CSX Corporation (CSX) Earnings Call Transcript & Summary

All right. Good morning, everyone. My name is Tom Wadewitz. I cover the freight transports for UBS. It's a pleasure for me to welcome you to the conference. And also to have CSX with us today, we have Kevin Boone, who's the Head of Marketing for CSX and looking forward to his comments on markets and all the great things happening at CSX. Kevin, thanks for joining us. I don't know if you want to make any initial comments, and then I can just kind of jump into some questions. Happy to take questions from the audience. You can -- I think the easiest way is submitting through the app, and I can see them. I think we can do raising hands as well. But Kevin, thanks for joining us. And yes, go ahead.

No, incredibly excited to be here. A lot of exciting things that we're doing at CSX that I'm sure you've heard about that I'm sure we'll get into in our conversation today. As we look at the market today, a lot of cross currents, a lot of uncertainty in the macro environment. We're pretty proud of what we're doing, consistent with our guidance with low single-digit RTM growth this year despite some of the headwinds that we see. IDP growth is expected to be down this year. So all in all, with our merchandise business leading the way along with coal and intermodal, obviously, has been weaker, but we've seen some stability in that market. So really proud of the team. Really proud of what the service side has started to do that we've seen this year, and we're really leveraging that with the conversations with our customers and seeing a lot more responsiveness and willingness to think differently. So we're at the really beginning of this endeavor. A lot of strategic initiatives underway. I'm very excited about that can create, hopefully, a very attractive growth algorithm as we look out through the next few years.

Yes. Great, great. How do you think about as things have been developing in second quarter? What's been a little better than expected, a little worse? How do you think about kind of the volume side? And anything we should be aware of in terms of the cost side as well?

Yes. We have our weekly carloads. I would say nothing that's been unexpected versus what we thought coming into the quarter. I would say coming into the year, versus our expectations as merchandise has been stronger and intermodal has been weaker. And we'll take that trade-off all day long given the economics of both of those businesses. And with the merchandise business being 2/3 of our business and very good for us. So that's the main focus of where we want to grow. Intermodal will come along. We're very confident. We just got named by a publication as having the best intermodal service out there. So as that business returns, we think we're going to take advantage of it and outgrow the market is our expectation. But nothing -- a lot of strength in the aggregate side of our business. Automotive has continued to perform as we thought it would. You remember, in first quarter, we did have a little bit slower start, but we've seen the auto manufacturers get through their quality issues and some of their supply issues. And we're seeing those -- that market really step up, which is a big driver of our merchandise growth this year. On the flip side, chemicals continue to be weak. Maybe you have seen some stability in that market. My hope is that a lot of the weakness has been driven by de-stocking. And so as we get into the third and fourth quarters of this year, we'll hopefully tick back up to what the demand levels are because I think we're underrunning demand to where it currently stands today. And then you'll probably remember as when we started end of the last year and probably September period is when I think we saw a lot of the weakness starts. So we get the question a lot, do you think we're going into a recession. And from my perspective, we've already been there for about 8 months from our business and some of the order activity that we've seen. So we'll start to lap that as we get into September, October and particularly on the international intermodal side and some other parts of our business, which hopefully will provide some opportunity just from a comparison perspective.

So if you look at -- in the merchandise area, you've had some segments that have been particularly strong. Do you think that, that can sustain? And how far forward do you have visibility typically into those markets?

I think what we're doing in terms of our ability to go and capture share is going to build on itself, as we have more and more discussions with customers with our industry-leading service, I'll call it industry-leading because it is right now, all the statistics support that. So a lot of these initiatives only started early this year. We've only been able to start these conversations as the service improved as we've had the manpower to handle new business. So I expect that to continue to accelerate. We have a number of initiatives we're working on that go across the board, working with Class I's and creating more opportunities, working with our short-line partners, industrial development, we'll start to see that more as a '24 and late '24 and '25 story, but some of those things will continue to build on themselves going forward. So a lot of positive momentum. Do I have the macro outlook for the back half of the year? I don't. I think there's a bit of uncertainty out there, but we've seen a lot of stability in the markets over the last few months. So nothing is on my radar that suggests that we're in a declining environment at this point.

What about on the intermodal side? I think that's been an area where we had seen weakness develop. You referred to September, I think the imports were started to be weaker last fall and have continued to be weak, obviously, the truckload market has been softer, too, that has a direct impact on domestic intermodal. So how do you think about the -- are we in a bottoming process? It kind of seems like demand is not likely to get weaker. But maybe the question is, well, what's the expectation for when things improve? What might make things improve and what might be the timing? So how are you thinking about intermodal?

Yes. Just on a pure comp perspective, it does get easier in the back half of the year. So on a year-over-year basis, I would expect some improvement late third quarter and the fourth quarter, if nothing changes in terms of run rates today. My hope is we are in a de-stocking and we're underrunning demand to a certain degree. And I think that's been proven out with some of the retailers and what they've reported in terms of their inventory levels and trying to draw those down. There is a little bit of optimism in terms of blank sailings that we're seeing less of those from an international perspective, and that's going to be key to what we're seeing as well. So I would say we did see a bottoming out in late first quarter, early second quarter. And now we're at this run rate and where we hopefully can take a step up from here if things settle out and the macro picture continues to remain steady.

What about peak season? What are -- I know it's a little bit early to have much visibility, but any thoughts on the way customers are talking about seasonal lift this year?

I think it varies on what you talk about. There is some optimism out there. There is -- but then you can talk to the next customer and they'll be more skeptical about the outlook and more cautious. So I -- it's hard to tell right now. Again, as we get in the peak season last year, it wasn't exactly a robust peak season for us, so the comparison does get a little bit easier there.

Right. Okay. Great. You mentioned a little bit new industrial activity and the hard work your team does to get industrial development on the railroad. How do we think about the next couple of years, how manufacturing investment in the southeast or other parts of the network can provide a lift to volume? Like what types of customer segments, what areas of the network, do you see the opportunity? And how far out should we look to see some of that volume begin to show up?

Yes, it's pretty broad-based, and it's when I look at it and when we talk to customers, a lot of it is a result of what we went through during the pandemic. I think customers now realize the resiliency of their supply chain is more important than maybe saving a few dollars -- importing things from overseas. And you've seen some investments start to take place. And we've got a number of projects that are coming online. We put a good little slide together in our last earnings presentation that highlighted some of those things. A lot of these take 2 to 3 years to build, and particularly the larger facilities, whether it's the auto side or the metal side, where we've seen a lot of activity, battery plants, those things can't be built overnight, but we see a lot of line of sight as we get into late '24, into '25 and '26 where these facilities will go online. And I think what's important maybe what's not fully understood is we generally can participate in import volumes sometimes it's going into some of our markets, so we get a move when that happens. But when you have a manufacturing facility that locates on us. We get not only the inbound product in many cases, but we can have the outbound as well. So that's why it's such a good trend for us to see these sites being located on our network. We're seeing a lot of activity in the Southeast, as you can see from our chart that we had in our earnings presentation but it's pretty broad-based. Midwest, probably less in this area, but there is a lot of activity going on, and we're really capitalizing on it. My biggest issue and what we're working on right now is replenishing the inventory of select sites that we have to offer customers. They want to go fast. So when they make a decision, we're seeing they want to put shovels in the ground within weeks, which is very, very positive. More successful we are, the less inventory we have. So we're really working hard to build out more sites and have more opportunities for customers.

Right. Okay. How do we think about the [ share ] Impact from some of the volatility that your competitor, I think I've certainly had investor questions that say " Okay, is it a risk to CSX that maybe they've had some business that's come over to them." Is that more of an opportunity that they've had this strong service product and the competitor has had some challenges. How do we think about that rail to rail dynamic in the East?

Yes. Every conversation we have with our customers is not about moving volume over 2 to 3 months. They want to have the confidence that our services are going to be differentiated over the long term. And I think we've differentiated ourselves, obviously. This year we were doing that in 2019. Had some struggles during the pandemic. But it's really resonating with the customers. We're not in this environment that's interested in bringing over short-term opportunities. We're more interested in developing long-term relationships. And growing together with some of the customers. So I don't -- I haven't seen major shifts occur because of whether it's East Palestine or some other issues. It's because we're being able to go into our customer with a differentiated service, with a great team that has great relationships and build on that momentum. But really, the area that we're focused on is on the truck side, and we've said this over and over again, and we're just at the beginning of seeing some of that opportunity really start to manifest for our growth. And you're seeing it in the numbers. It's hard right now with some of these markets down significantly like chemicals and other areas, but we are winning wallet share. Now it's very early. And we're very early in this process, but we are able to have those conversations that, quite frankly, weren't occurring last year with our inability with the manpower issues to take on more volume. And so this will -- we expect it to gain momentum. Some customers want to see more than 3, 4 or 5 months of good performance. They'll tell me, let's wait until the end of the year, and I want to see it continue to progress. And I have every expectation that our service with Jamie and his team will continue to get better as we get through the year and that will only give us more ability to go out there and sell. But it's -- we're focused on expanding the addressable market, how do we reach new customers and win share with existing customers. That's really the big, big opportunity. We go head to head with our eastern peer every day. And we'll continue to compete on that level. But the big prize is obviously all the freight that's not moving on the railroads today.

Let's talk a little bit more about the wallet share opportunity. I think you had pre-COVID, you had some maybe early momentum building with some of the carload customers where you could -- you got 30%, the trucks got 70%, you can bump that up to 40%, 50%, 60, whatever. It seems like with strong service pretty much so far this year, full year in '23, you've got some opportunity. Your merchandise volumes have been good. So how would you help us to calibrate in terms of where you're at today? And the how much opportunity you can capture second half this year or next year? Is that pretty significant? Is that something we have visibility and just some thoughts -- more thoughts on the wallet share comment?

Yes. We think about our growth a lot. And certainly, wallet share with our existing customers is a huge part of that, we believe, something that we haven't traditionally been able to go after for a variety of reasons. And we think that we're seeing some early success. It's relatively small at this point but building on it -- you know the pipeline is -- we look at the pipeline every week, and our -- and sales force and these opportunities are building. We've had data that supports that. And it's really leveraging the service right now. And it's hard to quantify. Every customer is different. We have one particular metals customer that comes to mind where they do very little rail today, and they want to take that rail share up to 60%, 70% and they're making hundreds of millions of dollars on investment to do it in new facilities that are going to be on our railroad, on our network and really putting on dollars behind it. So it varies. Some customers are going to have significant opportunities. Others are going to have -- you're going to have to whittle away at it every year and get 2% to 3% more of their market share over time as you prove to them that you're consistent and you can be trusted with the most valuable customers. There's some customers today that just aren't willing to put some freight on the railroads to go to customers that are very, very sensitive on on-time arrivals and things like that. And as we get them more comfortable with what we're doing, as we provide the tools that we're working on and more visibility, I think that's going to help us.

Right. Which customer segment do you think provides the most opportunity for that wallet share gain? Or is it across multiple customer segments?

Yes. I don't think there's one that stands out versus the others. It's pretty broad-based. I've highlighted the metal side, we're seeing probably some opportunity there. I would say on the packaging side, that's another market where -- comes to mind quickly. And then on the chemical side, particularly what we're doing with quality carriers, what the ISO tanks, we believe there's a large opportunity there. It's going to build over time. We've seen those volumes continue to tick up through the year. What we've done in January. We're doing significantly more than -- so that's building as we get the equipment in as the customers test it. So that's a program that we think over the next few years can build and very excited. And we're looking for other partners. We don't always need to do it ourselves, go at it alone. How can we partner with some of the warehousing folks and others to really build an ecosystem around the railroad that [ doesn't ] even exist today.

Great. Let's see. So just as a reminder, if anybody from the audience has a question, you can submit it through the app or just I think there's a QR code on the table you can use as well. Do you want to do that or go ahead and raise your hand, it's a modest-sized room here. Happy to take up questions. Actually, here we go, we got one in the back.

Yes. I think the magnitude of the recession because I think mild recession, some of our -- that's more consumer facing some of the even though we've seen some of the parts of the chemical business down significantly like plastics, there's other parts that are very stable. When you think about things that go on to your daily lives of what you're using water supply, those things, those chemicals that we ship around fairly, fairly stable. I haven't -- I don't have a great number off the top of my head of what that would look like. But I would look at some of our end markets today and what we've been able to do from a volume perspective, particularly on the merchandise side, and they've been very, very stable despite some significant downturns that we've seen. Intermodal is obviously the more sensitive one, and we've seen that with international at times being down more than 20% international intermodal. It's come back from that. So we've seen some improvement there. Coal, as you mentioned, depending on the summer heat and how cold it is in water in the winter on the utility side is more outside of the macro factors, but the international business on the met coal side could be obviously cyclical depending on the global macro environment and what China, India and others are doing from that perspective. But it's a mixed bag. There's many parts of our business, which we'll continue to see stability through all macro cycles and then other parts that it can be very cyclical.

If we turn a little bit to the network operation and just the resource level. So the railroads U.S. rails had some challenges, I guess, probably second half of '21 through '22 you had some good traction ramping up later in the year and then I think that's really come to fruition and network operation this year. How do you think about where you're at in the crew staffing level, if you want to go further or if you're about right, and how do we think about the kind of plan for the service level that you want to deliver relative to where you are today?

Yes, we've been clear. We still think we're probably a couple of hundred short of where we would like to be ideally. And it's my job and the team's job to continue to go out and find opportunities so we continue to hire. But where we are today, we're in obviously a much, much better place than we were a year ago, and you're seeing it with our service levels, but we have opportunities on the network where we're still seeing some shortages. It's more strategic, as Jamie would tell you of where we're kind of targeting. We're not hiring everywhere at this point, looking at the locations where we're short or we think we'll have attrition given retirement ages, things like that and really taking a proactive approach and going after the markets where we see growth. So it's critically important that we're communicating where we're seeing incremental opportunities that we're hiring ahead of it. As you know, it takes about 6 months to train a conductor. So you can't just turn that on immediately if you see additional volumes. So we've got to be tied very closely with operations about what we're going after, what new business exists, where we see the lanes that potentially could see upside, so we're hiring ahead of it. And we're doing -- I think we're being a lot more thoughtful about that process now than we have in the past. So that's an opportunity. And it's -- it's all about creating the resiliency. So when things recover, that we can participate in because as we know, the railroads have had a difficult time participating when growth has surprised to the upside, and we want to be prepared for that because the opportunity cost is enormous. And I got to see it firsthand during the pandemic. I don't spend a lot of time thinking about how much revenue we lost, but it's significant, hundreds of millions of dollars on an annualized basis that we probably lost as our railroad and probably much more than that when you aggregate all the railroads together in terms of lost opportunity. I think we're all thinking similarly that we want to capture that. And it's about maximizing profitability through the cycle, creating real resiliency in your workforce. And the incremental cost of this is very low when you think about an extra 100, 200 conductors and engineers that you have to retain to make sure you're ready to capture that growth when it comes.

How do you think about the impact of some of the changes you're making with labor. It's been a pretty clear concerted effort by Joe and by the team to improve quality of life, I think, and improve the relationship with labor. Are you seeing some signs of positive development with the employees and how do you think some of the things you're doing differently with labor affect the, I guess, productivity of the workforce as well?

Yes. I think the level of excitement is pretty incredible to see in a short period of time with Joe joining us. It's -- you can -- when just walking the halls, you can see the level of excitement out there. And when you look at -- and Joe will remind the team of this all the time, we don't make anything. We don't make cars. We don't produce anything. Our product is our service. And if you don't have an engaged workforce out there that will go the extra mile for the customer and do those things that really create a great experience for our customers, then you're not going to differentiate yourselves in the market. And I think that's -- we're at the very beginnings of that. but we're seeing small instances of that happening that probably wouldn't happen next year. And then this is not an overnight fix. There's a lot of work to be done, and we've spent a lot of time as a leadership team under Joe's leadership to really work on those things and think about them, how to -- what do we need to do as a leadership team. We're going to have a town hall again to share some of our survey results and what the leadership team proposes we should do around those. So very excited about that. And -- it's -- when you have a more engaged workforce, it's -- they're more excited to bring new ideas. They're more -- they feel more empowered to take the appropriate risk, go out and find new opportunities for us. So that's -- we're at the very beginning of this. It's a momentum you can feel it is building. So it's fun to walk into the office every day.

How do you think about network capacity and I think that you're probably sitting with plenty of terminal online capacity, but you're optimistic about growth. You grow for a couple of years, 3%, 4% a year. Where would the potential constraints from an infrastructure perspective, align or terminals show up in the medium term?

Yes. When you look back at the '17, '18 period, there were a lot of train starts that were taking out of our network, and we're running essentially the same amount of volume through it. So that in and of itself has created a tremendous amount of capacity on the rail network through the transformation and the scheduled railroading transformation that occurred. When we talk to Jamie about the network in general, we're fortunate with all the investments that occurred prior to 2017, double track on our main corridors. So we really benefit from that. We did see some congestion in the Southwest, but we made some significant investments. RSA, not significant, but some investments in sidings over the last year, 1.5 year, that will pay dividends and allow a lot more capacity through those corridors. And that was probably the bottleneck that the operations solved as the most pressing. But beyond that, there's not a lot of other areas that we talk about. And so we feel pretty good with the investments we made in the Southwest. The network is prepared to take on a lot more volume as we really grow the business.

How do you think about opportunities with other railroads? I think there has had some discussion last night about Mexico and the opportunity for cross-border? And what does CPKC, does that create more focus on capturing business that runs truck that could run rail and some of that could come to you. Where do you think are maybe the biggest opportunities for if there are new services or new increased focus, where you work with another railroad and you can generate new business.

Yes, I think it's a great thing that there's this renewed focus in the West on Mexico because we can participate in that, whether it's all of the western partners that we have and if there's a renewed focus to go in and sell that market, there's opportunities to bring it into the -- into our network, and we're going to work with all of them to do that with our differentiated intermodal services that we have today. I think some opportunities from an international perspective with the East Coast ports outgrowing the West, we'll continue to see opportunities for that. For Inland ports to grow, but also to push further west as manufacturing shifts away from China and you have other sources, you'll see more activity coming to the East Coast than -- they're developing and they're spending and spending billions of dollars of capital when you go to Savannah and you go to Charleston and other ports on the East Coast and we're going to participate in that. So that's a huge opportunity for us as well and to work with them on that going forward. We talk about -- there's a term called watershed that's thrown around a lot, and that's, I think, something that we can tackle as an industry as we're all focused more on growing the business. Sometimes, we can't get out of our own way in terms of trying to figure out who's going to provide a car? Are they making a little bit more money than I am on the move? How do we split the economics. And I'm hopeful that we're at the stage where we can get through some of those barriers that, quite frankly, have heard us from growing the business where I want our peers to make good profit. I want to make a good profit and good return on what we move as well. And so how do we eliminate some of those barriers that have occurred in the past operationally and from a sales and marketing perspective. Steel wheel solutions through Chicago on the intermodal side as we build density can create a more truck competitive product. So we're looking at those things. But there's a lot of lot of different ways where we can interact with not only our Class I partners, but our short lines, and we're doubling down on those efforts with the short lines as well. There's -- that's the market that should outgrow our basic -- our base business. When you look at all our short line partners that interact with our railroad is a significant part of our business today, and we want to help them grow. And there's a lot of industrial development projects that are going to go on the short lines as well, and we want to help them participate in that and leverage it as much as we can. So a lot of activity, I'm hopeful. We all got to get our service up to a certain level because our service -- it can be fantastic in the East or very good, but it's -- the end result is that they have some disruption along the way. It doesn't help anybody. Our customers look at the service through the total move. And if it interacts with another railroad that's struggling today, they're not going to view that product is very good. And so we're very supportive of all of us continue to improve our service and go after the truck share and expand the market for us.

We'll do another check if -- please raise your hand if you have any questions from the room. Happy to take questions from the audience. Great. Go ahead.

Yes, I think the question was kind of our outlook on CapEx given some of the growth process that we see. I think what I was trying -- my point earlier was I think we have a core network that doesn't need a lot of incremental investment to grow the way we think we can grow from here. Now of course, if we saw tremendous outgrowth in one particular market, we might have to make some incremental investments in our intermodal terminal and things like that. Those are typically tens of millions of dollars or single millions of dollars investments, not hundreds of millions or billions of dollars of investment, and that would be a good problem. That means we've far exceeded what our plan is and... But what we see over the next 3, even 5 years is we've got a network that we continue to maintain. We spend -- we continue to invest in it, so we can have the service that customers demand and we can grow on it. We have the ability to add train starts if that's supported by volume out there, and we have a lot of capacity on existing trains today. Tremendous amount of capacity, particularly on their intermodal network, given we're in a weak part of the cycle.

Kevin, we haven't really talked about pricing. Let's maybe spend a minute on that. I think -- so we had a recent session with Union Pacific and they talked about inflation dollars, continued conviction inflation dollars exceeding -- pricing dollars exceeding inflation dollars and then also framed it that they thought inflation might be a bit less this year versus last year. I think you've spoken about it maybe more optimistically that peer pricing might accelerate this year. How do you think about pricing last year, pricing this year, kind of some of the key drivers of that?

Yes. I think -- so let's just probably separate in our merchandise business, which is 2/3 of our business, any given year, you're repricing half of that business. And as we all know, inflation came faster than anybody expected. And so when you look at some of those contracts that were existing, some contracts are 1-year contracts, some are 2, some are 3, as those come up for renewal, it's certainly a different environment today than what we had in 2021 when some of these contracts were negotiated. And so our customer through that period of time, realize a lot of price. And so I think the expectations are aligned. They expect us given some of our labor contracts and what has occurred in the market that we need to cover our cost and so those conversations haven't been difficult. We're also looking at ways where how can we -- we're not just looking for price, we want to grow with our customers as well. And so how do we create a partnership around that. They certainly understand our need for covering our costs, but there's a lot of other opportunities to create value together. How can we spend their assets quicker. So they don't have to spend as much capital, and that's a huge opportunity for us. If we're the best operating network out there, we're spending their assets faster than anybody else. And that that's less CapEx they have to spend, and that's the value that we can share with them. So it's a holistic conversation. I don't see anything that has changed in the last few months given some of the macro concerns out there that -- there's still this understanding that we need to cover the costs that are coming. And we -- it's a very visible union agreement that we have out there, and we'll take another, obviously, wage increase in July, and we need to cover those costs and the customers understand that.

So how do you think about -- you talked a little bit about the inflation that you incur and then you have some multiyear contracts, so it takes you a bit to recover that with customers. Does some of that carry over into 2024 and provide support for pricing in '24 as well?

Yes. I think if you look at it, if you're -- let's say, we have a contract coming up next month, you'll get some of that benefit through the rest of this year but that will carry through to 2024 as well. So we'll see some of that in the multiyear agreements that we've had. Obviously, there's multiyear commitments in terms of price, and that will carry through over a multiyear period. So I don't think there's necessarily a -- we're looking for a further acceleration into 2024, but it's still a very, very healthy environment.

Right. How important are the escalators sometimes get the question of, okay, [ All-LF ] looks stronger or RCAF looks stronger. That's a read to rail pricing. But I guess, my intuition is it's not -- it's like a moderate amount of your book that you're going to have actually directly tied to those escalators? How do you think about how meaningful those escalators are and how good the REIT is to what pricing your book is going to be?

Yes, I think that's right. It's a moderate portion of our book. Typically, you'll have min and max's. So in weaker a inflationary environment, you'll probably be more at the minimums of whatever that contract looks like. And then, quite frankly, in some of the scenarios that we saw over the last year, you're probably hitting the max on that. And so we probably didn't see as much upside as you could have if there wasn't a min-max structure to it. I think it protects your business through the cycle. We're not going to take down rate given some of our, obviously, year-over-year, we're going to feel some cost pressure from our labor side, in particular. So the structure has worked really well for us over time. We have tremendous opportunity to leverage our cost base, too. And so volume is very, very important from a growth perspective and incremental margins are very, very strong. And I don't want to understate that. So as customers -- it's a holistic conversation if a customer is willing to give us more market share or wallet share of their business that they have traditionally moved on truck, that's a different value proposition, and we're willing to have that discussion around what is that in that environment, what does price look like? And on the base business, but how can we incent that to occur and we're having a lot of success, I think, in those conversations.

I'll check one more time if there's a question from the audience. If so, please raise your hand. We -- another topic we haven't touched on really is coal. I think it would be helpful to get your...

Great topic.

Yes. I mean it's a good business, right? Maybe some thoughts on revenue per car, how we ought to think about the moderation in the, I guess, say, the Queensland met coal price index that that's come down some. How do you think about the timing for the effect on revenue per car and how do you think about both outlook for utility demand and export demand as well?

Yes. We obviously saw an incredibly maybe a once-in-a-lifetime met coal market last year, hopefully not once in a lifetime, but prices went to levels that I don't think anybody expected, and we participated in that. So some -- there was cap so we didn't participate in all of the upside. And so we have a more difficult as we get in the third quarter year-over-year comparison there. So we will see year-over-year, particularly on the met coal side, some downward pressure on the RPU. But the flip side is the market remains incredibly healthy. These are very, very supportive prices. We're seeing investments. As you know, are aware, there's an incremental mine that's coming online this year in our network, where hundreds of millions, billions of dollars have been spent. So there's a lot of smart people that are making investments on the met coal market. I see a long-term opportunity with a lot of hundreds of millions, if not billions, of dollars behind it. So that makes me optimistic on the outlook there over the long term. So several new projects coming online. So we think from that perspective, we could be up volume, but obviously, some RPU pressure as we get into third quarter. Some of our -- the majority of our contracts on the met coal side kind of reset on a quarterly basis. So they'll look at the end of the month going into the next quarter and the prices will set on that. And to your point, we would see some -- we expect some sequential declines as we move from second quarter and the third quarter just based on where the met prices are today. But as we know, the markets can change very, very quickly and we'll adapt, but we're pretty optimistic. On the thermal side, more impacted, obviously, by the domestic business, but we do have an international business. And we expect if we see some more mild summer, that some of that production will get pushed into the international market, which is good. It's good to see the capacity being accounted for on the international market. So we've got to -- with our advantaged port access, including Curtis Bay, we think we can participate in that if the market starts to shift to more of an international market versus where it is today.

Do you think it's appropriate to consider some sequential lift in total coal volumes just given that the Allegheny mine coming online is or would you say, well, that might be absorbed with softness in other parts of the coal book?

Yes. I don't -- at this point, that's probably it's probably too early to tell on that. Allegheny will ramp up slowly, and there's some other opportunities. But we always see some disruption, some mine having unexpected outage or things like that. So it's a very dynamic market, month-to-month, quarter-to-quarter. So not we're not out there guiding for sequential uptick. I think it's an opportunity. We'll see how the market plays out.

Okay. And in terms of the utility base that you have, do you have visibility to that being stable for a couple of years? Or are there any kind of closures or anything that we should be mindful of?

No. I think we see stability over the next few years in that market from what we know today. It's all about increasing the utilization of some of these plants that we serve and how can we advantage them in the market. It's going to come down to the summer and winter. I never vote for hot summer in Florida because it's already hot enough, but we'll see if that plays out. And then obviously, the winter will be a big impact as we move into next year. But we have pretty good visibility through the rest of the year. It's more '24, we need probably some of these inventories to be drawn down with either a hot summer or cold winter.

Right. Okay. Great. I think we're right at the time. So Kevin, thanks so much for your time, for your insights. We appreciate you joining the conference. Eric, in the audience as well. Thanks for joining us.

All right. Thank you.