CSX Corporation (CSX) Earnings Call Transcript & Summary

All right. We're going to go ahead and get started with the last fireside chat on my track for today. Excited to have CSX back at the conference but here in-person with us in Nashville in 2021. Joining me from the company is Kevin Boone. He's EVP of Sales and Marketing. This will be a fireside chat format. I'll start with a few questions. If there are questions in the audience, please raise your hand, and we'll fit in as many as we can. So Kevin, thanks for being here. And maybe I'll just have you start with kind of a quarter-to-date update on the business, just high level.

What you're seeing relative to expectations, the pluses and the minuses?

Yes, sure. Certainly, thank you for having me. First conference -- investor conference in-person since, I guess, February, January of 2020. So great to get out there and be back in front of people. In terms of the quarter, we've reported our weekly carloads, obviously, every week, I would say, largely in line with expectations, with always, there's moving parts between different groups. I would say on the chemical side, probably started off a little bit weaker on the plastic side. In October, with some price volatility in the plastics market. We've seen that normalized here in November. So nothing really, and that's probably more transitory than anything. On the auto side, probably started off the quarter slower than expected, but volumes are starting to recover. So we're probably seeing some relative stability there. Still not nearly up to the levels that we would expect with the demand out there, but some stability out there. And probably a little too early to call a victory there that we're on the upswing, but certainly good to at least see some stability across some of the plants that we serve. And then on the intermodal side, I would say, in line with what we saw last quarter, domestic, given chassis issues, given the truck issues, warehouse issues, which I'm sure we'll talk about, unfortunately, remains down volumes for us, while international is significantly up. And you see the port volumes, you see what's happening out there. And we've done a great job from an intermodal network, really handling that volume, remaining fluid and are really ready here for the peak season. And things have kicked off here early on the peak season and things are going very, very well. And then finally, coal. We've seen a lot of suppliers, not surprisingly, fall down a bit here over the last few months. No surprise to anyone, probably been undercapitalized with -- not a lot of investments in these coal mines. And so that's hopefully a transitory issue. There is one large mine that everybody heard about that had some issues, and that was a major supply source for a lot of our customers. Hopefully, we'll see that one coming back online here in the next few weeks. But again, there's not a lack of demand out there. It's certainly a supply issue that's really holding back the volumes there. And we're resourcing obviously, from a labor perspective as well to catch up. It's safe to say nobody saw the volumes in coal recovering this quickly last year, and so now we're having to resource for that. Going forward, it's going to take a while for the domestic utilities to recover. That's no question inventory levels, particularly in the south, they're very low. And we're working really closely with those customers to make sure that they continue to have the coal through the winter months. But that will take a long time through next year to replenish those inventory levels. That's a quick and dirty.

Great. Well, I guess maybe from a service perspective, maybe you could give a little bit more color on how the network is performing? Obviously, some kind of broader network issues with congestion. Are you seeing any easing on that front?

Yes. I think we told the investors, the world earlier this year -- at the beginning of the year that we thought labor was a concern. There are issues initially, getting people into classes with COVID, safety concerns, those things that probably slowed down the process a bit. But we realized that there were issues out there that we're seeing higher levels of attrition than we expected. I think that's probably a more broader issue in the U.S. economy than just the railroads. The good news is versus a few months ago, that the pipeline is much, much more robust. We have a lot more in the queue to get into our classes, and we have a lot more in the classes that are out there getting qualified. So what we see over the next number of weeks, in the first quarter and the second quarter and into the back half of next year, is we'll continue to see hopefully net up our employee count to handle the demand that we see ahead in the next year. And so that's a positive. I would say I feel better about it than I did 3 months ago in terms of our ability to go out and find additional labor. And now we've got to just continue to execute and go forward. But the network, in general, has been stable. You've seen stability, whether it's trip plan compliance and other metrics. And as we bring people on, I would expect that to improve and get back to pre-pandemic levels.

Okay. Great. And then any thoughts around the timing of getting back to pre-pandemic levels? I know that's a tough question to answer, given the moving pieces with labor, et cetera, but that trip plan compliance number, when do you think it kind of normalizes?

Yes. I'm not going to get on the mic today and make promises. I think we'll see some meaningful improvement into the second quarter of next year and then in the back half of next year. We certainly have aggressive targets for ourselves that we want to hold to, and we want to move more freight. There's no question about it, but we have a good outlook. We have a good visibility to that. And we're watching the numbers very closely. We've got to make sure that our conversion rates on these new employees is very high and that we make sure that they're getting qualified and they're out running on the trains.

Okay. Great. Any questions from the audience? We'll take one upfront.

So the trip plan compliance, how much -- by the way, I'm a customer. How much of that is the better execution? Or how much of it is just extending the trip plan to noncompetitive transit times?

We're trying to take freight off from trucks and others, and pre-pandemic, what we're doing is as we got better as the network was operating more efficiently and more fluid, we would take hours off of the trip plan compliance.

Never seen that.

Yes, haven't seen it recently. I wouldn't expect you to see it recently.

But you keep adding hours?

Yes. And I think some of that is having to work around problem areas in the network where we are under-resourced and doing some of those things. We have visibility to have better labor. We want to be more competitive with truck, and so that's our aspirations going forward. And we have every intention to get back to those trip plan compliance levels that we were pre-pandemic. And what we've seen, we're about 10-point difference from where we were. And then once we get back to those levels, it is all about tightening the schedules. So it's more competitive.

I understand. I used to work for railroads, your schedules are about 24 hours longer than it used to be on Conrail. But for instance, you just announced CCX, right?

That's right.

And so you've got schedule between CCX and Chicago. So depending on the day of the week, it's either 3, 4 or 5 days transit. That's really hard to sell, and even 3 days is not truck-competitive. So how do you help us sell your service?

Look, if it's not competitive in the market, then we're not going to move the freight. And so we'll have to adapt the schedules and get more competitive. And we're looking at those things all the time. This is a very unique market right now in terms of finding resources, replenishing them, and we're not seeing fluidity from our customers at all. It's -- whether it's the auto customers, whether it's others, I think as the network becomes more fluid as our customers have more evenly -- even cadence of their business, I think that will be extremely helpful to our network and running the trains to the schedules that we want to. And then it's all about taking freight off the -- freight from the trucks. And we have to be more truck-like and transit times. We're never going to be as fast, but we have to be closer. And the reliability has got to be there as well. We realized where we need to be.

Kevin, you mentioned earlier the labor pipeline and how you've had some success on that front. But the other issue with labor is warehouse workers. Any update on kind of how that's trending in the last few months? Is it getting better or worse, about the same?

I think from the international intermodal perspective, we are seeing stability from a drayage perspective for the first time in the last few weeks. So I think that's a starting point, is that seems to have stabilized there. I don't have complete visibility into the warehouse. What I do know is the boxes remain -- they dray there a lot longer than they used to. And that's been a capacity issue for us, particularly on the domestic side. And so there's not as many boxes to put back on our railroad to move freight. And then that's been one of the -- one of the areas where that's really weighed on our growth and on the domestic intermodal side. There's no reason our business shouldn't be growing there with all the demand that's in the market right now, but it's not, and there's a number of factors, and one of them is the box is dwelling out the warehouse.

So I should read into that from an accessorial charge perspective, not much has changed in recent months?

No. I think what we said was sequentially, probably flat, and we're probably still in that same area.

Okay. That's helpful. Maybe we could talk about truck-to-rail conversions and just the level of activity you're seeing today. And as we get into next year, whatever the time is when we hit those trip plan compliance targets, whether it's second quarter or back half of next year, could there be a kind of a hockey stick move in conversion activity? Or how are you thinking about that cadence?

I don't think -- I don't view it as a hockey stick cadence. What I do know is when you look at all of the factors that are out there supporting rail moves, probably couldn't be a better environment to go and talk to a customer. As our service improves, as we get back to the levels that we were pre-pandemic, when you think about the environment, I'm always surprised at how much that leads many of my customer discussions today. You would never think energy companies, chemical companies are so focused on it today because our investors are focused on it, and they have mandates from their executive teams to deliver on that. And there's no easier solution out there than rail today, quick win, easy. And by the way, it costs less in almost every scenario. So that's easy. When you think about cost inflation for the first time, we're seeing cost inflation really tick up here. It's not transitory. We all heard that from the Fed yesterday, it's probably here to stay. And many of our customers are looking at ways to offset cost going forward. And probably, even the sales team, to a large degree, has been surprised by some of the conversations customers have been willing to have here recently around freight that they've traditionally not moved by rail that they're willing to think of a creative solution to use rail to offset some of those costs and offset some of the labor constraints they're particularly seeing on the truck side. So that's a real positive. We've got to be thoughtful on how we bring that on when we have the labor and when we have the ability to handle the additional freight, but those are the conversations we're trying to have with our customers today is tell us what your needs are, so we can resource appropriately for that going forward. I just had a conversation with an aggregate customer. They're obviously very positive, given some of the news on the bill and some of the funding that's going to be out there. Huge growth, and they're looking at ways where they're going to need to move aggregates further distances to serve markets that they probably haven't served before because there's going to be significant projects out there that are going to need a lot of volume. And so those are big opportunities for us. But we've got to think about it ahead and work closely with the customers to make sure we're appropriately resourced in the areas that we see the volume coming. The challenge has been coming out of the pandemic, we really don't see some of these areas where we saw this hockey stick in demand. Coal is certainly top of the list where we didn't anticipate that to occur. So it's -- means going into next year, having a lot more closer conversations with our customers, trying to understand where they see the volume. Obviously, we have the new variant out there. So now we're all scratching our heads, wondering what that's going to be, and what the impact could be to us next year. But we're -- we've got a resource and we've got to work with our customers so we know where that volume is. And so we're prepared for it.

Okay. Great.

On the highway conversion, H2R, and I got to give your team a high pros. They do a great job of working on it. The challenge we have is that when we go talk to someone and say we want to convert this. They'll say, "Yes, I got 10 loads a week." But to them 10 loads a week means I got 2 on Thursday and 8 on Friday, not 2 Monday to Friday. You guys are probably the most rigorous doctrine lives on PSR, which is I want 2 a day. So this is probably an intermodal challenge more than others. But how do we handle peak demand and not desire flat line service environment, if you can tell what I'm saying?

Yes. So maybe I should repeat the question. They probably can't hear it well.

That will be great.

So I think the question was, how do we handle peak demand when the customer requires more peaking demand where we want more even cadence throughout the week? And look, first of all, from an intermodal perspective, it's got to earnest keep, it's got to be -- it's got to have a financial return for us. And the reason we like that cadence through the week is it creates fluidity in our network. It allows us to manage our crew base in a way where you never want to build a church for Easter Sunday, so to speak. And you have to manage the business that way. So a little bit of it is informing the customer on how that works as well and how can we work with the customer so that you can have a more even cadence in their business. I don't know why most customers would want something where, "Hey, I'm taking all of my cars on a Friday and only 2 on Monday." I feel like there's some flexibility if we work together to even that out more. But we're going to have to be more flexible going forward as we have the workforce in place, and we're going to have to have those conversations around what makes sense from our -- financially to have a financial return on that to serve you 3, 5, 7 days a week, is a volume there to support it?

Maybe I could ask one on the pricing environment. Obviously, it's been very favorable across all modes of transportation. But could you talk about the cadence of kind of your book repricing. I think the next couple of quarters, you'll have a decent chunk coming up for renewal. And should we be expecting an increase in the acceleration of year-over-year pricing?

Yes. When you look at our book of business, about a little over half of that book of business comes up for reprices every year, where we have to sign a new contract with the customer. And about 2/3 of that will occur in the fourth and first quarters of this year. And so what I've asked the team is to focus on cost inflation. That's certainly something that we want to make sure we cover. Fortunately, those discussions are relatively easy because a lot of our customers are seeing that broadly in all across their business, and they're passing through price as well because they're seeing that in their business. So that's what we're trying to achieve. And when I look at what we're wanting to do going forward, it's a balance of volume and price. We want to obviously maximize operating income growth. Get a fair return on that. We want to reach more markets, new markets that we haven't reached before. We want more wallet share of our customer. That means a lot more volume on the railroad, hopefully. And we have the resources. We have the infrastructure to deliver on that, and we're soon going to have the people. And so that's what we're really excited about is how do we maximize operating income growth? And certainly, price is a component of that, but it's a balance. It's a balance between volume and price. And If a customer has some very good business for me, then let's talk about volume and a reasonable price to grow with you because I think, in some instances, we haven't worked as closely as we can with the customers to really drive that volume growth and think of new strategies, whether it's multimodal which I'm very excited about. Looking at the intermodal franchise, in many cases, I just spoke to a customer a few weeks ago. They -- for all the inbound materials, they use us. For outbound, they never have because they've never been really familiar with the intermodal product. And that could be a solution. And we're having conversations for the first time around that. So there's no better environment than we've ever seen where we can go in and have these new conversations, different conversations to in this environment. So it's up to us to really sell that opportunity and that flexibility we have.

So what is the right volume growth framework to think about for CSX going forward? I know in the past, you've talked about outgrowing IDP. And maybe it depends on the segment we're talking about, whether it's merchandise or intermodal and coal is kind of a unique animal. But how would you kind of frame up the longer-term growth framework?

Yes. I think you're right. We have aspirations to outgrow IDP. That's probably more closely tied to our business in GDP. But we want to outgrow the economy, outgrow the industries that we serve. And that means reaching new customers that we haven't served before, and that means converting wallet share on existing customers. And I think the pieces are in place for us to do both. And that's really the exciting part of where we are today. This year's been unique. We had the auto industry down over 20% currently volumes, and that puts a lot of pressure for us to exceed IDP growth. We're more leveraged to the auto sector than IDP is. And so we haven't accomplished that this year, which has been frustrating and then you throw in the supply chain disruptions on top of it. Those things are transitory, and those things will fix themselves, whether it's assets and trucks and other things that are ironically slowing down some of our growth in some areas. Those things will normalize over time and be an opportunity for us going forward.

Okay. How do you think about the capital intensity of growth in the business going forward? How much capacity do you currently have in the network today? And if the mix were to change and become more weighted towards intermodal, let's just say, grows faster than merchandise. What are the kind of CapEx implications around that?

Yes. When you look at -- you rewind 4 years ago, and I told you -- sat here today and told you that Intermodal was contributing to our -- as a percentage to our revenue as much as it is today, and that we've achieved the margins that we have achieved, I think people would be pretty surprised. So we've seen good returns on our intermodal growth. I expect that to continue. And that's been a good news. There's always been this conception that if you grow your intermodal, that's going to be very dilutive to your margin profile, and that just hasn't been the case for us. That's a testament to our operating team, quite frankly. They've done an amazing job of being able to add incremental volume onto the network in a very efficient way. When I think about the capacity, what the transformation that we've gone through over the last 3 years, has really freed up a lot of network capacity. We run less trains today than we did before to handle less freight, but that allows us to add more train starts back as the volume comes and do it in a much more efficient way. Rail infrastructure. We'll look at small areas where we have opportunity maybe for sidings, but these aren't hundreds of millions of dollars necessarily, tens of millions of dollars of investment, and we'll continue to invest in those things too. Along the Gulf, we've seen some robust demand and making some small investments there to add more and more capital capacity. But we feel like, from an asset perspective, we're in a very, very good place. Locomotives. We have a very good fleet. We have plenty in storage to grow into, and we continue to invest. We invest significant dollars every year in that program as well. And what we want to create is not an environment where we get to at any given year and we have a spike in our locomotive demands and have to go to the market all at once. So I think we've managed that, and we've taken a 5-year view, what do we need over 5 years and let's manage that through a CapEx plan that doesn't have peaks and valleys. Certainly, we're going to face some CapEx pressures in the next year. Inflation is one of them. No question, when you look at just the basics, lumber, rail, all those are going to face some cost inflation pressures. We're going to offset some of that with efficiencies, but not all of it. And then what is -- the good news story here is really we're finding more and more strategic investments. And they're not all around growth. Some of them are around operations and driving more efficiencies there. We did have an exercise of a number of months ago when we looked at all the strategic projects we've done over the last number of years. And what we found was many of these -- on average, these projects have very, very high returns. And we're asking ourselves, why aren't we finding more of these? And I think the team has done a good job of identifying more projects there. We'll probably talk about those a little bit more as we get into next year. But between a little bit more inflation and strategic investments, I think you'll see that number not significantly rise, but rise a little bit year-over-year.

Okay. And locomotives, you mentioned you had plenty in storage. When is the earliest you feel like you could be back in the market needing to buy new locomotives to support the growth you expect?

We have a really robust rebuild program. And I think that's going to carry on for the next few years. So I don't see a huge need on the new locomotive side anytime soon. Hopefully, in 2 or 3 years, we'll have exceeded our -- even our aggressive growth targets and maybe lead it, but that would be a good news story.

Okay. Any questions from the audience? Maybe one on technology. I know that's been an area of focus for you recently. How should we be thinking about technology investments at CSX over the next several years? And where do you see the most opportunity?

Yes. When I was mentioning the step-up in strategic investments, it certainly is focused around -- some of it is focused around technology. When I -- when we think about technology, it's -- you have the basics of keep the lights on all the things that you have to do to run the railroad on a day-to-day basis. And there's 2 other pillars that I really look at, it's the automation of the railroad and what we've really focused on over the last few years is fuel efficiency. It's the inspection tools that have huge benefits from a safety perspective. We've really leveraged that. But there's a lot of things over the next few years that we're looking at that we can do to continue to drive efficiency, improve safety, which I think are going to be very, very powerful. The inspection side has worked very, very well. What we've been able to invest in portals, other things that you'll see us continue to develop, have big benefits for everyone, including the railroaders out there from a safety perspective. And then the other, from a strategic technology investment perspective, is the customer-interfacing tools, and that's where -- that's my area that I'm focused on, and it's -- there's a lot that we can do from a technology perspective to give our customers more visibility. I think we are ahead of the market in many ways. And our trip plan compliance and other tools that allow customers to trace their freight through our railroad, but they can be a lot better. When I think about being able to go on your phone and order a truck today, we don't have that capability at the railroad and that's where -- that's what the market is going to increasingly want. And so we're going to look at those customer interfacing tools and continue to evolve very, very quickly and invest in those tools. So the customers can get the visibility, and we can attract more customers that we haven't been able to historically. Particularly the small customer, a medium-sized customer, we don't make it very easy for them to do business with us. And so that's a focus that the team is working on. And a lot of that can be solved through technology. It's -- I met a few small customers over the last year, and they -- their response to me is always, "Hey, I'd like to use rail, but I wouldn't even know where to begin." And I think that's something we need to solve for -- through technology. And those are the kind of customers we want to continue to bring on. Those are new customers. That's new freight that we haven't been able to touch previously.

Well, how long do you think it takes for the rail industry to kind of catch up to where we are in the truck industry from that perspective? I know it's a bit harder because you have a lot of interchange traffic, right? So you kind ought to be on the same page?

Yes. When you look at our revenue base, a little over 1/3. I believe this number right, correct me, Bill. It touches a Class 1 railroad. And then when you add on the short lines, it's upwards of 50%, if not more, of our freight. Our revenue touches another railroad. So you're not always in control of your own destiny. You can do a great job on your side. And if the other side falls down, the customer experience is not very good. And so that's where it's going to take a lot more cooperation as an industry to work through those issues. And technology, sharing of information, those things, there's a lot of technologies out there that are being discussed as an industry. What's the time line? My hope is, as an industry, we can work better together than we have in the past. And we have to be leaders in that. CSX does and takes somewhat of the lead to push that initiative because it's not about -- it's more and more increasingly about competing with a truck than it is with ourselves. And that's -- I think we're all realizing that's the opportunity to grow. We're a very, very small piece of the transportation industry from a spend perspective, and we should have a much larger share of that. And we've got to work as one network in many ways to unlock that value and to convert more truck.

You mentioned inflation earlier, obviously a hot topic. Any initial thoughts on inflation next year relative to what we're seeing in 2021?

Inflation will be the highest number we've seen in the last 6, 7 years. I haven't looked beyond that, but it's certainly -- there's no question, it's going higher. Health and -- health benefit cost for us, particularly in the union side, are going to be a year-over-year headwind. You're looking at pressures across all of the supplies, materials, our vendors. If you think about taxis. If you would think about taxi costs, those are going to go up significantly for us next year. And the thing we need to do is communicate that to our customers. So they understand where those cost pressures are coming. So they understand why we're asking for what we're asking, to cover some of those costs that we're going to have to absorb going into next year. But I think we have a good plan. I think a little bit higher inflation over time is probably better for us than this low inflation environment. So that's positive, particularly given that our position in the market, which what we offer is a low-cost alternative to truck. And my experience and what I believe is the customers haven't been compelled as much in a low inflation environment to consider rail, but now inflation is here. And I think we're seeing, through many of our customer discussions, that they're looking for ways to offset significant cost increases that they're anticipating next year. And that manifested the conversations and ideas that we've never been able to explore.

And so you're still confident in your ability to price above inflation as we get into next year and also take share given the inflation we've seen in truckload pricing?

We're going to continue to communicate the cost pressures with our customer, and our ability to recover those costs is something that we're trying to achieve.

Okay. Going back to the CapEx discussion. Free cash flow has been a key component. I feel like of your story, the conversion ratio has been very strong recently. Any kind of help you can give us on thinking about that free cash flow conversion ratio going forward?

Yes. For 2017, historically, I think CSX's cash conversion rates of -- we're in that 60%, 70%, correct me if I'm wrong, maybe even lower in some years. And obviously, we've taken it to that 90%-plus level. And I think aspirationally, we would like to keep it in that range. We certainly don't want to turn down on high investment, high return strategic investment that exists out there. But we're cognizant of the free cash flow is an important tool. It shows financial strength, and allows us the ability to reinvest in our business. And so we're using a lot of that cash flow to go after some of these strategic investments by -- at the same time, we're still converting a high level of net income. This year is particularly a good year because we had the Virginia transaction. So that was a big sale that added to our free cash flow. So that was helpful. We unfortunately won't have that lap year again, but there are opportunities on the real estate side going forward as well, but not as large as Virginia was this year. But we understand the value proposition of strong free cash flow conversion. The tax -- cash tax rate is going to inch up on us. Going into next year, that's more of an industrial rail. This is not unique to CSX, given accelerated depreciation and some other factors.

Okay. Coal is kind of a unique animal. You talked a little bit about it earlier, but coal RPU is a nice tailwind this past quarter. Any way to kind of help us think through how long that tailwind lasts, just based on the pricing dynamics you're seeing today? I know it's a tough question to answer.

I think the simple answer is no. On the export side, it's such a volatile market. It always seems to -- can surprise us in both directions. Certainly, a very healthy market today. I think it's going to be largely dependent on the global economy. And are we going to continue in this recovery and stronger demand environment, then I'm going to be pretty positive on export coal. If we have some existential event like another outbreak, another variant that slows down the economy, then that's probably going to weigh on coal prices just like it did at the start of the pandemic. So I -- we certainly aren't planning for this level to continue in perpetuity. Certainly, we think there's going to be some moderation in the back half of the year, but that's just a guess. What I do think is probably there's more volatility in the price from an international perspective than there is maybe the volume outlook and the volume seems to be there. We've had a new mine come online on the met side. That provides another opportunity to grow volume as long as the market supports it. And we also believe that on the domestic side, I mentioned it before, that inventory levels remain very, very low. And it takes time to replenish those inventory levels, and we think that carries well into next year. And so given where natural gas prices are today, it's very, very supportive of coal burn.

And so if we kind of look past the current coal dynamics that are favorable, I think most people would agree that, longer term, we're in a secular decline. But I also know that you've made some strategic changes within your coal franchise. So can you just talk about some of the things that you've done to maybe either slow that bleeding or offset it? Or how we should be thinking about that kind of net impact?

Yes. I probably won't get into the real strategy because you have others listening, but what we're trying to do is in a market that continues to compete, if you're a utility, you have a market you're competing in. And what we would like are -- the plants we serve is the win in the markets they compete in. And in a world where eventually coal plants will be shut down, we want our plants to be shut down last. And so we've got to think about how they compete in the market? How can we make them more successful? How can we make them the low cost provider in those markets so they continue to burn for as long as they can and as long as the market will support it. So we've been creative on the contract side to be more partners than that, and we're willing to have those different kind of discussions right now. Those haven't been as robust as you can imagine, given the demand environment right now, but we'll probably get back to that next year.

Okay. When you think about the demand environment next year, it feels like there are a lot of arrows. Is there anything that you see as a down arrow as it relates to volumes or demand as you look across your business?

I don't -- no, it's really hard to see. Other than a really tough comparison on the international intermodal, if you get into the back half of next year, perhaps things will normalize to a level that -- but that's the only thing we -- Bill and I were reviewing our volumes by segment versus 2019. And we're comparing -- first, comparing to 2019 was a year where we saw an industrial recession in the U.S., and there's very few markets that are above 2019 levels. And so that what tells me -- that tells me there's more -- what I believe is there's more demand out there than there was in 2019, yet our volumes are below those 2019 levels. And that's supply chain related largely. And so that's the opportunity for us. As we recover quicker than the truck, and I wholeheartedly believe that we'll recover quicker than the truck from a resource perspective. These jobs are still more desirable. Good paying jobs, and we're seeing that being reflected in the class sizes that we're able to attract that we'll be able to go after more and more of that volume. So that's the exciting part where we sit today. But we literally went through that exercise just a little while ago, and almost every market we serve is below those 2019 levels other than the international Intermodal and a couple of other unique markets, but we don't see any pressure on those markets either. It was more about a comparison than anything.

And going back to the strategic investments. Obviously, the acquisition of quality, the Pan Am deal under review. Do you feel like there's still more runway for strategic investments like that here in the near term? Or do you kind of need to digest those 2 deals and then maybe look at something further down the line?

Yes. I think -- we're certainly in the digestion stage. Quality, we closed on in the third quarter, and we've been very excited about the early results. I think the only thing that's probably slowing that down somewhat is some of the equipment availability. So we're working through that, and that's -- we'll see some of that start to come through in the second half of next year. But everything has played out like we thought it would, if not more demand from customers that we thought would not be early adopters have been willing to adopt at the very early stages of this. So everything is on plan and going very well. What we're trying to do is be very methodical in how we're doing and to make sure that the product we're putting out in the market has a high level of reliability and service levels. And so we're doing it in a thoughtful way. So it couldn't be gone better there from that perspective. So pretty excited about it. And what was the second part of that question?

Just a time -- I think you mainly answered it, just the timing of those strategic investments and do you digest quality in Pan Am first and then look for additions -- I guess your capacity to invest in similar deals in the next, let's call it, year or so?

Yes. I always say this, I don't have a list of strategic acquisitions sitting on my desk right now. It's important to understand how the quality acquisition came about. It was -- it started with a lot of analysis of the markets that we serve and chemicals being one of the best markets we serve, as you know. And we were looking at all the freight that was moving adverse to the railroad and asked ourselves a question, well, why aren't we moving more of it? Well, a lot of these customers we don't touch. And so how can we put a product together to reach these customers? And the outcome of that was really quality. And timing was right. There happened to be a great asset out there in the market that was available and we capitalized on it. So we're willing to think strategically and differently around these things. And if the opportunity arises, where we think we can create a lot of value, we'll certainly look at those things in a thoughtful way. I don't think we're -- I think the team has plenty of capacity to look at things, but I don't see anything on the horizon right now.

Okay. Well, as we wrap up, Kevin, as we just kind of take a step back, is there anything that you feel like is getting lost in the noise of 2021 around the CSX story? Anything you feel like the Street is underappreciating? Or any kind of closing remarks you'd leave us with?

I think I touched on it a little bit is just the secular tailwinds that our industry are enjoying, and I think we're at the tip of that with some of the things we're doing to hopefully really accelerate on top of some of the wind that we have at our back. The environment, the cost inflation factors, the driver shortages that I don't think are going away. I think you probably agree with that. I think this time is different in a lot of ways. Driver pay is not helping the supply. We've all heard that. It's probably hurting the supply more than anything. And then we're seeing early signs. It's a little bit too early to call victory on this, but onshoring, customers are reevaluating their supply chains. Is it important to have a low-cost labor where you have automation of factories, you have automation of production? Or is it better to be closer to the customers. And where we serve 2/3 of the U.S. population, which is the most valuable consumer in the world. And we're close to the customers that these companies want to serve. And so that's what I see as the opportunity. We've seen some recent announcements. Steel companies, auto companies have announced new facilities. A couple of those are on our network. Happy to see that. That's a lot of work that our Industrial group has done to get ahead of those things, and we're aggressively going after those opportunities. And I think we'll see more of it. Companies -- the infrastructure bill is going to help. Have better transportation services out there is going to increase the opportunity for customers, hopefully to relocate facilities and manufacturing that they have in Asia. The low-cost labor, Asia labor advantage is going away. It's too expensive to ship these days, and getting closer to the customer is a competitive advantage in many -- for many customers now, and I think they're realizing it. And so we're -- the first questions we ask our customers is, are you thinking about relocating manufacturing or some of your facilities to the U.S.? And if you are, here are the places you should consider that have CSX access. And customers are interested in having those discussions. So I'm not going to call it -- I can remember when I was on your side of the business, we talked about the low-cost energy, and that was going to be the onshoring event. All the companies are going to bring back their manufacturing to the U.S. for cheap energy, and that never happened. My hope is with cheap energy and the challenges that everybody has seen on the supply chain, that might be a catalyst for companies to reconsider their supply chains and relocate some business back to the U.S.

All right. Well, that's great to hear. Kevin. Thanks, as always, for the time. I appreciate everybody being here.

Thank you.