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

We welcome President and CEO, Tracy Robinson to her first BofA Transport Conference, her first as CEO, having been in the seat for about 2.5 months. We met Tracy back in her days at Canadian Pacific, I forgot to mention that name back in 2010. And in a somewhat monumental move, she now becomes the third of the 6 Class 1 rails with a former marketing person now running a railroad versus the phase of the past decade, where we saw a lot of COOs kind of transitioning into the role. So that kind of focuses on the growth discussion, I think we're going to have today. We also welcome Ghislain Houle from CFO back for his third time in the past 5 years. A special thanks to the CN team. Let me just really highlight this one as they have now been a participant at every one of the 21 years we've been hosting the conference. So truly appreciate that to the CN team. Tracy, you actually continue a long line of dedicated CEO participants from CN going back to Paul Tellier and Hunter, Claude, Luke, JJ now yourself. So we appreciate your and the organization's commitment. Also joining us in the audience for everybody is Paul Butcher from Investor Relations. If you have any tough questions, I've been directed to send them all to Paul.

So with that, sorry for the long intro, but I think it really thanks for participating. With that, let me turn it over to Tracy for some thoughts on what brought you to this role. It's somewhat odd now having each Canadian rail operated by someone who ran or was at the other railroad, allowing both sides to know each other strengths and weaknesses of the competitor. So maybe provide some insight into what the Board saw of you as to be the leader of Canadian National in the next phase.

Yes, Ken, first let me say thank you. Thank you for hosting us. It's such a pleasure to be out again, I've been in Boston for a few years, beautiful city. I hope to get out there a little bit this afternoon, but also to get face-to-face again, have these kinds of conversations, so much better face-to-face. Thank you for this. Yes, I mean, I think that it is an incredible pleasure to be here and not only here in Boston, but sitting in this chair and with the CN team here. I didn't know we had such a great record of attending this, but pleasure to be here, sitting on top of this incredible organization. And I've spent 27 years at Canadian Pacific, so I know that company well had a view of this one from across the street. And this is a great organization, amazing network. As I said at CP and touched a number of different functions, gave me an opportunity to get to know that organization and well get to know railroad in very well. I took a step out for a period of time into another industry, ran some different long linear infrastructure and pipelines ran our Canadian, the TC Energy's Canadian business, big operation, big business, lots of expansion and a bit of a transformation from a cultural perspective. So I think when this came up with the rail background, with the kinds of things that we need to do here, it was a great opportunity, and I can't tell you how thrilled I am to be here.

So now that maybe step back, how do you look at the strategic plan, right? So that JJ threw in a strategic plan, ended up retiring. And now you've made it your own, right? So you've increased the operating ratio to sub-60. You shifted the growth target a little bit, right, just given what's going on in the environment. You reiterated the 15% ROI. So you want to be strategic with your capacity assets. That was kind of your first kind of run through, does that mean a larger focus on pricing, how should we take kind of your...

Maybe, Tracy, that's a good segue. We have a couple of slides, I think it is a good segue.

Do you? Jump in.

Yes. Why don't we build those in here? Let's build those in here. So I think as I come into this network, take a look at this organization. I mean, I don't have to tell any of you how the strength of the franchise, the strength of the network, the strength of the team. And if you think about the West Coast of the continent Rupert, which is an incredible gem and Vancouver. We all talk about hitting 3 coasts, but it's about more than that. It's about having the optionality on the West Coast, allows us to do different types of services and be able to move some things around. If you go to the East Coast of the continent with Halifax. we've got St. John. We've got Port of Montreal, and we've got Mobile, New Orleans in the South. So in this world of emerging trade patterns and the importance of global trade, I think we're really well positioned to be helpful and I like where our network is. If you think about domestic business, we span the continent and go right down east, west in Canada and write down, of course, to the Gulf Coast in the south. So great organization, great network, strong balance sheet. And so as I think about and all that I've heard back from you the questions that I've had and the strategic capacity that you're asking about, Ken, it's always been around have we pulled the most out of this network that we can, this very advantaged network. And I would argue that over the last couple of years, I think we would all say that we haven't been able to do that. And the question as to why we've done a great job of growing the top line in this business. What we haven't done as good a job is growing the bottom line at the same pace. So as I look at back in what has happened, we have very strong growth mandate that was less than perfectly connected to the operation, the capacity. And so we weren't as strategic about managing our capacity. So when you hear me say that when I come in, it's about getting very integrated, being very strategic, both now and looking forward into how we use this incredible network of ours and what capacity we have. So we're going to run a scheduled railroad, focus on velocity, you've heard me say this, and then we're going to sell into that network in a way that allows us to drop, of course, that top line growth to the bottom line. And as we do that, we'll be bringing the next generation of railroaders along with us. So part of what I've seen, it's very clear what needs to be done is to start to bring this network back to that kind of a model.

So there's value in the network, right? So when you talk about selecting the right freight, what does that mean? Does that mean, again, just a focus on how we're running the network or focus on pricing to get a better return on investment. What does that mean to you?

Yes, and it probably means growth as well. So when I look at what we've got running in the network. In some places of this network, we've probably oversold a little bit. In other places, we have capacity that we can sell into. But if you look at any corridor, let's take the Rupert corridor, if you think about it, there's a certain amount of capacity there. So we have to be intentional on what we sell into that capacity. How much of it do we want to devote to a very big and growing business of international intermodal volumes? How much we need to preserve for great, what about the energy play as we go up there? And what about the merchandise and the forest products volume and the like? We need to be intentional about that and to build our book in such a way that we can deliver to our customers. We want to be able to deliver what we sell, right? They're the ones that pay the bills at the end of the day. And so this has to be a very integrated approach. And it wasn't as integrated, I would argue, in the last few years, that's what's caused some of our issues. So if you think about this, you can't operate in silos. So we're bringing together the operations effort, the commercial effort and the financial effort, and we need to do this across the breadth of the organization. But we're kind of starting at the top. We've got an operating committee now that has Ghislain here from finance. We've got Rob Reilly from operations. We got Doug Macdonald from the commercial side and me. And we've got lots of help, but we make -- we bring it all together, and are making the decisions around when volume wants to come on or when contracts are being renewed, what lanes, how much, at what price. Given our scheduled operation, what we need to do to tweak it, Ghis and his team brings forward all of the resourcing pieces. So when we've got this plan in place, it only works if we've resourced it properly and at the right price. So all of this only works if we do these things in a very integrated way. That's how you drop this kind of growth to the bottom line. So we're launching that through the organization again. It means as we bring this railroad is scheduled together. It means every car has a plan. Every block has a plan. Every train has a plan. There are the meets that are all scheduled. And every customer has a plan, including the local service, delivery. And as we do this, we're seeing it start to work. So as we've started actually in April after we got through a pretty tough winter. April 1, we launched the new focus on -- by starting with the big hump yards. We have 4 big hump yards, 1 in down Memphis, 1 in Chicago, 1 in Toronto and 1 in Winnipeg. And we launched with those and what we're doing is looking at -- launching the trains on time with the right blocks, making sure they connect. And we're looking at everyone that doesn't and why. And that's telling us a little bit and pieces around is it a resource issue, did the power not show up and why not? Where is it coming from? We're looking at, was it accruing issue? Was it a human factor issue? Did the volume not show up? What was the issue? And then we start -- we can start to fix what we need to fix, either it's a volume thing that needs to be rectified. It's a schedule, the plan needs to change or we need to resource a little bit differently. We've now expanded that effective May 1 to 3 of our flat switching yards. And as we do this, we're starting to get some traction. And this isn't perfect yet, and it won't be for some time. It's going to take a while. We are still coming out from underneath all of the impacts of COVID and what's going on in Europe. I think if you're going to see lots of international volume continue to swing back and forth, we're seeing some volumes and some flows that are less than traditional. So this is going to take some time to get full balance back across the breadth of the global supply chains, all of which impacts a company like ours. But we're starting to make some progress. So we got car velocity is up again. And no one's declaring victory, but it's almost up to where we -- what we put out what JJ put out in the September plan. Our train speeds have started to lift. They're not where they need to be yet, but we're getting there. Some of the issues that we're seeing on -- the more you fill up a network, the slower your trains go. And if you don't have a plan and you overwhelm with volumes, your train slow down. So we are now -- we've got a few issues in the south where we grain kind of launched a little earlier and harder than we expected. We're getting the crew base up to accommodate that. We've had some issues in the east earlier this year. I think that's kind of resolving itself. So it's come as we go, and we're continuing to tweak the plan. Our service levels for our customers are getting better and better as we go. And I have a bit of a sense of urgency to really try and get this plan worked out over the next couple of quarters or at least the next version of it because we're going to have a very full fourth quarter as the grain starts to come on. And as we do that, we need to be ready. So it's coming. We're starting to get some momentum. There's lots more work to do, and I would say it's going to take some time to do it to -- get it -- we will always be tweaking it in truth. But without a doubt, we're on the right track, and we're pretty clear on what needs to get done. I'll just say a couple of comments on [ growth ] meeting because this is the biggest opportunity and the biggest challenge growth in the opportunities are really, really strong, pretty much across all of our sectors, up 3% in this quarter. We were down in the first quarter, but that wasn't because the volume wasn't there. We just couldn't move it with the winner that we went through. Right now, it is there and it's continuing to come where it's up 3% in the quarter without the benefit of the normal grain volumes. So you can see that it's strong. I'll talk -- maybe I'll hold off on giving you an overview of all the different kind of where we think the opportunities are Ken, and let you get into your questions. But as we move forward, the opportunity is significant. We're starting with getting the railroad moving in the right way again, and then we'll lift into the growth from there.

So you hit on a couple of things, let's kind of revisit a couple of those. You talk about the staffing issue. Maybe walk us through what the U.S. carriers seem to have a big issue with that right now in terms of trying to hire as fast as they can. The Canadian operating levels don't seem to have been impacted to the level some of the U.S. carriers have been. JJ, when he announced the plan, there was an immediate move to cut employees. Are there residual impacts from that? Is that kind of what you're seeing here on the CN side? Or do you have -- you talked about hiring, is that just not as big of an issue?

When we did the restructuring last fall, that was focused on management employees. And it was a approach around looking at spans of control and those types of things. So we didn't, in that restructuring, reduce any running trades, any crews, any of our operating capability. We have been impacted over the past 2 years by COVID, as I think many have. We've lost some of our operating capability from that. And we are -- what we have seen is a tremendous rebounding in demand. And in some areas where it hasn't been traditionally as strong as it's going to be, it is now and it's going to be. So when we're hiring, it's in response to that new level of demand and a bit of backfill, continuing backfill from the COVID impacts that we've seen.

So I'm going to throw Ghislain in a question here on near term, just to knock this out, given that backdrop of the rising RTMs, traditionally, from first quarter to second quarter, we've seen about a 600 to 1,000 basis point OR improvement. I know you're not going to give us an exact number, but maybe talk about the puts and takes that you've talked about in terms of how we're trending as we're halfway through the quarter, what pushes you above or below maybe the normal seasonal impact?

Well, I mean, as you know, in Q1, we finished the quarter with an OR of 66.6%. Typically in the railroad industry, the best -- especially in Canada and with the railroads of the North, the best quarters is Q2 and Q3 because we have way less issues in terms of weather and then Q4 starts having some winter again, sometimes as early as late October, November and so on. So you should see a cadence of OR improving definitely from Q2 from what we've seen in Q1. And when you look at our guidance, and we updated our guidance, and we updated to say that EPS was going to be in the range of 15% to 20%, and that OR was going to be sub-60, starting with a 5. So if you just do the math, you can get the average of what the OR looks like for Q2, Q3 and Q4. And I think that to Tracy's point, I think that the demand is strong out there. I think that we're glad we're putting the winter behind us, and now the railroad is quite fluid and moving forward.

So I'm going to -- so you're saying nothing to deviate from that seasonal improvement that we normally see to get to your OR target in terms of that 600 to 1,000 basis points in 2Q. Okay. Great. So Tracy, you're coming into a company that kind of has always been at the forefront in our view on technology, right, whether it was the track inspection -- autonomous track inspection, the car inspection, we've gone on many tours where they've demonstrated that. What's your thoughts on kind of looking at it now as you come in, so what else is can be developed? And what else can help the company accelerate those [ costs ]?

Ken, truth is, this is one of the areas that has changed the most in the time that I was away, as I saw it beginning before I left the industry, but it's impressive what -- how this company has applied technology particularly as it relates to our operation and our maintenance capabilities. So if you look, I know you've seen the ATIP cars and others, you look at what they've been able to drive into our understanding of exactly where the problems are and where the problems will be. It's been allowed us and helped us to monitor in such a way that we can improve the safety, reduce the rail breaks. So I was looking at -- I was going to the maintenance program last week I think, at our operating community we've reduced rail breaks by 80% over the last 10 years, right? And we're putting in a lot less new track because we can be precise around where it needs with these monitoring capabilities. And so that means that we get a lot more of our maintenance dollars and you've seen our maintenance capital requirements start to fall. And we can start to shift that capital into growth opportunities. So these things are significant. You're going to see that continuing. We announced a partnership with Google, I think last year sometimes. And as we're putting our data up in the cloud, you just -- when you think about -- we have a lot of data, around what we will be able to do is we can grab that data, artificial intelligence, other ways to be able to ask questions of it. And we're going to focus on anything and everything that can make the fluidity, make our operation better. We want access to the track as much as we can. We want for safety purposes, for operational fluidity and for capacity purposes. We want to be able to anticipate what's going to happen. We want to be able to provide the kinds of information to our customers that they need. And so I think it's a really exciting part of our business now around what's going to be possible as we look forward.

Ken, maybe just to add on this, maybe a little bit of detail. As you know, with the ATIP car, for example, we're able now to review a piece of track 20x more often than what we did when we did it visually, number 1 in manually. Number 2 is we have now Gen 2 and Gen 3 technology that allows us to see the health of a [indiscernible] from underneath. And Gen 3 that allows us to see cracks in the rail. So again, we're not fully there, but Tracy and I were talking this morning as we were preparing for this, I think the holy grail, and we're not there and it needs to move and we need to move the regulator with us is that the inspection of whether our track or trains, should be all automated. If you can automate this, then you have better maintenance, you have better maintenance, you have lower accidents, better safety and lower accident costs and everybody wins from it. And that's the -- the first and foremost is safety. Economic benefits is a good side benefit, but it's safety. And we're on that journey. I think we're seeing the benefit of it. It has allowed us to reduce our capital envelope from 20% to 17% of revenue because we still are doing capacity investments this year. We're doing this steady-eddy, but it's because now it's way more data-driven than it used to be. So we're reaping the benefits. We're learning as we go. We're out of the lab, and that holy grail is there, and we're not there yet, but we need to get to it.

Just to clarify for the audience, related to autonomous track inspection, you're at 17%. Is that now a solid run rate. We've seen others that went into PSR now brought it down to 14%, some point you returned to growth. This 17% a good solid run rate any philosophical thoughts.

We're comfortable with 17%, but I want to remind everyone that the first use of cash and our capital allocation strategy has never changed in CN will be for the business. So if we have projects that deliver a good ROI, good solid return for the business, that's where the money is going to go. At this point, we feel comfortable with it. We do reassess this, as you know on a regular basis. But at this point, we're comfortable with that.

And I think we're going to have the benefit of seeing our maintenance capital spend continue to evolve and get more efficient and tighter. You'll see where we have opportunities, as Ghis says, I'm excited about the opportunities in this railway. And we're going to be able to -- this balance sheet of ours is going to allow us to respond to those opportunities. And we'll be getting organized over those in the next year or so, but it's going to be -- it's going to allow us to respond in a manner that's going to drive our growth.

Thoughts on -- obviously, your immediate thing is to fix service and kind of ran through some of those, what is your 3, 5-year vision now to -- for the railroad?

Listen, as I look at this network, and I talked about kind of where it touches all the leads for global business and traffic and trade flows, look across our breadth and our span domestically, we're going to have a lot of opportunities for growth. We're looking -- taking a close look at, and if anyone's guess what will happen with trade flows between China and North America, for example. But as those continue to strengthen, we've got [ Gem ] and Rupert that we're excited about investing more in with the right partnerships to make sure they get the right turn of capital. I think that there's going to be bigger opportunities off the East Coast as well. As you look at Southeast Asia, now we can reach Chicago competitively from the east through the East Coast of North America as they do through the West Coast of North America. That opens up a lot of options and we've got an Eastern network that has been -- it's not as dense as it is in the west. We've seen a lot of interest coming in through some of our southern ports to each cargo on an intermodal basis as well. And as we look at the trade flows and the shifts that are going on, we'll make some assessments of what's permanent and what we'll step into as we look at investing in the future and where we do that. But it's pretty exciting. And I think our network -- we're going to find that our network is very well positioned as we look at trade flows into the future.

All right. So I like the big picture. You had a slide on some of the volumes I don't know if, I guess, Paul is controlling the slides.

Paul is controlling but I can start to talk you through it.

So talk about the commodities. When we look at a second half rebound in freight, you're already positive now, I guess out of the rails, right? So or the U.S. rails where we're seeing still some negative comps. But a big part of that is predicated on a normal grain crop, just getting back to normal from this one now. What gives you the confidence with running through that?

It would be a good thing for the world, wouldn't it be a good thing for the continent for our country and there a lot of demand. And we are right now with moisture up. Now listen, I come from a farm in Saskatchewan, my family still operates. And my father likes to say to me, [indiscernible] like to get really excited about the grain crop. But so far, we've never harvested 1 before we seeded it. So just kind of before it's in the ground. But I would say that the early view is that the moisture levels are at the right level. But for the time of year versus what we've seen in last year, for example, when we had the issues, that's very positive and 1 of the most important things. A lot has to happen right from here. but I think we're starting out in a positive way. And so that gives us some optimism that we're going to have something that looks more normal from a grain crop perspective. And separate from that, I think given what's going on in Europe and there, the demand for grain of various kinds, every kernel that's in -- that gets harvested this year is going to want to move, which is going to be a little bit different given the price levels. So as I said, we need to be ready for that and being ready for that doesn't mean we've got some brand new hopper cars, we've made some big investments, 4,200 or so hopper cars, high-capacity cars that carry how much more grain?

10% more grain and 8% more cars per train because they're bulky.

But getting this running is not just about the railroad getting ready. We need our partners, the terminals, and we need our customer facilities to be ready. This is going to be very fluid and we're going to be able to respond to what is an inevitable surge that's got to happen well. So we're optimistic, hopeful for all of our sake, that this happens.

I have been to Regina and Manitoba in minus 45 degrees, so it's much better in planting season.

It is indeed.

So coal, your group has won some new and restarted thermal plants, you've got some met coal wins from tech. It's amazing. I think we've now talked with 3 consecutive rails about coal growth right now. It's just -- it's great, right? But how do you think about coal growth near term versus returning to the secular decline? I guess met might be a little bit different on tech with exports to China, but the thermal plants that have started up on your network, what's the...

Yes. I think metallurgical is a little bit different. I mean -- but certainly, all that we've read and seen over time would suggest that thermal coal. I mean prices -- this is a market that has responded to some high demand and some high prices. And so we've had one thermal mine open up on -- reopen on our territory in 1 metallurgical -- and so it's -- we have responded to their needs, and we're moving that volume coal prices are very, very high right now. I think anywhere you read or anyone you talk about things that will moderate over time, without a doubt. So -- but that's all moving in a quarter that we've got a lot of other volume and a lot of other growth opportunities. Coal right now is about 4% to 5% of our portfolio, our book of business. So we appreciate it when it's here. But if and as that thermal coal starts to diminish again. We've got some options behind it.

I was going to let you off stage without talking about coal.

Yes, I know you. Yes, I remember these conversations from [indiscernible]. Yes.

Intermodal. First on I guess, overall, you talked about kind of this wave of freight that could come from China. How ready is the rail system for this return of freight? Secondly, talk about Rupert, right? So we're going through an expansion it's kind of in July, right, you can fill us in. What are the potential there? And then we're also going to go through, right when this wave of freight seems to be hitting if it's 5, 6 weeks, right, July 1, could be the renegotiation on the entire West Coast of the U.S. ports, which means already is Vancouver to handle some of the flows, if there's some diversion. And are you seeing that already?

Well, listen, this is -- if anyone looks at one of those maps of all the vessels sitting off the coast of China right now, you know that this is going to be -- this is a bubble that's going to head our way again. And it will have to smooth because the terminals can't handle it at that pace -- and so it'll smooth off as it enters the continent again, and that's going to take some time. We've just lifted out of the last bubble that came our way. Rupert is a gem, right? From an interval perspective. But if you can talk about Rupert, you've got to talk a lot about other commodities, we'll do that in a second. Rupert's a gem, but we're being very intentional around how we build that book at Rupert. And so as all of this volume comes towards us and as the labor issue gets resolved or we get into that and we're getting a lot of inbounds on whatever capacity we may have available, we will work with our customers that we've contracted there. We're going to be very disciplined to make sure that we deliver. Where we have pieces of available capacity, then we'll find a way to get it out into the market in the right way and at the right pace. So it's going to be busy off the West Coast in a few weeks, as you say, very, very busy. We need to be disciplined. The last thing we need to do is to be flooded and that bring our network to slow everything down again. So you'll see us be very disciplined about that. There'll be some opportunities. As you said, Rupert is growing from an intermodal perspective. I think over the next 2 years, we'll be adding -- they'll be adding about 0.5 million TEUs of capacity. And if you meet with the port, there's opportunity beyond that, we're working with them on that. But I think it's a much broader opportunity at Rupert. We've got a grain facility up there. There's a coal facility. There are new facilities on propane, on liquids. I think it's going to be a big energy play up at Rupert. So we need to be very thoughtful around how we put that whole package together, what capacity we need to build to support it, and we do that in a way that ensures that we get the appropriate return on that capital.

Switching to on -- maybe I guess, looking at petroleum products, right? So how much is left on take-or-pays from the old crude by rail contracts? Or is there anything of liquidated damages still to flow through results. Where do you see that?

I think, we're finished that in Q2.

That's right, very little, very little, Ken, and we finished that at the end of Q2.

The good news is, of course, we're seeing much more demand on the crude front. I mean there are lessons always to be learned on this that was involved in crude by rail previously. And what -- as railroads we're looking for, it's the nature of our business and our capacity and how we run, we need long-term ratable business. And so if you look at the [ deal bit ] that kind of comes and goes. It's a pipeline market, tough to compete with when pipelines have capacity. So really, what our niche is more is the undiluted crude that doesn't move down pipelines, and we think that there is long-term ratable business there. I think we handle more than anybody else in the industry out of Western Canada right now, and we're continuing to grow. There was another facility that was put in place in the fourth quarter of last year, and there's more DRUs being talked about in Western Canada. This is a business that we're interested in because it fits with our profile. We can invest into it. And I think our network is pretty advantageous when we think about growth in that area.

Let me just talk a little bit about domestic intermodal. In terms of truck pricing here in the U.S., we're seeing it roll over on spot pricing. What's your thoughts on the domestic side? You talked a lot about international in terms of...

The demand is up, I mean, as you would expect it to be. I mean I think that rail is a huge advantage over truck certainly in specific distances. If you look at fuel and efficiency and emissions the rails offer a pretty attractive package. CN is the most fuel-efficient railroad in North America to about 15% more fuel efficient than the average of the rest of the industry. Now with fuel prices the way that they are, this is, of course, made rail a much more natural destination for a lot of the trucks. So we're seeing demand. You also have driver shortages, just the same way we're all struggling to get labor. There's a lot of driver shortages. So we're seeing a lot of increase in demand in our domestic portfolio. I expect that will continue, and we'll have to work it, how we fit that into our book of business and the manner that we can deliver.

Right. So we've run through a lot of commodities. Let's go bigger picture thoughts on the merger, right? So [ CPK ] issue. What from a CN perspective, as you go through the process, what do you need to protect from a CN perspective?

I think most of the work that needs to be done on that has been done, Ken. What our job is right now is to focus on getting all of what we've been talking about running. The growth opportunities are significant. And we're going to step into those. And what I know from being across on the other side of the fence is that when this place is running the way it should run, it's pretty tough to compete with. So that's what we're going to do.

Canada has operated for a long time with an open reciprocal network. We were just talking with the Chairman before about rolling it out in the U.S., what does that mean for your U.S. portion of the network?

I would say, in general, we have to be careful around that, that we don't get into an area of unintended consequences. So I think what Chairman is try endeavoring to create as a better service level for customers. But what you need for better service levels are more clarity, more transparency, more certainty. And with the nature of what is being suggested there in the reciprocal switching. What I worry about is it will, in fact, you heard him at the end of his comments talk about the complexity. It will increase complexity even more. It's going to reduce the certainty for railroad around what volumes and from where and nobody invests in uncertainty. And so I worry around that we'll have the exact opposite problems. I think the way to go, we've had reciprocal switching of a farm in Canada for a very long time. But the most powerful things that we've done and the service level to our customers, where we have constraints is worked together with our customers and with the other railroad. We have, and I expect you've seen it, Ken, probably, I know you've seen it. In British Columbia, for example, where it was very difficult to add capacity, we have a directional running zone. You all know about that. We've got collaborative agreements in place in Vancouver. If we're really serious about taking the complexity of an operation and finding efficient ways to increase capacity. These are the types of things that we'll talk about, imposing of a next level of reciprocal switching. I worry we'll have exactly the opposite impact.

I got a minute or 2 left. Is there any question. Wonderful. So if I wrap up with your message, right? So focus on continuing percentage of railroad the benefits of it, all parts of the network have a plan, you've got to get back to that plan or continue improving to the plan. You're making progress on that you need to get value for your capacity, right, fine pricing sub-60 OR from 66%. You can see that seasonality, see that great improvement, get you 15%, 20% EPS growth sustainable double-digit growth? Is that the target going forward? Is it upper single digit? Is there an outlook? What -- and then if that's a great wrap-up then what's the message to take away?

Let me tell you this. It's a great franchise. We're going to get it operating when it operates, the bottom line growth gets to be very interesting. We're looking -- as we get the railroad going, we're taking some time to start to lift our heads and look towards what's the growth, what's the future look like? I'm very encouraged. We need a little more time. We're planning to get in front of you guys probably early next year and kind of lay out what we think the growth plan looks like.

Wonderful. Thank you very much, Tracy.

Thanks, Ken. I'd like to see you again.

Appreciate it.