CSX Corporation (CSX) Earnings Call Transcript & Summary

Okay. Welcome back. Up next, we have CSX. We have Joe Hinrichs, President and Chief Executive Officer, presenting here today, rolling along on the transport track of the JPMorgan Industrials Conference. So Joe, I know you have a little bit of slides here to kick us off. So why don't you go ahead and do that thing...

Yes, thanks, Brian, and good morning, everyone. Thank you for the opportunity to be here. Just brought a couple of slides to set context so far what's happening in the first quarter and then look forward to a dialogue. Hopefully, we're going to have a good discussion, lot more fun to do it that way. See what's happening on volume so far. It's interesting actually. We broke this up into the first 4 weeks and then the last 6 weeks. And what you'll see is January got off to a little bit of a slow start if you see on that -- on the right chart. And actually, that third week is when the Arctic Blast kind of went through the country, and I think everyone was affected by that. But actually, what you've seen -- what we've seen since then is actually strong volumes, especially on the intermodal side. We'll talk a little bit about that. But importantly, we have a couple of tough comps from last year. To set the context, we didn't run that well in '22. So we're running a lot better towards the end of '22. And so in early '23, we were able to replenish most of the utilities in the South with domestic coal, which was why we had so much thermal coal volume in the first quarter of last year. That's not repeating. Also we got -- it was a warmer winter last year, and we got to a really strong start on aggregates. Not worried about aggregates at all. It should be a growth opportunity for us this year. But year-over-year, we're down a little bit. So other than that, what you're seeing is strong coal -- export coal demand, international intermodal coming back and domestic modal -- domestic intermodal kind of continuing on its path of progress in the last half of last year. So we feel good about where the volumes are, especially in February and March. And these slides will provide a little bit of that context. We put this together just to show you kind of what we've seen so far. This is year-over-year. This is not versus our plans or what we were expecting. But basically, what we're seeing is growing demand year-over-year so far on the volume side in automotive and chemicals. Chemicals is really important because almost entirely for the 2023, chemicals were down year-over-year. That's our largest customer segment base. So important to see that starting to grow again. Export coal continues to be strong. As I said, international intermodal continues to show some signs of life, which should be good for the year. Kind of what's -- kind of trending the same on a year-over-year basis is in the middle there. Again, I think forest products is an opportunity for us this year. I think you'll see a little bit of progress there. One we're watching very closely is ag and food for lots of different dynamics, the Brazilian crop last year and also some other things going on. Grains and feeds have been a little bit light. Fertilizer is a little bit low in production in Florida, but we should see that pick up. Not worried at all about domestic coal and minerals. Just a little bit of that comp year-over-year. So I'd say a good start to the year overall on volumes. This is something that we've been really working on. Actually, especially since Mike Cory joined us, was really looking at our train tonnage and looking at our train links. And this is a 3-month moving average. So it takes into kind of account everything that's kind of happening over a period -- time period. And what you're seeing that we're starting to make really good progress on our train tonnage, which, as you know, is really important to the efficiency of the network and importantly, also better utilization of our locomotives and our crews. I mean on any given day, if the weather isn't an issue or there isn't a major construction or a derailment or whatnot, really, it's up to our -- the constraints are our locomotives and crews. And so this is really helpful in that regard. So you're seeing significant progress there, and we should see significant progress throughout 2024. That's a big area of focus for us. Again, a 3-month moving average, so you're starting to see that really roll into the February, March time frame and hopefully from beyond. So that's all I brought. It was just a little opportunity to set the context of what's happening in the first quarter. Just a reminder, our 2024 guidance remains unchanged from what we did in our earnings call in January. We expect low to mid-single-digit volume growth and revenue growth driven by, as I said, strong merchandise. Remember last year, we grew our merchandise volume in a market that was down. So we feel really good about our momentum there. Profitability will be supported by solid pricing. We're seeing good pricing, improving efficiency like I just showed you on the tonnage and lower cost inflation on a year-over-year basis clearly, even though we do have a 4.5% wage increase for the unions this summer. And then our CapEx, as a reminder, about $2.5 billion we have. Still ongoing expenses for Pan Am, although that's pretty much going to conclude a lot, most of that this year. Really excited about the new interchange point in Myrtlewood, Alabama with CPKC, which should go into effect this year and some other projects we have going on. So -- in our return portfolio, if you will, for shareholders, our strategy hasn't changed. So you'll see us continue to do buybacks, continue to raise the dividend as you saw and we'll continue to have a good balanced approach to capital return. So that's kind of a quick summary of where we are and look forward to the dialogue. Thanks.

Okay. Maybe just one question. I didn't see train speed and dwell on there, but it looks like they've been under a little bit of pressure maybe the last couple of weeks. Is that related to the longer and heavier trains? Or is that something else been happening on the network?

No, actually, it's not necessarily -- we haven't seen it related to the tonnage. What's happened is we had a couple of pretty meaningful derailments in February that we're in key spots on dual track and double track. And so we felt the effects of that, also hit our trip plan compliance in February a little bit as well. I don't see anything in our network that gives us any concern about where we are. But we had the weather, of course, in January, but we also had a couple of key spots get hurt. And we also have our Fitzgerald sub, which is down by Waycross. Once a year, we do major work, and we're in that right now, which really slows a big part of our network down, but this finishes this week. So I think the combination of those things, you'll start to see those numbers start to get back to where they've been.

Okay. Understood. So on the heavier trains, you did obviously showed the graph, and Mike has been talking about that for a little while since he's been there not too long, obviously. Is that something you can do independent of volume? Do you need to make some more changes on the network? It looks like it's still early, but how should we think about that?

Yes. I mean our network is capable and we don't really see -- I mean there's some yards we need to do some work on, but that's kind of necessary just to get our capacity where we want it to be. Our sidings are in pretty good shape. I think -- what we've really done is we've had a new set of eyes come in and take a look at just everything. And you can see where -- in some cases, we had trains that we're running that were pretty short. And there's lots of reasons for that. But we had a chance with some of the new sets of eyes coming in and new energy to say, let's just relook at the whole network and see -- and with our marketing and sales team right with us, where will we not affect customers? Because obviously, we've made a brand for CSX on trip plan compliance and also on our customer service, and we're not obviously intending to lose that at all. And so we worked really hard on making sure that we're not affecting customers, but yet we can be more efficient. And in fact, again, as I said, when you look at crew availability, you look at engine usage, et cetera, we think we can actually be better serving the customer by running more efficiently. And we're seeing -- starting to see some of the effects of that in March. There's not really much we need to do to the network. I mean we're putting about $2 billion back into the network this year. So it's pretty sizable. And we feel really good about where we are. We do have some opportunities in a couple of yards to probably put some more track back in to give us a little more flexibility on the switching side, but it's 2 or 3 yards. So it's nothing substantial, and it's included in our capital spend.

So Mike's been there only for a little while now. What are some of the -- mentioned a few of them, I guess, the productivity measures that he's focused on. Is that something that will just be kind of an ongoing process? Is it going to reach a level where potentially you could quantify that in terms of like a dollar amount or an operational target?

Well, we still have work to do to overcome the inflation over the last couple of years, especially on the labor side. And so obviously, we're looking for efficiencies to help take care of that. But Mike and I are aligned. And when I talked to him about taking the position, he was really excited about coming out of retirement to do it largely because we're trying to do -- what we're trying to do and how we're trying to do it. And so focus on the customer and focus on employees. So Mike's been really -- if you know Mike, he's been really focused on leadership, on getting to our management of train operations, our superintendents about -- on leadership because our belief is that we have to get our employees more engaged, feel more part of the team to help with efficiency, but also, most importantly, safety and service. And so we're really focused on that and really aligned on that. So a lot of work on leadership behaviors, a lot of work on leadership, how we use data and how we have visibility to the network and transparency so we can deal with issues, but also a lot of work on some of these efficiency actions. And frankly, what I'm seeing also is a lot more collaboration between our engineering department and our transportation department on planning work so that we can be more efficient, impact customers less and also be able to keep the network running fluidly. And so there's a number of things. Every time you get a new set of eyes in with a lot of experience, you get a chance to kind of relook at things, which has been great. But our focus remains on what we -- obviously, what we branded ONE CSX, which is around our core belief that in order to serve customers better, we've got to provide better -- provide a better environment for our employees to be engaged. We don't lower our expectations for efficiency or for safety or for how -- work ethic, but we do it together, and that's what the approach we're still seeing.

So you mentioned the ONE CSX. At this point, do you feel like you're able to attract and retain the talent that was a big part of being out in the field and getting everybody back after the challenges of COVID, after the challenges of the labor negotiation, which was quite contentious. So where do you feel like you are right now when you look at the network?

Yes, we feel good about our manpower levels. It took us a while to get there, but we're pretty stable now. Our T&E headcount between 7,300, 7,400. We feel good about that. So we're not having to hire as many people. We still have to hire for attrition. Obviously, we still have attrition. But we feel good about where we are. We're seeing -- our attrition rate has slowed down. There's probably lots of reasons for that. But certainly, we believe one of those reasons is the culture we're creating and the environment we're trying to create with our employees and our union partners. The -- so we're not seeing as much attrition, both in the new hires and during the training cycle, but just overall, but we still have attrition. And that's okay. We want to have attrition so we can use that for efficiencies, but also we can also manage where the volume moves around. The -- I think the key thing for us, we do surveys every year. We actually just finished our major survey, our annual survey, is just to see how engaged our employees are and how much feedback they're giving us on how to continue to improve the network and improve the environment that they're in. So I would say it's really important to us. If you look at most -- if you look at the railroad industry, at least what I've learned is for the longest time, most of our workers came from referrals from our current workers, either friends or family. And during COVID and during that contract period, et cetera, we saw a lot of that dry up. As a matter of fact, they were no longer advocating for people to come to work here. They were telling them not to, which was worse. That has flipped because we do Net Promoter Score surveys with our employees. Would you recommend your friends and family to work with CSX? Those numbers have changed dramatically. So those are the kind of things we're seeing. And they're more likely to stick if they're recommended by a friend and family to come work here, you're going to look out for them. And that comes into safety, comes into so many different areas. So we feel good about the progress we're making, but I want to be very clear. There's still a long way to go. I mean there's still a long way to go. And our employees tell us that, remind us that, but we've made a lot of progress. And I think that's played out in some of our efficiency, but also more importantly, probably in our service. And we needed to play out in our safety numbers, too. We had probably our best quarter ever last quarter in safety, but we've had not a good start to the year, in January and February. So again, more work to be done there for sure.

Is one of the areas still to be implemented or maybe even done more on in the next round, work/rest rules, sick pay, time off, are those all sort of implemented already and reached agreements to when it comes to CSX? I know it differs quite a bit when you get on to the local level.

Well, I mean, I think everyone -- if you think about the contract, which we'll start that process later this year, I think everyone -- no one has a good taste in their mouth of what happened last time. All parties, the employees, the union leaders, the companies, and we all have different perspectives on that, but I think everyone has a bad taste in their mouth. So we have to learn from it. We can't change it, but we have to learn from it. And we have to work together. However, we have to continue to get more efficient. We have to continue to get more safe. We have to continue to work together as an industry. I think there's a lot more collaboration happening, at least discussions happening in the industry about how to make that happen. At the end of the day, the customer experience is holistic. And so if Union Pacific runs well and we have a -- they give it to us, and we don't run very well, that customer experience isn't good for everybody. And so at the end of the day, I think there's more opportunity there. When it comes to paid sick leave, we have deals with all the unions except for BLET. It's been a little frustrating, frankly. But in all honesty, our employees are in good shape, and we feel good about where we are. We were the first one to do the deals and really feel that it should be a collaborative discussion and should be a process we work together on. The industry will come together and decide on what the priorities are for the next round of negotiations, and then unions will do the same. But I don't think you'll see the same kind of contentious focus on 1 or 2 issues, and we certainly don't intend for it to last 3 years. And I don't think Congress wants us to come back. So we'll have to make sure that we do our best to make sure that doesn't happen. But at the same time, we have businesses to run. So I think it's in all our interest to find a solution that doesn't take 3 years.

Right. One of those points that was, I think, contentious and at least surprised me a little bit was the single-person crew, the grounded conductor role. I know you said the issues are still kind of being formed on both sides. But is that something you believe the industry -- the rail industry might try to pursue again because I don't know if that was particularly well received. Obviously, it was pretty contentious.

Yes, it was very contentious. It was legal and otherwise. I mean I think it was misunderstood. I mean I wasn't involved, so it's easy for me to talk about it. I came in at the end, right, after the tenant agreement would have been reached. I think there was a lot of -- I think it wasn't well understood or communicated what some of the railroads were trying to do. CSX wasn't really pushing it too hard but -- because we didn't think we were ready. But there are some pretty well thought out proposals that have been put forth about ground-based conductors as opposed to riding on the train but still having conductors to be available. I think it was largely misunderstood and frankly, poorly communicated and it became a cause to live that became a fight. And again, I think we have to work together with everybody to see what's the safest, most efficient way to serve our customers. And if we stay focused on that, we can take a look at options. Listen, we still hear from our employees, especially our T&E employees. The #1 issue is work-life balance and being stuck away from home and et cetera. And so some of these are ways to try and alleviate some of those issues. So I think it goes back to a foundation of lack of trust. And so we have to have a better level of engagement and communication going both ways. So we can talk about these issues without them being emotional about trying to draw lines in the sand. As an industry, we've got to evolve. We have to get -- for our employees, younger generation isn't going to spend as much time away from home or isn't going to spend on their holidays. So we've got -- but we have to serve our customers all year around. So we've got to find a way to listen better to each other and be open to new solutions. If we keep doing things the same way we've been doing, we're going to have the same issues. And we're 197 years old, and we've got to evolve. Same thing on technology. We have to evolve with technology. I think technology is undefeated over time. So why to fight it? You just have to use it to be better for everything. And so our industry has -- and our unions haven't always embraced technology either. So -- but again, I think the core of that is there's just been a breakdown in trust, and we got to find a way to rebuild that. We have great opportunities for people to have careers and have retirements and have a fulfilling -- our railroaders are very proud. They're very proud of what they do, but also what the role they play in our society and our economy. So at the end of the day, we got to find a solution that works for everybody, but we have to be open to new ideas. Otherwise, we're not going to change.

One of the things that is pretty clear now, the industry is definitely focused a lot more on growth. And one of the things that we've heard at least from CSX is it doesn't have to come at the expense of operating margins, which I think is sort of the perception you have either or, at least at the high level. So maybe you can walk us through like how you think of that? And is there a limitation on growth to keep the margin profile where you would like? Is it really service dependent? We haven't really seen that been unlocked. How do you view that trade-off or if you think there is one?

Yes, I think this is another area that's largely misunderstood. If you were going to add volume to existing trains, the incremental margins are substantial, whether it's intermodal or merchandise or anything. So I think that's largely misunderstood. If you have to do a train start, which ties up locomotives and crews, then you have to be able to justify it on the revenue and margin side to can you use those -- that capital in those important resources. But there's all kinds of opportunity to grow volume on our network, and I assume other networks, without having to put a lot of capital in place and to be able to do it on existing trains. So listen, we grew coal volume pretty substantially last year. It didn't affect our cost structure. We grew the automotive volume last year. It didn't affect our cost structure. It was all good for the business. Intermodal business picking back up this year. We're not having to make major investments or things. A lot of that's on existing trains anyway. So I think the key thing is you can't overburden the system and shock it so you lock it up. I mean it's all about fluidity of the network. And I'm still not even 18 months on this job, so I'm still learning a lot. But it's all about keeping the network fluid. And if you can do that and add volume, then the margins are pretty substantial. If you lock the network up, either in your switch yards or your hump yards or wherever or you don't have crews, then you're going to feel that effect. So it's managing volume in a way that keeps the network fluid, that is the challenge. And I think our team has done a really good job of doing that so far. And we don't see any signs of that letting up. And listen, at these margins, most volume is really attractive.

So on the volume front, when you look at the sort of the back half recovery, which is more or less consensus from a lot of companies to look at in the market, what are some of the things that are sort of key to CSX? And then what are some of the ones, I guess, and how much would you if you had to allocate between that market recovery versus CSX, is it the way to kind of bifurcate that?

Yes. I mean for us, the year-over-year comps get easier as you progress through the year. So even for ourselves, that's true because we had a strong first quarter last year. Some anomalies in the first quarter, we had a [ $50 million ] legal settlement that was a benefit to us in the first quarter last year plus, as I said, we had the replenishment of all the utility coals in the south and some other things that happened in the first quarter of last year. But we do believe that throughout the year, you should see some insequential improvement in the market. Automotive should be strong -- should build strong, and metals will come with that. Forest products are an area that we see some opportunity year-over-year and same with chemicals. So I think from -- I think it's -- I don't think it's unique to CSX. I think it's true across our industry. We see a path. We have to see it unfold. We see a path where you could see stronger volumes in the second half of the year. A lot of that is intermodal. Domestic intermodal continues to come back, and international intermodal continues to come back even stronger, which for us is even more helpful because we have more share of international than we do domestic intermodal and east. So I think there is an opportunity for that to happen. And I think we do have the potential for that to build throughout the year. We'll see what happens with export coal prices. They continue to be strong. It's important to us. Not as strong as they were a year ago, but they're still very strong. And that business continues to grow, and we don't see any signs of that slowing. So you can build a case where you can see -- where volumes -- as you saw, we've projected single to mid-digit volume growth this year and revenue growth. And so far, we don't see anything that contradicts that.

Okay. Well, in terms of the truckload conversion, obviously, has been something the industry is focused on for quite some time. To me, it's still a little surprising to hear that domestic intermodal has been as strong as it has been. And we've seen some numbers as you present them. So -- but we always hear the truck market is just really, really weak. And obviously, being a Eastern railroad, you think that would hit that -- hit yourselves a little more significantly. So what is it that's driving that growth? And just in general, how do you feel about converting and keeping freight from the highway?

Yes. I mean, remember, we own a trucking company. So Quality Carriers, it's about a $900 million revenue trucking company, so it is pretty sizable. So we get to see that end of it as well. I'll say a couple of things. First of all, rail has advantages over truck. Even in this market, we're still lower cost, almost -- especially in the longer haul, and we're better for the environment. And there's all kinds of other benefits that come with that. And what you've seen is a lot of the IMCs have been pretty aggressive, bringing some of that work back on. And you've seen some of the retailers do their own in-house work and start to grow their intermodal business, which is good. So you've seen some of that, the Amazons and et cetera. So that's been good to see as well. When you look at the trucking business overall, they've also -- they had a shortage of drivers. Now they don't. They had shortage of chassis. Now they don't. So -- but a lot of this is contractual. A lot of this is set up as contracts, and a lot of it is set up as a routine. And so you get in that mode that works pretty well. I think as an industry, we need to continue down this path. We need to do it efficiently. We need to do it, where we don't chase volume, which will -- to a point where it starts to negatively affect margins significantly. But there's still a lot of opportunity out there. And when the next cycle comes, I don't think it's going to be easy for truck companies to get truck drivers again. And so we have an opportunity in the next cycle, I think, to pick up even more volume when that happens.

So when we speak to shippers, obviously, CSX' service has been quite good for a while, the first one to get off the STB's list and screens well from the Journal of Commerce survey. Are people -- are shippers really willing to commit more volume at this point? Or is it like, well, this is nice. We've seen this for a while and come back to us when you've got a couple more quarters?

I would say we've been able to see some benefits from it clearly. We've had a couple of instances with some major customers where we've gotten longer-term contracts than we would have historically, which is good. And that's on the back of they believe that we care about service now and that we're delivering better service. We've won some business on the automotive side and some other things that we didn't have. So that's been progress as well. Every customer is in a different place. Everybody has to have a different experience. And I remind people that while our services improved and we've become much more stable and we've delivered better service, we're still a long way from where we should be and where we could be. And now we're really focused on the outliers, bring the distribution down because there's a lot of -- there's -- if you're a couple of hours late, doesn't really change -- most of the time, it doesn't really change the customer's business. But if you're a couple of days late, it could. So we're really working on the outliers. There's still a lot of those, too many of those. So until we get a lot of that under control, I think you're going to -- it will still be out there that, yes, 90% of the time you're on time, but that one time you missed, if you missed it by 3 or 4 days, that really hit us. We don't forget those things, right? So that's still a challenge for the industry and for ourselves. But by and large, our customers have been very complementary. They've been very supportive. We've done a lot of sessions, whiteboard sessions and whatnot with our customers on how we could take a look at their network -- their logistics network and how can we be part of that. And those are the kind of things you can -- you get to do once you build trust and build a relationship that people believe you care about it. I was a customer for a long time. You can't get that out of me. I talk -- every day, I talk to our employees and our team about that, about how we -- if we want to grow, we have to provide better service and so really focus on that. But the fascinating thing about this industry that I've learned and observed is, the best way to serve a customer is for the network to run well. The best way to control your cost is for the network to run well. So they're not in conflict with each other. As long as you're not shortening the trains or adding more days of service than the customer really needs, those are things that have been done in the past sometimes. But in reality, if the network runs really well and you focus on serving the customer, most of the other things take care of themselves. And so that's -- to the question itself, we still see lots of opportunity. And -- but we're getting a lot of good feedback from our customers. Obviously, the STB has had some good things to say about us, but there's still a long way to go. I mean the bar historically in this industry, on service, has been pretty low. And so we got to keep raising it.

So on the slide you showed earlier, I think it was the end markets versus year-over-year, not necessarily versus CSX and your expectations. But coal's obviously a big factor for all the railroads, including yourselves. Natural gas price is still pretty low and not [indiscernible] soon and export coal is still relatively high, but it's showing a little bit of softness here recently. So I don't know if those 2 domestic and export, specifically metallurgical coal, how do those markets look relative to sort of what you're expecting going into this year?

Export coal continues to be strong. And so we came into the year expecting it to be strong. It's still strong. Prices are holding up. So I could see a scenario where export coal is positive even to what we expected for the year. Thermal or domestic coal, our expectations are pretty well what we're seeing. While natural gas prices are low, there are some minimums with all the utilities because they want to maintain, obviously, the network and maintain the capability for us to deliver coal, export. Thermal coal has been picking up a little bit. So I'd say, though, again, we're not even 3 months into the year, but there's a chance that total net coal could be a positive contributor this year to what we were expecting. Again, we'll have to watch the met coal prices on the export side. That's probably the most important impact to that. But volume-wise, everyone that we talked to says they expect a strong year for export coal, and we're seeing that.

So the industrial pipeline or industrial development pipeline has been a big focus for CSX and the rail seem like they're using -- trying to use their land holdings a little bit more strategically in the long term. So I think you said you're looking at potentially 1 point of growth from merchandise this year from this pipeline, which obviously takes quite a while to build. Maybe can you give us a sense in terms of like what that is? And then some of them seem like they're EV projects or things tied to electric vehicles that have been probably going the other direction and with the Rivian plant being suspended. So does that have any impact?

Yes. I mean the highest profile ones are the EV plants in the Southeast, but there's over 500 projects that are underway on our network right now. The Ford plant outside of Memphis and Stanton, Tennessee is under construction and nearly finished actually. You're right, the Rivian plant has been suspended. VinFast still planning on building their plant in North Carolina. But importantly, there's so much industrial development work happening in the Southeast. We're fortunate to be located there in the lower Midwest. That's where the majority of a lot of this activity is happening in the United States. There's a lot happening in Texas, too, but obviously, the scale of Southeast is even more. And so we feel very fortunate. So yes, there's a couple of high-profile things that may get delayed, but in actuality, all the other projects are moving forward and more are coming every -- almost every day. So we feel really good about that. Whether that 1 point or 2 of revenue is this year or next year, you have to see how all that plays out. We see some of that coming online this year, which is a great aggregate, things that you don't really talk a lot about. There are some big metals projects, et cetera. So those are all progressing nicely. And I think, we feel really good about where we are. If the EV volumes end up being lower or getting pushed back a little bit, it's not going to dramatically affect our business and what's going on in industrial development. We have about 1,000 sites across our network that's mostly smaller. We work with states to be ready. The bigger sites are harder to find, obviously. And we're working hard to make sure we get more of those, so we can have those ready for big projects. But all those little projects add up, especially if they connect directly to our lines and add to existing trains. So we're pretty excited about it. Our team has done a great job. And again, we're blessed because a lot of the activity's in the Southeast where we're strongest.

So I think the other one I'll ask about is just the partnerships. It seems like the industry is more willing to work together. And so we've seen the Meridian & Bigbee. Obviously, it's more of a transaction that still needs to be approved. But are there more of those that can be done as you look across the broader North American network? And are these really targeting, again, truckload conversion?

I think so. I hope so. I mean obviously, the new interchange point with CPKC, we expect the STB to approve that this year. [indiscernible] do that, but we feel good about that. But I've shared with you publicly my view on this. I don't -- Norfolk Southern is a competitor to us. I don't view the other railroads largely as competitors to us. There's some overlap with CN in a few spots. But generally speaking, it would be better for all of us if we work more together. Jim and I have had a lot of conversation about Union Pacific is the largest merchandise on the West. We're the largest merchandise on the East. How can we work better together, same conversations with a number of other railroads. And I think it's in the industry's best interest to continue to work better. If we can provide better service and work better together and work on projects together and not get hung up on who has the longer part of the haul and who's getting more of the revenue, I think on balance, it'd be better for all of us. And I see a change in the industry in that regard. Even in my short time here, I think that's a good change. I think it's an opportunity for all of us. With the margin structures in this business, when we can work together as an industry to grow the volumes, it can create a lot of shareholder value and also create opportunity for our people and for, frankly, the economy. So what an opportunity we have. And I see a lot more good collaboration happening certainly with us in the Western railroads on projects, on trying to go after some business or truck conversions or other things. And I think that will continue. I think there's a real desire to see us elevate our performance together. Again, we're not in direct competition with BNSF or UP or even CPKC. And we should work together, and we should be better partners. And we should expect them to be better partners so we can work together to grow the business. It'd be better for society, better for the economy, better the environment and better for our businesses. And so that's the approach I see people taking, and I'm encouraged by that.

So we have -- excuse me. Sorry, so we have a regulatory panel coming up next. Maybe we can close with just your thoughts on firstly, East Palestine 1 -- a little bit over 1 year later, what are some of the ramifications we should still be thinking about implications of that incident. And then I think the last thing on STB's docket, that seems meaningful, at least for the near term, is the shippable switching. Obviously, there's still rulemaking that's going on, but the industry has been heavily involved in that. So maybe some thoughts on those 2 to close this out here.

Yes. I mean I think at the end of the day, on their typical switch, we're not afraid to compete. So if the metrics are service -- customer service, I know at CSX, we're happy to compete and provide -- try to provide better and better service. Obviously, devil is in the details. You got to make sure the measurement systems and the targets and whatnot are practical and are measurable and fair. So a lot of that is in the details. We'll see what the STB rules. But so far, they've -- the triggers have been based on service. And so I think that is something we can hopefully work around and work with in service of our customers. In general, the regulatory environment, we need to continue to work together with the FRA to advance safety technology and technology overall to advance the industry forward. There's lots of technology that can help us. So we need to continue to work together on that. But at the end of the day, the STB has really been focused on customer service. And as long as we stay focused there, when we all get better, we can -- I think we can work together to make things happen. Obviously, we'll see what the panel has to say, but our view is let's compete.

Okay. Well, we are out of time, unfortunately, but Joe, thank you very much for taking your time. Appreciate it.

Thanks, guys.