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

Good morning. Thank you for joining us for the first transport discussion of the day with Rob Reilly, the CEO of Canadian National. We also have Paul Butcher, the VP of Investor Relations here with us today. I am Brian Ossenbeck, I cover the Transports and Logistics sector for JPMorgan. We're very happy to have Rob here from CN, who is going to kick off with an overview of how the railroad is running before we go into Q&A. If you have questions throughout the conversation, please drop them in the chat box on the conference website, and I'll look at those and try to work them into the conversation as we go along. So Rob, let me hand it over to you to get us started, and thanks again for joining us today.

Yes. Thank you, Brian, and good morning to you and everybody out there. Appreciate you having us here today. First, I'd just like to recognize the men and women of CN over the last 12 months, in particularly, operating through this pandemic, through these unprecedented times, showing up to work day-in and day-out. Where many of us can work remotely, our railroaders have shown up every day to move the freight, keeping critical supply chains open and really continuing to move the economies of both Canada and the U.S. So hats off to them as we continue to operate well. And most recently, showing up during our 2-week polar vortex we experienced in February, so couldn't start this without recognizing them. I'll start with an update on the business as we sit here halfway through the third month of the first quarter. And really, what we've seen here quarter-to-date and year-to-date is volumes have remained strong. From a revenue ton mile perspective, we're actually up close to 9% year-over-year in terms of RTMs, as we sit here halfway through March. And from a workload perspective, as we measure that GTMs, gross ton miles, and we look at where we've been here in this first quarter, actually, January was an all-time record January for GTMs moved on CN. And then February, we experienced a winter polar vortex. But even with that, February was our second largest February in CN's history. And then like I said, halfway through March, we're actually trending to a record March. So needless to say, volumes have been big. And just when you put that in perspective to last year, of course, February, we experienced blockades, which had a big impact on us, but March was actually a big month for us. And we're actually up year-over-year in terms of March. Last March, we were recovering falling the blockades; this March, just big, big volumes out there. So really, business is good. It's kind of the summary of that. But when you get into it and dig down on what's driving that, it starts with grain and more specifically, Canadian grain. And that's set up with really a record harvest and global demand that's out there that set the table for us to set record over record over record. Actually, February, we set our 12th consecutive all-time monthly record for Canadian grain movement. And then as we sit here again in March, last March was an all-time March record, but we're actually pacing to exceed March's record last year. So we'll see how it ends up here in March, but really, grain movements remain very strong. And we don't think that's an accident. Actually, we've invested to handle this record grain haul. We spent a lot of money in terms of increasing our high-capacity grain hopper cars over the past couple of years, and you'll see us continue to do that in the near future. We think that's a good business. Actually, those high-capacity cars allow us to put more grain in a single car than the older type cars, and they're actually a little bit shorter. So it allows us to move more grain cars in a single train start. So that's really good business, and we get paid by the tonnage. So this is good business. It's good for Canadian farmers as well. So we see that staying strong here in the near future. We've also invested over the past couple of years. So our ability to handle those kind of record grain movements has been supported by our investments in capacity, particularly in Western Canada. We're seeing an uptick in propane gas movements in Western Canada as well. Our second gas facility is now online in the Port of Prince Rupert with the Pembina facility. We continue to see that grow as the year goes on. Lumber prices have remained high along with a warm housing market and home remodeling going on. So our ability to move forest products is still a good opportunity for us as well. And then really coming out of the COVID pandemic last second quarter of last year, where we saw volumes drop off the second half of July, we saw imports really come back. And that is staying strong as far as import containers into our U.S. West Coast ports, primarily Vancouver and Port of Prince Rupert, and I think you've seen that all along the West Coast, Brian, really since late July of last year, and it stayed strong and is still strong today. We're seeing that in both of our ports that we serve with import business. And we really didn't even see an impact of Chinese New Year this year. Usually, you'll see a lull in the first quarter, we didn't see that at all. So we're seeing that as an opportunity to move more freight, but actually increase our yield and increase our prices where we can on that, and also add it to existing train service without absorbing additional costs and putting those additional containers into existing train service by increasing our slot utilization on trains, which the team has done quite well. We're also seeing domestic intermodal with a slight uptick as we've seen the e-commerce take off over the past 12 months. So that's also been a growth part of our business. So that's really what's driving the top line. I'll talk a little bit about the operations now. And as I mentioned earlier, in early to mid-February, we experienced the full brunt of winter. We always know it's going to happen in Canada, in particular, and we certainly experienced that in -- for about 2 weeks in February where we spent a lot of time in those 2 weeks operating what we call Tier 2 winter conditions. Tier 2 for us is minus 31 degrees and below. And quite frankly, most of those nights it was minus 40 and below in parts of our network that impacted Central Canada, parts of Western Canada in the upper midwest of the United States, primarily Minnesota. So when it gets that cold, it does have an impact on your ability to actually operate. Air propagates -- doesn't propagate through a train line similarly as it does when it's warmer out. So we have to run shorter trains. We add additional air sources to a train, whether it's through our air car fleet or distributed power, cut in the middle of train or end of train. All things being equal, your operations actually operate a little bit slower and you move a little less freight than you normally would. But really, as we came through the third week of February and weather moderated, it gave us a chance to catch up, and that's what we did and showed the resiliency of our network. And as I sit here, in mid-March, our railroad is very fluid and operating very well following that impact. And we have a very -- I guess I'd say this, Brian. Nobody does winter better than CN railroaders. I can tell you that as a fact. And as we go into winter conditions we're prepared for -- we have a very detailed winter action plan that we're prepared for, and we're ready to handle that winter. And that's how we're able to at least keep stuff moving even when it gets to those temperatures. We have 100 car air fleet that allows us to add additional air sources to trains to keep them moving. We've made the investments, as I've talked about, in our network over the past year which adds resiliency to our network. And then over the past year, we've centralized our operations into a centralized location in Edmonton that really allows us to operate our network with the belly button. And that specifically helps us when there's challenges in our network that we can use the full force of the network and the resources and assets to recover that piece of the network quickly. And we certainly saw that as we came out of the weather conditions of February. From a KPI standpoint, all of our KPIs, whether it's train length, car velocity, train speed, how we use our locomotives effectively, all of those are improved year-over-year. So we're in really good shape. Our fuel efficiency continues to set records. Last year was an all-time record for us at CN. We are the North American leader in terms of fuel efficiency. So every time we set a record, it's a record for the industry. We set a record last year. And through the first 2 months of this year, we're up nearly 2.5 percentage points in our fuel efficiency and that's on the heels of a very rough February where we actually took a little bit of a step back. So that just shows you how good January was in terms of our operations. And so far this year, we've saved about $6 million through the first 2 months of this year, just from the initiatives themselves alone. Of course, last year, we saved $60 million from those initiatives as well. So as we look ahead, we're optimistic to the remainder of the year. We'll bring on the new tech business here in Q2. We have been preparing for that new business to come on, and we'll see that ramp-up in the second quarter of this year. We have expansion projects for our -- particularly for our Western Canada network for the remainder of this year as we continue to add capacity, primarily west of Edmonton on the routes to both Vancouver and Port of Prince Rupert as we see that not only as a growth area for the remainder of this year and next year. But really, as you look out over the decade, it is an area of opportunity for our company, and we're going to be prepared for it. You also saw here this first quarter, the announcement and the approval of the Milton Logistics Hub in the Greater Toronto area. So we'll be breaking ground on that here in the near future and look to open that up in the next couple of years. That's a really good thing for the citizens of Toronto and the Greater Toronto area, Canada's largest city, and our ability to continue to serve that in the future. Finally, Brian, I'd just add up -- or I'd just finish off with a couple of points. We do have a couple of headwinds facing us here in Q1, particularly with fuel and foreign exchange as the stronger Canadian dollar impacts us somewhat for us with oil prices up year-over-year and that will create a headwind to earnings here in Q1. And when we compare that to where we were at Q1 of last year, the fuel lag was actually a tailwind for us of about $25 million or $0.03 a share. The last thing I'd say is, in addition, as I mentioned at the beginning, we do have a lot of really good business, but it is at a different mix and a different book of business. And primarily, that means less energy-related business we're moving on a year-over-year basis here in Q1 and much more intermodal business. Still good business, but it comes at a different margin. So with that, Brian, those are my comments, and open to any questions.

Thank you, Rob. That was a great comprehensive update. Things sound like they're going pretty well in tough conditions. So maybe just to do the housekeeping on the first quarter stuff there for a minute. So fuel flips from a tailwind into headwinds, FX is there as well, mix has been a challenge. And I don't know if Rob or Paul, you can weigh in on relative to last quarter, I know we're looking for the end of the mix headwinds and start to turn. Is it going to be similar to what you've experienced last quarter? I mean, the volume is up a lot, probably more than you expected, certainly more than we expected. So does that mix headwind get a little bit more challenging before it gets better throughout the rest of the year?

Yes. I'll start, and Paul, maybe you have some comments to add there. But like I said, on the intermodal side, we continue to see that strong here for the next couple of months certainly. And then we'll see how the second half actually plays out. But import business continues to stay strong coming through the West Coast ports. So we'll continue to see that. From the energy side of the business, I mentioned gas will remain strong. I think as the economy kicks up, whether jet fuel when we start to move more of that, as people start to travel again in the second half, that could be a potential for us. But I think we'll still have some challenges with the mix here, certainly in the first half of the year. Paul?

Yes. I think that's exactly that. I think from a foreign exchange, I think you'll see also an impact in the second quarter as the dollar was actually lower last year at about $0.72. But I think some of the things that -- a lot of things that we're doing from a yield management perspective definitely will start to play out. It does take a bit of time to put these into place. But I think as we progress, as the economy as well reopens, we should see some of the more of the industrial side of the business start to come back, and that will definitely help as we move forward here.

Okay. Great. So I have a lot of questions on the operating side today, Rob. One of the first ones that's been pretty impressive is the scene, just able to bring the crew starts down faster than RTMs and then bring them back at a slower rate when volume returns. So it's always a tricky thing for a railroad because volume comes in different places and in different amounts, usually when everybody expects. So how do you feel about getting the right amount of people in the right place, especially if volumes are really -- continue to be as strong and maybe have some upside to what you initially thought heading into the year.

Yes. So I'd say this -- I'd answer it this way, Brian. When you think about where we're at a year ago, and we're on the cusp of the impact of COVID in the pandemic and then as we went into the second quarter, we saw volumes really tail off. They were down as much as 20-plus percent at one point in the second quarter last year. And certainly, we rightsized our network as we did that. But coming out of that, as we got into the third quarter, we said we learned some things as we went through that, and we weren't going to bring back resources on a one-to-one basis. We idled the intermediate switching yards, several locomotive shops, and those have remained idled up until this point. We also consolidated our Canadian dispatch operations and crew management operations into Edmonton during that time. So we figured out ways to do it differently. And to that point, when you sit here in the first quarter this year, I talked about volume being up nearly 9%. We're actually doing that with 900 fewer people in operations. Our labor productivity has improved. Our cost per GTM is actually 10% better than it was this time last year. So from an efficiency standpoint, we have learned a little bit coming through the COVID pandemic. And those are things that will pay dividends as we go on this year. As we look out for the rest of this year, we are optimistic in terms of what the volumes look like, and we've been preparing as such. And really to handle the volume, you really need 3 things; you need crews, you need capacity, you need locomotives. From a crew standpoint, we really started hiring in Q4 of last year. We've got about 550 new hire conductors in training, as I speak here today, and we'll continue to hire as we see the volumes warrant that. And those will be resources that will help us handle the volume later in the year. From a locomotive standpoint, we made purchases over the past couple of years to add to our locomotive fleet. We'll continue to bring locomotives on this year to support that. And from a capacity infrastructure standpoint, we've invested in capacity in Western Canada over the past couple of years. We're continuing to invest this year in those capacity projects, while most of it will come on late third quarter and fourth quarter of this year; when they do come on, they will provide immediate impact. And those capacity projects are primarily in Western Canada, adding double track and sidings to our track west of Edmonton on a place we call the Edson Sub. We'll continue to add sidings on our route to the Port of Prince Rupert. We see that as a structural advantage for our company. So we'll continue to protect that advantage and prepare for that growth out there. And then we're doing several things in the Vancouver area to handle the volume. So we stay very, very tightly connected to our marketing team. We have prescriptive weekly meetings where we talk about the volumes, whether they're going up or down by commodity group. So we're very, very tightly connected to that. And that allows us to really prepare for the future growth that's out there. So short answer, Brian, is that I feel very positive that we're well prepared for what lies ahead here.

Okay. And so when you look at those ports you just mentioned and the congestion on the West Coast side, at least in the U.S. and L.A. and Long Beach, have you started to see diversions into Rupert and Vancouver? I guess how much diversion have you seen? And is that something you think is going to be a share shift in the long term? Is it more of a temporary diversion? And I guess, how do you balance that with taking the opportunity without taking something that might be here today and gone in a couple of months.

Yes. I think if you take it from a broader view, we've actually seen share shift over time to the Port of Prince Rupert in Vancouver. We know Prince Rupert provides advantages to the supply chain and shorter coming across the Pacific. By the way, we go to the same places. A lot of that rail freight out of L.A. and Long Beach goes, a lot of it wants to go to the upper Midwest. We go there just as efficiently and effectively as any other railroad out there. So I think we've seen that share shift over time. Both Port of Vancouver and Prince Rupert certainly has had big volumes pointed at it over the past 7, 8 months, and they continue to see that here today. Like I said in my opening comments, we've taken this as an opportunity to not add costs, but really look at our yield management and how we bring that volume on and add it to existing train service. I talked about our slot utilization, it's up about 10 points. So that allows us to move more containers on a train than we previously did without adding incremental crew start costs. We have a very robust yield management process in place, working with our marketing team in terms of how we seize this big demand as an opportunity to increase the top line piece of it. So we have seen the volumes into our ports as well as any West Coast port has, quite frankly. So we see this is as an opportunity, and we're certainly ready and prepared and have been handling it.

So one of the other things that's come up recently is the digital scheduled railroad. That's I guess the phrase that you guys have coined more recently, but clearly technology has been a focus for some time. So before we get into the specifics, maybe you can just tell us what do you think DSR really is? Is this sort of a step change? Or is it more of a evolution of how railroading is going to go in the future? How do you see it? And how should we think about it?

Yes. We really see it as the next step in terms of efficiency of our operation. It isn't that PSRs run its course. This will be built on the foundation of PSR principles. Running an effective and efficient railroad will always be part of a good railroad, a good operation out there, and that won't go away. How we use our assets will be a foundational item. But really, as you start to squeeze that really, really tight, the next step of that is really the automation piece and the digital scheduled railroading piece that we see. And automation comes in all forms, from machine learning to artificial intelligence to RPA. We're using it all in all facets, from financial accounting type things to how we use our handheld devices with conductors. We also see DSR as a way to get us closer to our customers and improve the customer experience with CN. So we see that as an opportunity. And we have teams working on that to really work with the customers in how technology can help benefit them to help them grow their business with CN as we look into the future. There's a whole list of things that we've talked about publicly in terms of our automation journey from the autonomous track inspection cars to our portals that are providing benefits today. And we'll continue to provide benefits as that technology continues to evolve in the future. Paul, I don't know if you want to add anything?

No. I mean, maybe the other point that I would add is we've had 2 recent VP appointments in information and technology. And just to highlight what Rob was talking. So we have Nayan, who is our new VP Automated Rail and Technology, as well as Mohit, who is our VP Innovation Platform and Data. And really, Nayan is more focused about implementing and really digitizing the rail operations while Mohit is going to be more on the supply chain on the customer side and really digitizing the supply chain. So I think we're -- we really have a nice road map going ahead here, and I think we're going to really push hard on going from PSR to DSR.

Right. And you have a new CTO, CIO new level which is what, I guess, Rob had that title for a little while as well. And we talked about it -- sorry, go ahead.

No. I was just going to say, you mentioned it, but Dominique Malenfant is a significant acquisition to our team. And he brings a lot of experience, industry experience to our railroad, most recently, the CTO of Wabtec and prior to that GE Transportation. So really, really credible leader and really focused in our operations technology journey that we're on, and he brings a lot of things to the table that's helping us. We're already seeing that impact.

So from the, I guess, tech-enabled op side, the 2 things, at least I think of are, one is this concept of the digital twin, which sounds like it would be really helpful in a lot of the capacity planning things. But the other one is also positive train control. And I know Rob in your former life at the beginning, you had a lot of experience with that. So maybe you can elaborate on both of those, where the digital twin is from a provide perspective, if you're starting to see some benefits from it, and how that's working. And then on PTC, I know it's not on your whole network, but it's finally in place. Is there anything to be had on the benefit side, at least in the U.S. now that, that's fully operational and interoperable.

Yes, great question. So on the digital twin, which we call smart network, we are already seeing the benefits of that. Actually, when I talk about investing in our network and adding capacity, we've used smart network to actually put that capacity in the right areas of our network instead of just using experience and knowledge. We combine that experience knowledge actually with science and data now to actually put the sidings or the double track in the right locations. So we did that last year. We're doing that again this year. That's how those areas actually surface to the top of where we're going to invest. And as you look into the future, that digital twin in that smart network will actually help us improve our locomotive planning and our crew planning. Those are things still evolving, but we see that as opportunities over the next year in terms of how we invest in locomotives, how many we invest, how we utilize the current fleet of locomotives and same thing with our crew resources that are out there. On positive train control, we have -- of course, that became a law January 1, 2021, we completed our PTC journey on our 35 subdivisions in the United States well in advance of that becoming law. We actually completed it a year ahead of time. And we began operating like it was law last year about this time. So we were prepared before January 1 in case there was any issues we are not aware of. And it's really been seamless. We haven't seen any issues with that as well. And PTC certainly provides a safety overlay that is evident out there today. But really, what we've done is actually built on that, and we've got a thing called electronic delivery of mandatory directives where anytime there's a track condition out there that requires trains to slow or you have a grade crossing where a gate arm got blown off by the wind or maybe somebody ran through it and broke it, those are things where a dispatcher sitting in an office in Chicago would have to get on the radio and contact the crew that's operating out them -- out there to alert them to the conditions ahead. And that communication follows a very prescriptive to the word repeat, repeat, repeat, back and forth that finishes with an okay, that takes a couple of minutes. We do about 3,500 of those mandatory directives on our network, our entire network, a week, 3,500. So there's a whole lot of radio communication. It is an opportunity for human error as you transpose words or numbers to happen. With PTC being a foundation to that and an onboard system sitting right next to the engineer, when there is a track condition ahead, say it's a slow order for a 50-mile an hour track to slow to a 25 because of a track condition that's been found, that dispatcher now just enters it electronically into the computer. It actually goes to the onboard computer sitting next to that engineer, engineer hits okay, the safety overlay is already there, and that slow order is already there eliminating that whole radio communication that the conductor and the other side would be taking down as the train is going about 60 miles an hour. So that's a very simple example of how we're using PTC as a foundation. That simple example makes us more safe. It eliminates the human error, but it also makes it more efficient as dispatchers are actually able to dispatch the railroad versus some of the administrative things that, that would bring to it. So that's probably the best example as PTC creates that foundation. PTC will provide foundation in the future as well to other technologies as you get to increase rail automation someday in the future. But we certainly didn't stop at PTC. We're building on that. And the most recent example is the EDMD delivery.

Okay. I have to say it's a great example, probably on the first ones we've heard from that bad time, I think there's more to come. You mentioned a little bit earlier about the focus on pricing. We certainly heard it in the commentary about more focus on price and quality and less on volume and revenue. From an operating side, how has that impacted? How you look at the network? You mentioned all the meetings you have with the marketing teams. Have you seen any sort of changes in terms of the freight or the types of customers based on that strategic effort? And maybe if you can just talk about the other effort to kind of build out the eastern and the southern part because I would think that some of that's maybe a little bit of conflict, and you're trying to grow, but you're also trying to keep it balanced. So it'd be helpful to kind of hear the bigger picture. And then also you can drill into those 2 regions, if there's anything different going on there?

Yes. So like I said, we continue to work hand-in-hand marketing and operations together where the opportunities are. I think our marketing team has been very aggressive in terms of yield management to this as demand, especially in Western Canada, where the opportunities have been greater than the rest of our network, and we recognize that capacity is actually more precious out there. So with that becomes an opportunity to capitalize on that demand that's out there and really get the recovery for that capacity we have out there. So our marketing team has been working that pretty aggressively, and we'll continue to do it. So when you think about the rest of our network, certainly, we see the opportunities in Western Canada, that's where we continue to invest. And it is a great thing to have a railroad in Western Canada blessed with such natural resources that provide the benefits from grain to the petrochemicals, to coal to a lot of different things we move out there. But we do see an opportunity to increase our business in other parts of our network. When you think about our tri-coastal footprint that no other railroad has and you think about manufacturing as it shifts throughout the world, maybe it moves from China to further places in Southeast Asia, that the route to North America may be quicker to go through the East Coast ports of North America versus the West Coast, we're well positioned to handle that with access to the East Coast ports, whether it's Montreal or Halifax. We do have, as you know, ports on the East Coast side that we'll be well positioned to handle that. And we'll be ready to handle that into the future. We do have capacity there. So unlike Western Canada, it wouldn't take a whole lot of infrastructure to get up and going, if we were to see a big surge in volume. And our marketing team has initiatives each and every year to try and grow that business in the eastern and in the U.S. portion of our network. Same thing in the U.S., we look for opportunities down there to grow our business as well. And most recently, the announcement of a Mobile, Alabama Logistics Park, which will drive some volumes to our network as well, and we'll continue to look for those opportunities. Paul, I don't know if you have anything to add?

No. I think you summarized it very, very well. A lot of opportunities. We have the ability to grow in those parts of our network. And definitely, there's a lot of focus on the marketing side to find opportunities to fill up that capacity.

So the one thing we're launching on the East side, at least for the next couple of weeks is just the Port of Montreal strike last year was about 19 days. It looks like there's a temporary agreement that expires next week. If people start to make adjustments from a shipper perspective, I'm sure you have contingency plans already, but last year, clearly was roughly a bit disruptive. I don't know if that is something you can avoid this year or if it's just a little too early to tell?

Yes. So I mean, we learned some things last year during the Port of Montreal strike. It was impactful. So we saw more freight actually wanting to come into the Port of Halifax, and a lot of that was Montreal-bound freight, which actually created more operational expense for us instead of going to Port of Montreal that's now being handled by us. And we're doing a lot of things to try and help with that. So we've learned from that. We've been working with our customers in terms of how we handle that going forward. The Montreal freight that would want to come in, we'll find other ways to move that or that will be the last priority, and our focus will be moving the long-haul stuff that wants to go Toronto and further west into our network will really be our priority. So we have been -- it's not like this strike deadline has been something that just snuck up on us. We've been close to it as the last one got to stay and we stay close to it today. And we'll be prepared to handle it much better than what we did in the third quarter of last year.

Got it. So you think about the mix, and you mentioned it's still going to be shifting just based on the volume patterns here in the first half of the perhaps. How does that affect the operating side? I mean, it clearly, it changes the train plan, the origin and destination pairs. But we see the financial impact, but it's hard to tell if that's more so on the margin profile and the mix or if there's like an actual real challenge from the operating side to sort of adjust to all that and to get it back in balance as you're trying to keep pace with what's happening on the commercial side. So how does the mix impact you on it operationally?

Yes. I mean, you mentioned it. Obviously, if you're moving more intermodal and less energy, those come with different margins. But that, we just don't throw our hands up in air and say tough. We're always trying to make this place more efficient. From a train length standpoint, we're the North American leader in terms of how long we run trains, but we don't settle on that. We're actually working to improve our train length this year. We actually have aggressive goals on that. And even though we saw a brief step back in terms of the cold weather in February, we've actually recovered and looking for more opportunities. When you can move more freight with the same crew starts and the same train starts, that makes your network more efficient. It's actually good for your customers. Instead of those loads being left behind at origin, they're actually moving on a train. And by the way, longer trains actually helps you with fuel efficiency as well because you have the same number of locomotives on there, moving bigger trains and actually makes you more efficient. So we react to whatever is out there. We're going to move it. Nothing we're moving is bad business. It may come at different margins. And as it shifts to maybe more intermodal, we got to figure out and continue to figure out ways that we're going to continue to move that more effectively. I talked about what we're doing from a slot utilization standpoint. Our intermodal team continues to look for every opportunity to fill up every slot on every double-stack car. So we move more containers per every train start without adding additional trains. So those are some of the things we're working on, Brian.

Okay. We have about, I think, 5 minutes left. So maybe just a couple more questions. Continuing on the efficiency side with longer trains, you mentioned earlier, CN is a leader in North American rails in terms of fuel economy, I think January was up like 7% or something. So you've clearly still maintained that. Train lengths, the different things you can do on the network is -- are those pretty much the same sort of initiatives that you plan on putting in place for the coming year? And is -- how much -- where is the ceiling when it comes to fuel economy? Because it seems like 3% to 4% is something you would be able to grind out almost every year?

Yes. Yes. So we have actually a very robust plan as we look out into the future of fuel efficiency and reducing our carbon footprint led by Janet Drysdale, who just does an excellent job in terms of communicating that plan out there. But really, we see it a couple of different ways. In the short term, we think about it in terms of everything we do with fuel efficiency. You mentioned a couple of those things, whether it's train length or train weight, utilizing bigger trains to move more freight is good fuel efficiency. We actually have an in-house computer-generated program, HPTA, horsepower train analyzer, that actually feeds the locomotive engineers how to best use your throttle and braking. So they're most fuel-efficient across every subdivision on our network. So those are the things we do in the short term. That's what have got us here, and those will be the things in the short term. We'll also look to upgrade our locomotive fleet. Even though we brought 260 locomotives over 3 years, we'll continue to look for ways to refresh those either through modernization of some of our older locomotives. When you do that, you not only get a more reliable locomotive, but you actually get a more fuel-efficient locomotive. So you'll see that over the next few years that we'll actually upgrade and update our locomotive fleet. On the mid-term, we see us moving more to different types of renewable fuels, whether it's biofuels or HDRD in the midterm, those will be the things that actually increase our fuel efficiency, reduce our emissions. 90% of our greenhouse get gas submissions, a little less than 90%, comes from our locomotives. So that's where our focus is when we talk about fuel efficiency and reducing our emissions. And then I think in the long term, Brian, where we're looking at and working with OEMs, of course, we don't build locomotives, right? We buy those from some of the big manufacturers out there. So we continue to work with them in alternative forms of propulsion, whether it's battery electric in the future or hydrogen based. We've tested LNG here before. We'll stay very close to that. You may see us pilot things here in the near future. But we see that really as the long-term solve in this industry as we burn a lot of diesel, even though we're 4x more efficient than the trucking industry in terms of what we move and how we move it. We do see a move away from diesel to some other form of propulsion in the long term. And while that may be a ways out, we stay very close with those OEMs on a day-to-day basis.

So maybe last question and continuing on that. So ESG has been a bigger focus for just -- for everybody, it's been a big focus; for CN for some time. I think they're the first rail to set the science-based emissions target guidelines. So clearly, we're seeing it in the fuel, as you just mentioned and all the initiatives there, but is that resonating with shippers as they look at their emissions footprint and, obviously, scope 3 includes the whole supply chain upstream and downstream. So is that to the point where it's in the commercial conversations? Or are we not quite there yet? And how do you see that progressing over the next couple of years?

Right. No, it is part of it. As we work with our customers, you may know, Brian, we actually have a carbon calculator on our website that our customers have access to. And in fact, the traffic to that carbon calculator only increases year after year. So they're very interested in terms of how they play in this. We work with them. We have a group called EcoConnexion, that works with our customers as well in terms of how we can help support ESG. And then as I just mentioned, freight by rail, especially when compared to comparable trucking, is much more fuel-efficient and much better environmentally. And there is an interest to move more by rail. We do think we play a big part in the solution for the long-term and the global supply trade and the global supply chain. And we embrace the ESG journey we're on, and we want to be a leader in it. We have been a leader, and we want to continue to be there a leader.

Okay. Sorry, Paul, go ahead.

No. I was just going to say, I think as you mentioned, we were the first railroad to put out a science-based target on greenhouse gas emissions. We have a target of reducing by 29% by 2030 on a base of 2015 level. And as you probably recently saw from a recent press release, our shareholders will also have the opportunity to vote a nonbinding advisory vote to every year on, say, on climate and really to provide a vote on our climate action plan. So this is something that very, very few companies have put out there. So we're very pleased and I think it shows our leadership on the ESG front going forward.

Yes, there's a lot more ESG to come for sure. But unfortunately, that's it for our time today. But thank you, Rob, thank you, Paul, for joining us. It was a great update. Really appreciate it. And thank you, everybody, for joining us here today. That's it. Thank you. Take care.

Thanks, Brian.

Thank you, Brian. Thank you very much.