $300 to $350, 1,000 board feet. So lumber will continue, and people are making renovations. I mean when you look at it, that's what's happening. And when you look at housing starts in the U.S., housing starts are scheduled next year to be in the 1.4 million units, and it used to be last year, 1.2 million, I think, or something like this. I think automotive will be quite stable. I mean I think we're calling for 16 million light vehicle sales in the U.S. next year. The peak was 17.5 million. We've got a great automotive franchise. We've got a lot of storefronts on our network that allows that growth. And then the last piece that I'll touch upon is propane. Again, propane going to West Coast is strong. AltaGas has a brand-new terminal, 50,000 barrels per day. And I think they've just received approval to double that capacity, which we're extremely pleased about. And then Pembina is looking to put their own terminal at 25,000 barrels a day, but are really looking -- already looking to expand it to 45,000 barrels a day. So we have a lot of business coming at us. We're -- this is great. This is a good problem to have. We will focus, as I said, and you've heard JJ say that. And we talked about that on our Q3 call on yield management and pricing. And I'll finish on this. Typically, in a given year, we have about 30% of our book of business that renews. So you will use that opportunity to push on pricing, to push on yield, like to have, maybe, in some cases, have the customer do more work events than we typically have done historically. We need to make sure that our intermodal franchise and our intermodal lanes are well balanced. And I think we're quite pleased and quite optimistic about 2021 coming to us. I think that I think that our franchise is well positioned. And finally, I made those comments on Halifax. I mean we can see a difference with having one of the best port operators operating all term. We can see a difference. And as you know, all of that growth coming through Halifax on our Eastern franchise can be absorbed by very little. It's 0 Capex and this will be taking market share from the Port of New York, the Port of New Jersey going to Chicago, Detroit and Central U.S. So I think we have a great franchise, and we're quite pleased with what's coming at us for next year, Fadi.

Okay. A lot there done back. We have -- maybe I'm going to squeeze one last question here. At the end of this 45 minutes.

We're all about squeezing.

So you probably can predict that this question is about, like, if I look in the last 5 years, you've -- you have grown the business quite well, but the margin performance was a bit somewhat disappointing, I guess, to you as well. So when you look that in hindsight, what could have been done differently? Or what's really in hindsight should have been done to have a better outcome? And I guess, going forward, it looks like your focus on pricing, you have some opportunities that you made on the structural cost side in the last 12 to 18 months. Should we kind of start to see that reversal back to historical margins at the end?

Yes. I think some of these questions, you know the answer, but I'll go ahead, and you and I have talked about, and we've talked to the market quite openly and transparently about '18 and '19. But we all know that we had some capacity issues in Western Canada. We were a little bit a victim of our success, and the growth that came in Western Canada came faster than we thought. And to your point, what have we learned? What we've learned that it's the chicken or the egg. So in the past, it was more we'll bring the growth and we'll build the infrastructure to accommodate it. We've learned that if business comes at you quite hard with all the lead time that it takes to build the infrastructure, if you haven't built it before, then you're going to be in trouble because, again, it will take another year or 1.5 years. Like sometimes for some capacity investments in Western Canada, the lead time could be as much as 1.5 years to 2 years. So that's what we've told the Street is, "Listen, we need to build it, and we know it will come, especially in corridors that uses all of -- or most of all the sectors that we move." That's what we need to do. And I've said and probably the only CFO in the market that have said this, the cost to overinvest, especially in corridors that has many, many different commodities. So therefore, you're leveraging your risk, the cost to overinvest is lower than the cost to underinvest. If you overinvest, then -- and you believe that you will grow the business, then it's the time value of money. That's really that cost. But if you continuously underinvest, number one, you -- the business will go away, but more the bigger risk is that customers are going to go and knock on Ottawa and the government, and we have a reregulation risk. So what we would have -- what did we learn? We learned that we need to stay ahead of the game. Hence, why this year, as we said, '18, '19, we had catch up CapEx. Now we're done. I think we're back this year at around 20% of our revenue, but we continue to invest because, again, we want to stay now ahead of it and not be caught off guard like we did in the past. That's the biggest, biggest thing. And frankly, I think that with now technology starting to provide some benefits, and we can start now seeing benefits. As you know, we said that the benefits would be back-end loaded at our Analyst Day because you need to build it before you get the benefits. Now that it's going to start coming in, I think that will be the big driver to move the needle on efficiency and productivity and lowering and improving our margins and lowering our OR.

Okay. That's great. And I think we'll leave it here. Thank you so much for your participation in the conference, and that's a wrap. Thank you.

Thanks.

Thanks, Fadi.

Thanks, Fadi. And happy holidays to you and your family, and happy holidays to the BMO family and all of our investors listening.

Thank you to you as well.

Thank you.