CSX Corporation (CSX) Earnings Call Transcript & Summary

Good morning, everyone. Good morning. As CSX is grounded in safety. I'm going to first give a quick safety briefing. If for any reason, we need to evacuate this space, please first be conscientious of your safety buddy. That's the person to your right for those in the end of the aisle. That is the person to your left. In the case of an evacuation, we will go through the same doors that we entered. We will cross through the breakfast area, and we'll convene there in the green line across the way. We do have the CSX police department here who are able to assist in case of any kind of medical or other emergency. Second, you'll note that in our presentation, we contain both a disclosure on forward-looking statements and on non-GAAP. Please review as you can. And then finally, I'd ask you to all please check your phones and electronic devices to make sure that they are either switched off or silented. With that, I'm very, very proud to welcome our President and CEO, Joe Hinrichs.

All right. Thank you, Matthew, and good morning, everyone. I'll be brief. I want to take you through the agenda today and also get started. Just a reminder, we're going to tell our story today, and a lot of people are going to help -- going to help tell us for us, both here in the conference room or in this center here and also on the train. So, well, you're going to be joining onto the train, your going to be a pretty fun exciting ride. We are going to share some content with you on the train. So that's the forward-looking disclosure. Hopefully, you read it all on the non-GAAP. And that's the new guy. And here's today's agenda. And so it's in your books. By the way, Sean's presentation is not in there yet, so don't start looking. We'll get that to you when he starts to present because he'll be distracted. And we have some exciting things to talk to you about. First, Kevin and the marketing and sales team are going to talk about what we're doing, our strategies for industrial development. And of course, all the customer engagement. Hope you enjoyed last night. We both had Peter and Chris talk about their experience with CSX as customers. Then we had [indiscernible] talk about their experience with CSX as a partner on industrial development, all key components of what we're doing here, and we'll have to talk more about that on the customer service side on the train ride. Kevin will wrap that up. We'll take a break after that. And then we'll come back in. Mike and Casey, are going to talk about our operations, a really important part of our business. Of course, the opportunity we see, the capacity we're unleashing and the opportunities to get more efficient. Then Sean will take you through kind of some financials and some views on value creation, where we're going. We'll do a Q&A with us up here on the stage, and then I'll summarize things. We are going to stay on time because we need to get -- we have a trip plan compliance to hit today and we need to get the train to leave on time. On-time arrivals and destinations and departures are important. So we're going to get you to the train on time, so we can get you back on time for those of you to catch your flights. So it's going to be an exciting day. We're glad you're joining us, and we're glad you're all here. And let's get started. We have chosen this as our theme because we want to emphasize all 3 points. One that we have a proven operating model. We have a great team. You're going to hopefully experience all of that today. We have momentum. We'll talk about that. And of course, what we're aspiring to and what we're going to deliver is profitable growth. Both of those words are important together. You know that, I know that, and we're excited about this journey with you. Okay. Let's get started. [Presentation]

All right. Thank you, Joe, and good morning, everyone. I'm incredibly excited to be here this morning, especially with this team up here on stage and -- there are many others on the team here in the audience and many, many others listening in. In fact, there's a couple of listening parties at HQ today. So we have a lot of initiatives you're going to hear about today. And it's an outcome of a lot of work by a lot of people. And I think we would all agree here on stage. It's really a privilege to be able to present a lot of those ideas, a lot of the hard work. It's taken years to establish the pipeline of opportunities that we have today. So we're really, really excited about what we have to present. Now when we think about the opportunities and when I think about our growth story, really, there's a few key things I want you to take away from today. One is our service. And you heard a little bit about it from our customers last night. Service does make a difference. Service creates opportunity, doesn't necessarily beget growth, it begets opportunity. And what we think about that is the team has to go out and capture that opportunity, and you're going to see a pipeline today of those opportunities. We have a lot of confidence in what Mike and his team are doing. They're not only delivering the service today, but they have opportunity to deliver a service that's going to differentiate us in the market in the future. And so we're listening to our customers, and we're adapting and we're listening to our customers and delivering solutions that meet their needs. So first, service, it all starts with service. Second, we have a record pipeline of opportunities and the team is going to share with you what those opportunities are. Hundreds of initiatives over the last 3 years that we've been working hard on. And now, over the next 3 years, we're going to deliver on those opportunities, whether it's industrial development, whether it's modal conversion, whether it's thinking about new ways to reach our network, those are the things in the pipeline that we've built and the foundation for growth ahead of us. And the third thing is before you ask, we're going to deliver this growth very, very strong incremental margins. Sean is going to talk to you a little bit about our fixed cost base and how we can leverage that. But also, Mike was going to talk to you about the capacity we have on the network. Those opportunities to grow, to really leverage that when you take out of route miles, when you take out train starts, that creates capacity for us to grow as a network. So let's talk about growth. And when we look at growth, there's really two major factors, two major drivers of that growth. There's the economy and what our customers are doing. And quite frankly, we haven't had the wind at our back when you think about some of the markets we serve today. We do think there's cyclical opportunity, but that's not going to be the focus of the conversation today. When you think about the trucking market, that opportunity in intermodal is going to be there as the trucking rates recover, and we really deliver on that and not only accelerate the opportunities we're seeing today. Even on the merchandise side, modal conversion, you heard about it a little bit last night, as trucking rates recover, those conversations become more robust. And the customers are more inclined to have those conversations with us. We have markets like housing, auto, steel, that obviously have been impacted by interest rates and other factors. But we believe they're underrunning normalized demand. And so we expect that to recover but we're not trying to put a pin in them and tell you that it's going to happen next year or the year after. But we'll participate that when -- we'll participate in that when it comes. What we're here today to talk about is those initiatives that we can control and that we can -- that we drive. And really, we look at 4 major buckets when we think about it. The first one is industrial development. And I can tell you from our experience, there's nothing more powerful and nothing more incremental to CSX value proposition than a customer spending tens, hundreds, billions of dollars in investment in production that touches the CSX railroad. And what I can tell you is we're seeing a sea change. If you think about the last decades, we've seen industry leaving our network every year, and we're having to overcome that headwind. What we see over the next 3 years and beyond is that will now become a tailwind with industry coming back to the U.S. and is a huge factor in our growth outlook. And we're seeing not only our large customers engage in that -- in those projects, we're seeing the small and medium-sized customers also investing as well. And Christina will talk about that a little bit more. Growth with our existing customers. You heard about this last night, there are opportunities and they're accelerating. Based on our service, we're able to deliver, based on the things we're doing, the conversations, the strategic thinking that we're able to do. Our operating team coming to the table with our sales and marketing team and really coming up with solutions to deliver that. We believe there's a sea change there as well and our ability to engage in those customers. Emerging Industries. When you think about the traditional emerging industries, you think maybe the battery technologies and you think about renewable fuels, and Arthur will talk about what we're doing in those areas where we see a lot of tremendous growth for our network. But there are also industries from our perspective that are emerging in terms of their opportunity to utilize the rail network. Waste, for instance. In the Northeast, we're running out of landfill space. So that waste is having to move further distances, and we're finding solutions that meet those demands. The aggregate market, we have an advantage. We serve the Florida market. The Florida market is in the deficit today. So we're having to serve that market through longer distances. Georgia, Alabama is now starting to serve those markets. We're seeing great opportunity partnering with customers to develop new solutions on the industrial development side and also on modal share conversion. So huge, huge opportunities that we see both in these 3 areas. And then finally, we're going to go through some significant investments CSX has made. And we're finally at the forefront of really converting those investments into future growth. So the baseline has been set and the investments have been made largely. And now is the opportunity over the next 3 years really capitalize on those investments. So let's take a look at the map and where those investments are. So if you think about our network today, we touch 2/3 of the most valuable consumers in the world. It's where freight wants to move to. And we have the triangle that connects our network, connecting the south to the Northeast to the Midwest. When we think about investments and what we can do, is how do we utilize this strategic asset to really deliver new solutions to our customers. How do we reach new customers? How do we provide new solutions? And one of the things we talk a lot about is truck conversion. And there's a lot of opportunity, obviously, on the intermodal side, and we all know about that. And we're leveraging our best-in-class service to really go after that market. But there are also opportunities on the merchandise side. There's two initiatives that you have heard about. One is our transloading business. So when you think about transflo we have dots all over our network, and we continue to add dots at a low incremental cost, often utilizing existing capacity and track to create new solutions. So if you think about markets like agriculture and forest products and chemicals, we're able to combine the truck with rail to reach customers that don't physically touch the rail network today. It expands the addressable market for CSX, and we've seen tremendous growth from this initiative. We're continuing to find markets every day as we collaborate with customers to really identify where there are opportunities to expand. And as I mentioned, that has a very, very low incremental cost to CSX. The other opportunity we found as on Quality Carriers. As many of you know, we made an acquisition 3 years ago. Quality Carriers serves our largest market, which is the chemical market. Not only have we gained great insight into how freight moves today, we've also introduced a new product, the ISO tank that is now utilizing our intermodal network the most efficient, most reliable Eastern network and that's out there today. And what we found is we've invested in these -- even in a challenged trucking market, and we're seeing customer uptake accelerate. Two of the largest chemical customers out there have tried that product in the last 12 months and now we're adopting it. And what we've seen is when we convince the customer to move their freight from truck to the ISO tank product, that the stickiness of that relationship has stayed there. And so if you ask Randy, the hardest challenge has been to get in the door, but we're now getting in the door, and we're having the largest two customers adopted. So we're very, very excited about the growth that, that can drive. Next, when you think about it, and I mentioned this before, a big opportunity for truck conversion is inland ports. And Maryclare will go in this a little bit more, but it's efficiently moving product from the ports into our network, taking trucks off the highway in a very, very efficient way. We put dots on the map, as you can see, but we have future plans for more growth. And the great thing about this is it's our partners making this investment. And we're there to support them with the rail service. And finally, the Pan Am, MNBR, and Howard Street Tunnel. The Pan Am as you know, was an acquisition we made. And quite frankly, the state of the railroad at the time that we made it was not in a good shape, and we put significant capital on it and Mike can tell you, now that railroad is up to the service levels that we expect and that our customers expect. And what we're seeing as we're increasing the velocity of that network as we're increasing the reliability, the amount of opportunities coming our way are significant. We expect our growth in the New England region based on the investments we made, and we have not realized those growth opportunities yet, and we see those really materializing over the next 3 years. The MNBR, as you may have known -- as you know, we just announced -- the STB announced the approval of that acquisition or that transaction. And so we're incredibly excited to work with our partners at the CPKC to create a link from Mexico and Texas into our Southeast markets. Think about Atlanta, Florida and other areas of opportunity for us. We see tremendous truck volume moving in those lanes today that we're going to convert to rail in a very, very efficient service. So we're incredibly excited that will ramp up into the next year, and we'll continue to find opportunities as our service comes online. Howard Street Tunnel. Of all these investments, this is the one that we're making next year. And the exciting news is we thought we had to do it over 3 years. We're going to do it in less than a year. So this team is incredibly excited to be able to capitalize on those opportunities it creates. And Maryclare will go in depth on what that means for the network, but it basically opens up the last corridor that we need for double stack capability, in the markets now that we will be able to reach post this transaction are tremendous and are going to provide a lot more opportunities for our customers to grow. So when you add it all up, obviously, a very, very significant opportunity that you can see at the bottom, 600,000 to 700,000 carloads. We expect to capture a lot of that over time. A lot of it will come in the next 3 years and beyond. But we all expect that pipeline of opportunities related to these investments only to grow from here. And then when we look at -- and finally, before I hand it over to Christina, our go-to-market strategy, we think a lot about how do we segment our customers. And so if you look at the left-hand side of the chart, we have our top 100 customers, and you can see the growth rate that we've experienced related to them. And hopefully, you saw some of the initiatives from last night, where we're working with them through white-boarding sessions and having those strategic discussions around investments and other things where we think that growth trajectory is going to be much higher going forward with our top 100 customers. Then we have a huge tail beyond that, 2,500 customers that represent the tail in the all other category. In CSX, we made some investments in our regional sales team and our go-to-market strategies, how do we go out and identify that business and those customers? They might be small customers for us, but they're very, very large customers with a lot of opportunity that, quite frankly, haven't engaged with the railroads in a long time in some instances. So we're investing in our team. We're investing in technology because there's -- when I -- every other week, I talk to people about rail service and inevitably somebody will say, but it's too complex for my business. It's too difficult to manage. We don't have that capability internally. What we're doing is we're creating the solutions, not only investing in our customer solutions group and Shannon's team to deliver that bespoke opportunity and be able to walk them through the opportunities, we're also delivering technology that makes experience seamless. This is how we're tackling those customers, and we see a much higher growth rate opportunity with those in our pipeline that you'll see from both Arthur and Maryclare and those businesses. So as I spoke about, industrial development is a huge piece of our growth story. And I know on earnings calls and other things, we've really highlighted that opportunity for us. And I can tell you, it expands across almost every market we serve. And so with that, let me hand it over to Christina to walk through.

Thank you, Kevin. So I'm Christina Bottomley. I'm a Vice President of Business Development in Real Estate. I appreciate you all coming down to Florida. And for those who are joining the webcast, thank you. I've got a lot of great questions from you last night, and hopefully, I'll answer some of them now. As Kevin mentioned and I know it's no surprise to anyone, but we've seen a ton of investment happening in the United States. And so what I want to bring -- walk you through here today is what CSX is doing to capture this investment and create a competitive advantage. So we have a best-in-class industrial development approach. Our team is field-based. In fact, you met one of our partners, [indiscernible] last night. And what that means is we're boots on the ground, and it's about having a seat at that table for when that customer calls us. We work with local economic developers, landowners, utility partners. And our shop provides a full suite of services. So when you think about it, it's everything from site selection, we actually do the site design in our team, the customer contract and we hold that customer's hands, they have one point of contact from the very beginning until that first railcar is moved. That's key. And this muscle memory makes it so that we can put in service, meaning cars are moving on CSX. Every single year, we put in about 100 projects a year. It's an amazing muscle memory we're creating here. So when we looked at where all the investment is happening in the United States, as you can see here by this heat map, it's heavily concentrated in the Eastern United States. And that brings me to our first competitive advantage, which frankly is just our network. It's amazing when you look at where our network is, we're perfectly situated to capture this investment. And it doesn't stop there. We connect to over 240 short line partners that double our network. So if you see the green lines here, that means we're not only able to capture more projects, but CSX gets the benefit of that linehaul revenue. Now we're working over 500 projects right now. It's up towards about 540 projects. And I get a lot of questions because you hear buzz about the Southeast. Is this just concentrated in the Southeast? Well, if you look at the red dots on the map, we have projects spanning from Maine to Miami, from Chicago down to New Orleans. We have them all over our network. And I did want to highlight a few customers. This year alone, these are some customers that we've won. And you can see they're varied in terms of size, but also location. Now in just a minute, I want to walk you through how we win these projects. And a big thing are those rail serve sites. You can see here, blue dots on the map. We have over -- we have almost 1,000 properties in our inventory, and [indiscernible] talked to you through this a little bit last night that were constantly trying to land a customer on and marketing to our customers, and this number is growing. So speaking of our select site program, we do something that is very unique to the railroad to create a competitive advantage, and it is definitely very unique on the Eastern Coast. And that is in partner with industry pros. So you met with DD, GLS last night. We also partnered with Austin Consulting. And the whole point of our program is to eliminate risk, eliminate uncertainty. So if you think of a project you have, the project can span years. If I'm coming out and I want to do a big manufacturing plant, and I'm looking for a piece of property, and you tell me, sure, you can have this property, but it's going to take 3 years to get environmental entitlement zoning. I'm going to pass on it. That's where this program is helpful. We start our work years, sometimes a decade prior to even getting that first customer phone call. And by working with these consultants, they're able to help us identify issues with the land, remediate them and continue this pipeline of shovel-ready sites. And we also partner coaches with the property owners, so that they understand what they need to do to make their site more marketable and it's, again, creating this pipeline. Another competitive advantage we have is our team. So I mentioned this a little bit. When a customer comes to us, they get 1 point of contact from the very beginning to when that first carload is moved. That's we've been with our engineers. We have site design engineers sitting in sales and marketing, sitting in our industrial development team. And that's extremely beneficial because not only are they thinking about how to build the rail to be operationally efficient and safe, but they're thinking of future expansion. Everything we're doing here is about trying to get to market as fast as possible. So when a customer comes to us and says they want to expand, we've already done the work when they originally came to us. And so the expansion goes far quicker. And again, it's about bringing carloads to the railroad faster. So with that, we talked a little bit about Novelis last night, and I wanted to show you a quick video. [Presentation]

So I thought I'd highlight our most recent win with Novelis. This is the biggest project in Alabama's history and the most expensive. We talked about it a bit last night. It's coming in at $4 billion. Novelis is building an aluminum manufacturing plant, and they're going to use recycled cans. They plan to recycle 15 billion cans a year, and this will create 1,000 jobs. This is a prime example of why our select site process is important and how it's successful. So we got this project just like we get many others, we had no idea who the customer was. We only knew the industry and some of the site requirements. It actually came to us as a code named Project Skyfall. And within 1 quarter, we landed them on a CSX site, 1 quarter. And the way we did this is with our Select Site program. We had the land -- they're taking down about 3,000 acres. It's going to take a lot of power and electricity to have this work. And that's the power of our program. We have sites like this so we can win those customers, win them quickly and bring carloads to the railroad. This project should bring thousands of carloads over the next few years. And even better, this is just one project. I mentioned that muscle memory. We're doing this over and over and over again. So I already talked to you a little bit about how our projects aren't concentrated in terms of geographical location. That's also the same in terms of industry. And I think this is what's really making our program sustainable into the future. We do see trends. You saw the EV trend for a bit. We see trends in the industry. Arthur is going to talk a little bit about what's happening in the construction industry, and that's where you see this pop in minerals. But because of the diversification in our portfolio, we're not only able to address those trends, but this has a long runway into the future. So I know the question on everyone's mind, what does this mean in terms of carload growth? Over the next 3 years, we expect to add 150,000 to 300,000 new car loads from this program. If I look at projects that we've already won or we expect to win, we're very close to signing that contract, 200,000 new carloads. Now if I look at our full pipeline and what we expect to win based on historical levels, that's another 100,000 carloads. And even better, this is just our known pipeline. Every year, we learn of new projects that are not included here. So this number could be much larger. And Arthur is going to talk in a minute about all the other merchandise opportunities. This is a piece of that bigger opportunity. So if I look at natural attrition, that's going to add 1% to 2% incremental carloads every single year. That's what gets me excited about this program. So with that, I'll turn it over to Arthur.

All right. Thank you, Christina, and good morning, everyone. My name is Arthur Adams. I have responsibility for our merchandise carload and our transflo business units. I'm excited to be here today to talk about our vision for leveraging deepening customer relationships, to unlock growth potential. The last few years have been transformative at CSX in terms of our investment in service reliability and growth. Our teams are at the tip of the spear every day. Listening, learning, understanding the customer's pain points and then working samely with our operating team to deliver solutions. And when done well, I'll show you examples of how our customers reward us for those opportunities. Our merchandise carload business has been an integral part of the value equation for CSX and will continue to be a viable component as we move forward. And so before I talk about the future, I'd like to give you a brief overview of the business and talk about some of our recent performance. So when you think about the carload business at CSX, it represents roughly 60% of our freight revenue, and it truly is a cross-section of the industrial economy and the consumptive economy. Each of the sectors that you see represented here has unique attributes in terms of service expectations and in terms of growth potential. Our role at CSX is to ensure that our solutions maximize the value that each of those opportunities represent. And when done well, we win, as you see in the results. Since the fall of 2022, we have led the industry, our primary competition mode truck and eclipse the industrial economy in terms of growth. There's no coincidence. It's a lot of dedicated sales and marketing professionals, operating professionals, customer engagement team, working closely with our customers to meet them where they are and capture opportunity. Now I'd like to talk about some of the key elements of our go-to-market strategy. But before I do that, I'd like you to hear from Mike Segal with Sappi paper. [Presentation]

Now you probably saw some exuberance in Mike's voice. But I can tell you, the first time we sat down 3 years ago, it was a very different conversation. So for context, Sappi Paper is the largest customer on the former Pan Am. Kevin talked about the investments that we've made in hardening the infrastructure. Sappi was at a crossroads. They were in a decision cycle where they were looking to make a decision about whether or not to advance their proposition around supply chain efficiency with rail or truck. Thankfully, we were there at the right time. And so we went to work, developing KPIs, making commitments, honoring those commitments and earning back that trust. You heard him use some combination of collaboration, investment, trusted partnership more than a dozen times in 90 seconds. And I think that's emblematic of what we're hearing from the broader sentiment of customers that we're interfacing with. For those that were with us last night, you heard firsthand from both Chris Burn and Peter Anderson about their experience with CSX. This is real and is sustainable. And so I'll talk about a few key elements of our strategy, starting with resourcing for growth. Whether it's investing in technology, rolling stock, hardening the infrastructure. All of these are critical elements to ensuring that our customers and our ability to align with them and meet their demand enables us to grow. The second component is modal conversion. The two elements, sustainability and the economic advantages of rail, are unbeatable. Now granted, we've seen some headwinds more recently because of the softening truck environment. But we do have examples, and you heard this last night from Peter of modal conversion. So we feel good about our prospects longer term as the market recovers. And then we talk about network connectivity and reach. You heard Kevin talk about Pan Am investments that we will make in MNBR to unlock entry points across the southern tier of our network. We doubled the investment in our Transflo network, 47 terminals across the Eastern U.S. that enable our customers to advance their reach into markets where they may not have real capabilities today. And then finally, we can't take our eye off the ball. We must defend the existing book and then engage customers that a onetime use rail, and this is the power of our regional sales team. So we have a geographically dispersed team that's knocking on doors, engaging that long tail that Kevin talked about, more than 2,500 customers, welcoming them back to rail. Still work that needs to be done there, but the prospects are promising. All of this is anchored against safe, ratable, reliable service. And so I'd like to showcase a few examples of opportunities in emerging markets where we see promise for growth, starting with our Minerals business. So if you think about some of the favorable tailwinds that we're seeing in the industrial space as it relates to IIJA funding, some of the secular trends that we're seeing in demographic shifts across the Eastern U.S., particularly in the southern tier of our network, coupled with the unprecedented investments that we're seeing in the industrial space as we see a resurgence and reinvestment back into the U.S. It's a perfect recipe for opportunity, as you see in the overall construction spend projections. And so in particular, our cement in our aggregates market is where we are seeing significant opportunities for growth. I'd like you to hear from Bill Corcoran with Heidelberg Cement, as he talks about co-investment with CSX and the power of future opportunities that will unlock together. [Presentation]

So a few factoids about this facility is located in Mitchell, Indiana. It's the second largest cement production facility in North America served exclusively by CSX. Post construction, production output at this facility, nearly quadruple. You heard Bill talk about some of the delays in the start-up, it's something that occurs from time to time. And customers often get anxiety about whether or not the rail road will adjust their plans to adapt to the customers' expectations. And I will tell you that we were there. Casey Albright, who you'll hear from later myself and an army of other folks, we're talking with Heidelberg daily about their startup plans, the delays. And by meeting that customer where they were, it opened the door for future opportunity, you also heard Bill talk about that. And so they have a series of other nodes across the Eastern U.S. where we are working on conversion opportunities. Some of these opportunities have already been realized. Some of these opportunities are in flight. But the prospects are bright, and we're really excited about this opportunity because as they grow, we grow. Now I'd like to talk to you a little bit about some of the great work that's taking place in our regional sales team, and it really starts with our agricultural and food products business. This is our second largest business unit within the merchandise portfolio, generally grows commensurate to the consumptive economy. But there are a few green shoots, one of which is renewable fuels. Based on the regulatory environment and demand from some customers for less carbon-intensive fuel sources. What you see in the light blue bar graphs to the growth potential opportunity across North America as you think about feedstock equivalents. It's roughly 140,000 carloads of opportunity. Some of the feedstock sources are animal fats and renderings, used cooking oil, but also soybean oil. In the event the soybean oil is one of the primary feedstocks, there's a 4x multiplier in terms of soybean by product, and that's used for protein source for lifestyle. So I'm betting on the soybean oil because of material in terms of the growth potential for us longer term. Next, you'll hear from Anthony Pellegrino with St. Paul Commodities, as he talks about the power of education and value creation. [Presentation]

I think this is reflective of meeting the customer where they are; listening, learning and growing together. Our aspirations are to move them from that 2,500 to our top 100, and they have the growth potential to do that. And so not only are they expanding in rail infrastructure, they reimagine their supply chain. We have a seat at the table we are influencing how they think about rail in the context of their overall supply chain needs. They've converted from primarily truck to rail as a result of these conversations. And the future is bright. And so you heard him use the word trusted adviser a couple of times in his commentary. How do you make that transition from being a supplier to a trusted adviser? Well, the engagement strategy that we've used is really what we call whiteboarding sessions. I call it the art of the possible. And sitting down with customers, decision-makers with no predetermined outcomes, understanding their pain points, developing very specific targets around growth, executing, celebrating those successes and then starting that virtuous cycle again. We have an industrial waste customer, and we are now in our third iteration of whiteboard sessions and we've unlocked several thousand opportunities -- carload opportunities for growth, not insignificant. And so we touched around 45 customers to date since we started this engagement a couple of years ago. Our goal is to target 30 to 40 customers a year, and the payoff is significant. We believe that we can generate 50 to 100 basis points of incremental annualized value, revenue value, potential. So this is exciting. So what is the potential opportunity for us? As we look out over the horizon in the next 3 years, we see an excess of $1 billion of growth potential that we've identified. And let me be clear, this is customer specific and is time bound and is reflective of the entire book of business that we serve. And so what do you need to believe in order to realize this potential? Well, A, it starts with service. It's table stakes. It gives us a seat at the table. Secondly, our ability to listen, learn and adapt, have a seat at the table as decisions are being made. I'll reflect on Christina's commentary and what you saw today from Jose with Novelis. Those are generational assets. The first rolling facility of this kind built in this country in nearly half a century, served exclusively by us. So we're excited about our growth prospects on a go-forward basis. I'm really proud of what this team has accomplished thus far, but I'm also optimistic about what we'll accomplish in the future. I appreciate your time today. And I'll turn it over to Maryclare to talk about Intermodal.

Good morning, everyone. Thank you, Arthur. My name is Maryclare Kenney, and I'm Vice President of Intermodal and Automotive at CSX. So you heard Kevin earlier, and you'll hear others today talk about the strength of the CSX network, and that absolutely applies to the intermodal business as well. With service to more than 40 intermodal terminals, we have comprehensive coverage of every major market in the Eastern U.S. We have extensive service offerings to and from every major East Coast port, as well as the Port of Mobile. We have unparalleled access to the Southeast U.S, which, as you heard from Christina earlier, is really the epicenter of industrial development in the U.S. And we've delivered a superior intermodal service product to our customers. What you're hearing is that we've established a very strong foundation. And what I'm going to talk about today is how we're going to leverage that foundation to develop and deliver innovative solutions to grow our share of wallet. So I think as most of you are aware, we segment our intermodal business into two primary categories: international and domestic. In recent years, international has accounted for about 40% of our intermodal volume. While domestic has been about 60%. But what I'm going to highlight today is that we see significant opportunity to grow in both segments. In both areas, the focus will be around highway conversion, but how we enable it will differ. On the international side, we see opportunity to add additional dots to the map through an inland port network. While on the domestic side, our focus will be around highway conversion in existing lanes of service and developing new service offerings, leveraging existing terminals. I'm going to talk about both areas this morning, starting with international. But first, you're going to hear from Griff Lynch at the Georgia Port Authority. [Presentation]

So you heard Griff highlight the opportunity for rail growth in the International segment, and we absolutely agree. We believe our traditional international business will outpace the growth of global trade due to East Coast share gains driven by capacity, service and manufacturing shifts in Southeast Asia. But as a multiplier of this trend, we're advancing solutions to convert traffic that has traditionally moved over the road from East Coast ports into our inland geography. We see an opportunity to develop mid-tier and smaller market solutions through an inland port network. And as we evaluate the projects that are already underway and those that are under development, we see an opportunity set of about 400,000 moves over the highway today that are suitable for intermodal conversion through inland port connectivity. So what's an inland port? An Inland Port is a partnership with a port authority, supported by state funding to connect a coastal port to geographies further inland. In most instances, the port or a third party develops and operates the terminal. CSX is a key adviser, trusted adviser during the development phase and then we provide the rail service once the terminal is operational. When you think about these partnerships, the state, the port and local communities all benefit from these investments. This state can attract additional industrial development to the inland portion of their network because manufacturers and developers want efficient access to the global economy, and that can be facilitated by rail. The port can attract additional traffic through their marine terminal and then they can efficiently load 100 containers on a single train versus having 100-plus trucks come through their marine terminal gates we're moving one container at a time. Local communities benefit because it's less highway congestion, less reinvestment in road infrastructure and fewer greenhouse gas emissions. CSX is aligned steamship lines benefit because now they can more efficiently access additional inland markets, making them more competitive in the global supply chain. So in cooperation with several ports, CSX has established inland port connectivity to 6 markets, and we're advancing development over the next 3 to 5 years. As has been previously announced, the Port of Mobile is under construction with Inland Port Montgomery, and we expect that facility to open in 2026. We announced a second partnership with Mobile earlier this year, for service to the [indiscernible] market to serve the growing Huntsville population. And we've also announced a partnership with the Georgia Port Authority to create an inland service to our CCX terminal in Rocky Mount, North Carolina. We expect to begin routine service there early next year. In addition to these projects that have been made public, we continue to advance other inland port initiatives, and we look forward to talking more formally about those with you in the near future. So transitioning to the domestic side. We've established strong partnerships with both our channel partners and shippers in this space, and you're going to hear about that in this next video. [Presentation]

Okay. So you heard both Schneider and Diageo highlight how CSX is collaborating with customers. And we really see that as a core component to how we grow this segment. As you know, domestic Intermodal has a wholesale channel of sale, but we have direct engagement with shippers through a national account sales program. The sales team engages with shippers to identify suitable highway conversion opportunities. And then they work with both the shipper and the channel partner to convert the business. They leverage an optimizer that we developed to analyze the shippers highway traffic and then they use their engagement with the shipper to proactively pursue opportunities that best fit the shippers' current supply chain needs. This engagement not only allows us to identify opportunities, but it also enables us to see barriers to conversion and determine what we can do differently to address specific challenges. It also enables us to develop new solutions. So as we see volume trends and as we hear directly from shippers as to service requirements, we can identify what can be done differently. As an example of this, our engagement with a CPG shipper identified traffic that was moving between Chambersburg, Pennsylvania and Northwest Ohio. This was not a lane that we previously offered intermodal service. But through engagement with both the shipper and the channel partner, the team worked together and identified a solution to leverage an existing train that worked at both of those terminals to create a new intermodal solution. This enabled us to convert over 4,000 annual loads from highway to rail. So you're probably wondering how important is this engagement and what's the size of the opportunity. As we evaluate about 100 truckload files that we've received from our national account engagement, we see 2.6 million loads moving over the highway today, touching our Eastern network that have an intermodal fit, meaning they move a minimum of a 500-mile length of haul, and they have a reasonable dray distance at origin and destination. We took that same data set, and we cut it at a higher length of haul. We went to a minimum of 850 miles. And what we still see is an opportunity that would allow us to nearly double our current domestic portfolio. While we don't have perfect visibility beyond the files we've optimized, if we take those files and extrapolate out, looking at their proportion of our current domestic business, we believe there's north of 4 million loads that are suitable for intermodal conversion. While I'm not standing here suggesting that we're going to convert every one of those, there's clearly a sizable opportunity in front of us. So the question is how are we going to unlock it. First, as I've talked about, is that direct engagement with shippers, identifying the best lanes to focus on and addressing the barriers to conversion. The second element and a critical element is delivering a consistent and reliable service product. Shippers need to be able to effectively manage their supply chains. Variability, whether late or early can create challenges for both their workforce and their facilities. Consistency not only enables a shipper to better plan their business, but it can also help drive out costs, improving intermodal's ability to deliver cost savings. CSX led the industry on intermodal rail service throughout the challenging time of the pandemic, and we've been recognized by the JOC as a top intermodal rail service provider. We recognize we have to continue to deliver a consistent and reliable service product. And we have to drive customer centricity all the way down and through the terminal level. Our third area of focus is developing new and improved service offerings for our customers. So Kevin talked about it earlier, but we are addressing the last single stack portion of our intermodal network through their Howard Street Tunnel clearance project. This unlocks efficient double-stack service on both our I-95 corridor, between New England and Florida as well as on the B&O route from Chicago to the Mid-Atlantic. This will create efficiency, cost efficiency on our current business, and it will double our capacity. But in addition to this, it will allow us to be more competitive on traffic that originates in Chicago and West of Chicago destined to the Mid-Atlantic as we can leverage the more direct B&O route. It will also enable us to take efficient double-stack trains via steel wheel interchange from our Western rail partners versus requiring a channel partner that wants to initiate a box west of Chicago, destined for Baltimore to do a rubber tire interchange in Chicago. On the I-95 corridor, the efficiency that we have there will also enable us to connect new service offerings with existing terminals in the southeast of our network up to the Northeast. We expect this project to be complete in 2026, at which point we'll be able to pursue the 100,000-plus incremental loads that we see moving over the highway today in these lines. So to summarize Intermodal, we see opportunity to convert highway traffic in both the international and the domestic space. By adding dots to the map, connecting dots through efficient domestic service and working with our channel partners, our core partners and our shippers in a new and different way, we expect to outpace GDP growth with our intermodal portfolio. And with that, I will hand it back over to Kevin to close out our commercial section.

All right. Thank you, Maryclare. Coal has experienced a dramatic change, nobody is surprised. When we think about coal today, just over a decade ago, coal represented 33% of our line haul revenue. Today that represents 18%. But even more dramatic has been the change in our domestic business represented 25% of our line haul revenue just over a decade ago, and now that's 8%. What you've seen our portfolio shift to the export side. And over that same period of time, we've actually seen growth in our export business. Today, our export business represents over 50% of our portfolio and our exposure to coal. And we see tremendous opportunities going forward to continue to capitalize on that. Joe and his team, who leads our coal business continue to leverage our unique access into the international markets. When I talk about unique access is really our port access. We have more opportunities and more capabilities to offer to our customers than any other railroad in the East Coast. We touched 5 terminals today, all with ground storage. And that's important because it offers opportunity to be flexible to blend coals and also to be flexible with ships as they come into the terminals. So the exciting news here is we are positioned with an export portfolio that now represents out of over half of our business today, and we see opportunities, particularly as we see domestic coal continue a slow decline that we can push that volume into the international markets, where we see growth in places like India and other markets. So the team has done a great job on that end. On the domestic side, like I said, it represents 8% of our line haul of business today. And we see a slow, obviously, opportunity to work with our utility customers to pick up their utilization rates. And we'll work with it. And obviously, the political dynamics have changed and we'll assess that, and I'm sure you might even have questions on that. Those are things to be -- TBD. But I can tell you with the data centers and all the investments being made, there's a huge need, particularly in our South Eastern portion of our network for more energy. And so, we'll continue to manage that, work with customers, advantage our utilities, our coal-producing utilities using utilities to make sure they remain in the market as long as they can. Now if we wrap this all up, we talked about service and service begets opportunity. It's really our people that are delivering on that opportunity the record pipeline that you heard about, whether it's on the industrial development side. And I can tell you, this hasn't happened overnight. It's been 2 to 3 years in the making, working with customers, bringing our operating partners to the table, sharing what our capabilities are. And those discussions are only accelerating not only with our top 100 customers with that long tail of 2,500 customers that haven't necessarily taken advantage of the rail capabilities today. And so we expect to deliver our growth versus the markets we serve, both in intermodal and merchandise. And then on the coal side, obviously, we expect a decline on our domestic side. But given our mix and the opportunities ahead of us, on the export side, we believe the growth can offset that. So when you think about our conviction in growth, it's not conjecture, it's based on data. We have a process around we're tracking these opportunities daily and following up, making sure we're staying ahead of the trends that are in the markets with our growth industries, modal conversion and investments that are being made. Being on the forefront of those core is important because when you think about customers making supply chain decisions, once those are made, they're very, very hard to undo. So we have to be there when that facility is being built to make sure it has access to the CSX railroad. And we're doing a great job, as you can see from our portfolio in the size of it today. I will add really have to deliver a portion of this backlog to deliver these results. And so there's opportunity to obviously to exceed this. And certainly, with markets accelerating, whether it's the truck market improving, it will only accelerate our opportunity to deliver on these goals. So with that, I think we're going to go into break. And Matthew, we're taking about a 15-minute break, right?

15 minutes.

Okay. 15 minutes, and we'll be back. Thank you. [Break][Presentation]

All right. And I think we're ready to restart. Thanks again give maybe a moment to -- everybody take their seats. All right. Very good. So moving into the next segment of our presentation today. I'm very, very happy to be joined by a couple of gentlemen. We have Mike Cory, who's our Chief Operating Officer, who many of you have already met. We also have Casey Albright, who's our Senior Vice President, Network Operations and Service Design. We're going to have something which I know many of you are familiar with. We're going to have something like a fireside chat to talk through some of the operations. And as you see the title of this, Advancing a Proven Model. Again, we will stay on time, always on time with Mike on stage here that's even had more important.

More at risk is what he's trying to say, but...

I'm a diplomat. That's Investor Relations.

And good DJ.

Indeed. Thank you. Thank you. Soothing, soothing.

So Mike, let's start with you. I've got a few questions for you. You came here at CSX after years at CN, right? You've had the chance now over the course of the year in change to compare 2 very, very different networks, right? Given your experience, what makes the CSX network different compared to that which you experienced at CN? And then in particular, what do you see as the main opportunities emerging here in this network here at CSX?

Thanks, everybody, again. We're going to keep repeating this because you also are part of this extended team we're creating. So I appreciate you all coming down. Obviously, there are differences and the complexity, the density of the customers, the infrastructure every 100 miles. And I mean everything from tracks and yards to facilities that we either maintain or do something else is big at CSX. And you can see -- you saw great presentations from our marketing and sales teams about the opportunity, but that complexity of density is something -- I don't want to say I'm not used to, but this is -- it's a big thing here. And then really, that proximity to the customers, the population and economic growth, the front facing, dealing you do from operations with the customer here is greater, but really it's pretty much the same. It's a scheduled railroad. It's got great railroaders. There's a lot opportunities is no different in my eyes than what I came from. It's the same thing. And you want to talk about opportunities it starts with -- if you look at that network, we have opportunity to optimize it. And what I mean by that is I come from a linear railway. And the more linear, we can make this, the better. taking, I don't want to say redundant facilities, but facilities that aren't performing, where they can in terms of efficiency and turning them into something that creates speed, increases capacity and enables growth, what we're talking about today. So from a network perspective, and that's not just building things that's getting down on the ground, when I talk about it, we have a network of people out there doing work and to get it out there and increase that capacity through just better teaching, better learning, accountability, but really sharing all the good things we have at this company. So the network, I'm looking forward to really going forward with that, and Casey is going to talk more about that later as well. The next biggest thing and really probably to me before the network, it's just developing the talent and the culture opportunities we have here. There's an abundant pool of talent. You're meeting them here. You're going to meet them on the train and it doesn't matter what part of CSX you talk to. We're talent rich. And for myself, I've had the opportunity I've met every senior leader in operations and many others. But these are a lot of folks that have been through a lot of change here, and they really understand scheduled railroading. And they really, really understand the value of the one CSX opportunity that we're creating to be able to work with other and take those strengths and share them. And then the other big opportunity we have here is to create a culture that really focuses on exposing exposures, reducing them. But from the ground up, understanding that there's an environment here where we care, and we're going to make a difference in terms of people not just coming to work safely, they coming and feeling valued because they are creating value. So that culture is a big piece. You're going to hear the next thing to me is always systems and data. I mean I grew up just looking at things to try again to make it linear and connected. And you're going to hear Steve and Dave talk on the train to give you a good presentation on pretty much a complete systems overhaul. And they're doing the heavy lifting right now. We're moving -- I'm not going to get into what they're going to tell you because, first of all, I don't know it as well, but what I know is the opportunity for us to create suites of tools for our operating officers to see data in a different way to see that the elongated view that I want them to have that I have, the systems, this ability, the speed will be able to have 1 single source of information. That's a huge opportunity here. And then the last piece, and again, they're all most important, we can drive service improvements. You heard Kevin, Maryclare, Arthur, Christina, everything that they're out there selling is our product. And so from the ground up, engaging brand and you had a question last night should just [ fastened ] the table, a big focus on connecting those people that we have at the front line with our customers. Best decisions are made at the interaction of the customer activity. And we're equipping them, and we're doing everything we can to make sure they have every opportunity to get information, to make quick, good decisions in line with their customer partner. And that's something I'm not going to say I'm not used to, but it's really going to be the key to our success here, getting those decisions at the right level and the service of customer and making sure we're communicating. So they know when we see opportunity, it's just not for us, it's for the whole entire team. And you're going to hear more about that from Chantel and Sean. I'm probably over my time. So that's my office overview.

It's all good, Mike.

You didn't give me a code. You're going to give me like a code, if I go over.

Casey, you bring a much different perspective. So you've been at CSX for over 25 years. You have seen this network evolve over time. Love to hear from you, what's been changing over the past year or so? What's working differently? What's working better from what you see?

If you think about it, Mike. It might cause this a complex network. And it is, if you look at that map, I mean, that's -- that's the map. That's where we serve the customers that Kevin and the team talked about up here. I mean that's where we do the 240 interchanges a day that Christina and her team were talking about and focuses on. But this railroad, it's also -- it is complex, but it's very flexible. It's resilient. We're going to continue to build resiliency into this network with Mike. We continue to look around and see what else we can do. But we talked about the storms a lot last night. And if you think about hurricane Helene and what Sean talked about at the quarter call on our Blue Ridge Subdivision, we lost that part of our railroad. Chantal and team got together the day after and within 24, 36 hours, this resilient railroad, that traffic that was moving across that corridor was moving a different route across this complex network. We have resiliency built into this thing. As we look at this and the group talked about the different opportunities and the different growth that's going to come out here we're going to continue to look at this network and see how we utilize it. I mean this is our master piece right here. This is what we have to offer, and we're going to use it. Mike's come in and taught us a lot of stuff about how -- what we've done today may not be what we're going to have to do tomorrow. Today's decision is not going to be tomorrow's answer. He says it much better than I do, but that's what we're getting out here. That's why we that's what we're preaching. Before, if it was something that came our way and it may have not fit perfectly into what we were currently doing. I'm not sure what have gotten the attention it deserved and that's what we're doing, and that's what Kevin and the team talked about just collaboration that's there and how we're working together to find those opportunities and make it fit into this network.

Got it.

And the other thing, too, Mike talked about it on the quarter call, volumes were up 3% in the third quarter. We reduced train starts by 3% at the same quarter. So in this network, there's a lot of capacity, and we're figuring out how to use it with less resources out there.

Got it. That's great. Mike, maybe before we talk about some of the initiatives on service and efficiency that I know the team is working on. Let's talk a little bit about culture. It's a foundation of it all. They hear from you, they hear from Joe about how important it is to have a successful culture here at the railroad. But maybe for this group, why should the people out here? Are these investors, the analysts, why should they care about culture as it applies here at CSX?

Culture is everything. And I have been really fortunate. I was -- not only did I work at a company that really not just built the culture, but the culture drove the results. And I started playing hockey as a young kid, and I've been on such great teams and really the experience of winning is something you build by winning. And I've had this great experience with teammates. You know them all, working for people, working with people that it was about culture. And let's be honest, employees that care about their work, they perform better. They're more productive. Good culture improves retention, reduces hiring. And really the expense of it all, the churn. There's been a tremendous change at CSX the last few years. You're all aware of it. And it's been tough, but I tell you what, I've been through a lot of those changes. And I not only feel for what people have gone through, but it's time as Casey said, what we did yesterday. We don't have to do tomorrow. We can be successful in a different way. And that's really what this culture that we're building. That Joe came and started. This is about all of the talent we have and putting those synergies together and creating the value we know we can create. But from an operations perspective, kind of, large focus on our operations supervisors on their development. And really from me, it's about providing clarity. It's making sure they understand what they're accountable for, but not to the point that they hide away from those things that don't work, that's what I'm here for, for the help and the teaching. And really, everything we do, everything we talk about, we ensure the value that we're talking about is identified and that they have a means to extract it. And this is how we're learning and starting to understand better forms of KPIs than maybe we've had in the past that will lead us what we really want. And the other thing is about the consistency within our management team. It starts with me, and I'm accountable for everybody right down on the frontline supervisor. And we are all accountable for this company, for our customers, our shareholders and other stakeholders to execute on the goals that we align to. And so you asked me about culture, it's probably 90% of what I think about because this is a company that has years of runway and the talent that we have would be a shame not to build a winning culture with it.

Got it. Casey, let's go back to you, you lead service design for the entire network here at CSX. And we've heard a lot about how you've been working closely with the commercial team to ensure that we're there to respond to the customers, responses to their needs. Could you talk a little bit about how that's working differently and better. And if there's any places where that type of collaboration has helped to win business and bring business here to CSX?

Yes, absolutely. First off, Mike uses a lot of hockey references, and you got to translate all of that.

Casey is a Hoosier from Indiana.

He says something like a pick and roll. Okay, got it.

I'm learning basketball talk.

But anyway, yes, there are tons of opportunities, Matt, I mean, the collaboration here is, Keith said at the beginning, I've been here a long time, almost 27 years, and I've never seen a collaboration to the way it is now. I mean it's not a decision being handed out, and here we go. Let's get the right people in the room as we roll through this thing teach people, get the right groups together. The way they can go and they can learn and they get it down to other like Mike said, to get this down to the front level supervisors. A great example to your question is just back in May, we had a very large intermodal customer come to us, and they want a tight time frame. They needed to elaborate from point A to point B, a location that we didn't do -- we wasn't in our wheelhouse. I gave it to Chantel and the team, Carey, you'll hear from them on the train here later on the intermodal side. And within a week's time, we had a solution. Within 3 weeks' time, we were moving the train and moving the traffic. We actually met with this customer yesterday morning in Jacksonville. This lane that we've opened up is now growing. So it's extremely successful. We were quick, like Mike said, in making decisions. We got it out there and there we went. You heard Arthur talk about it when Arthur and Eric, Torrey, their teams get together in these whiteboarding sessions. We're present in that. We've done that with different waste customers. We've done it with different metals, different aggregate customers. We're right there in the room because the group from the different design side. We know -- we're out there. We know what our model shows, what we can do. We're going to listen to them as well, different opportunities they have. We make the changes up around a little bit and be a little bit flexible. As a single merchandise car load, is it something on the bulk side, how do we fit that into this model, that map you saw.

Right, right. Mike, we did hear a lot from the commercial team just before and they outlined a lot of, I think, it's really exciting initiatives by bringing growth here to the network. Why do you feel certain that we actually have the capacity to service that growth and to service it well?

Yes, that's a good question, Matt. You know like, again, the network itself when it comes to pure double track and capacity, it's greater than I'm used to in that sense with the volume that we have. So in terms of merchandise and intermodal, local service lanes in various locations in most locations, we have incremental capacity on the service we provide. And as Casey said, our focus is really on reducing -- not reducing starts. We want to grow starts we just want new business, but making sure we're maximizing the use of the trains we run. And so from a just a pure incremental volume coming on, we have good capacity on the existing trains and service we provide today. Our infrastructure is in really great shape. And we don't have a lot of need for mainline capital. We have some locations where we're going to put [Am] track service on between Mobile and New Orleans and jointly with the government, we're putting sightings in there. We have the odd key location. But for the most part, we're staying in check. And it's important, obviously, that we do with Christina, Arthur, Maryclare and the teams. But from where we stand right now, the things that we have in place really are not capital intensive. And really, we're targeting capacity growth, train speed, reducing bottlenecks, consolidating those starts I talked about, but really the focus on reducing our route miles. And so when I look at this network and the things that we're going to talk about, I'm sure you're going to ask a question about the opportunities we have. It's nice to see the work we're going to do has a reason. And that reason is that growth you all saw. And the point of this is that this isn't a whole lot of new construction of anything. This is looking at existing at what we have existing and making it more efficient and then bringing it together to capture this growth, but at that low incremental cost. And as Casey said, we're really at the start of everything our customers are doing. And that's operations, sales and marketing, the entire CSX team. We are a service provider and we understand that. So the -- when they're ready to grow, we're right there. Our goal, and it is, we want to be right there along with them.

Let's follow-up on that service question, service team and the investors hear, they hear us talk about the importance of service. We talked about the service reliability. You heard that from our customers and how important that is, bottom line right now, how is the network running right in terms of the service today? And is there an opportunity for us to get better?

And I've spoken to quite a few you last night. But we had -- yes, those storms really hit us. And so since August, it's been a churn of either strikes, storm and strikes. And I can honestly say this last week, we're back fluid. No, not that we weren't. You can see, again, what we took action to reduce some of the congestion with whether it was train start switch, but move around our network, so we had fluidity. And so we really stayed abreast of any major customer concerns by taking that approach. We do not sit back. We're on the edge of our seats. So the network is back. It's been a little tough since August, July was probably one of our record months in terms of good operating metrics. But really, it just comes back down to our focus is on first and last mile service and over-the-road service for customers and cost. And those are the 2 big metrics we look at all the time. So while we're jostling around here, we keep service first in mind and that cost right alongside of it. And that's what we did throughout that period. Now we've got a lot of initiatives in place that I've spoken about. But we always, always want to have a really positive tension between service and efficiency. That always has to take place. We can't over servicing probably says you're not doing the right service and not spending enough isn't getting what the customer needs continue to do what they do. So there's always that balance, that tension. But that's what keeps us engaged. That's what keeps us challenged. That's what keeps us wanting to learn again, about our customer requirements. We're great railroaders. These folks have been through PSR. They get it. And that isn't -- I'm not going to say it's not difficult because we are an outdoor support and all those great things. But the more we can integrate that customer need into our minds, we are making more efficient use of the model we have today, and that's the goal. Yes, I'll leave it at that.

Yes. I think that leaves great for the next question, which is I've talked to both of you about getting out in the field, looking at data, talking to people, looking at the network as a whole to find ways to make it run more efficiently, both at the individual location and then throughout. One of the examples that come to mind that I've talked to both of you about is about Cumberland. Could you talk a little bit about what's happening at this particular location, why it's important and what the benefits are?

Yes. And look, I'll give you the why in the house. So great decisions were made in many areas across any railroad and times change. And this isn't about reopening things. Some of these -- most of these locations we're going to talk about, they were never closed -- changes were made and as a result of whatever the case was. And now as we go back and we look, we find that we're able to really create some mass in locations that had its production spread out. Sorry about that. I can hear something there. And that traffic that was spread out because we decided to do some things in some of the yards, we're bringing it back to create the mass and really improve the efficiency. And in this case, the Cumberland, and I think we're going to show a picture of the yard, what it looked like. But essentially, we're changing the flow of traffic from around and through upstate New York to direct path it from Mid-Atlantic to East Coast ports. And if you watch it through, today, we offer through Baltimore and around with this traffic. We're going straight across and you might look at that and go, gee, that's a no-brainer. Well, at the time when we -- when I viewed what was -- how the traffic was moving where the what condition the yard was in. I just asked the question. And again, at the time, it made sense to shut the yard down -- excuse me, to reduce the production in the yard. But by opening it back up, I mean, you're talking about 58,000 handling your talking 20 million out of route miles, you're reducing local starts in the places we spread the production. So those are facilities that you have a spiral of cost to. And really, what we did was we took 500 cars and we're not moving the way they should have in the direct way through Cumberland and we put them back in. We're creating blocking now that was done in some instances where cars were set off just outside of Cumberland in a facility, sat 24 hours and switch. And that same train that sets them off the next day, pick them up again. This will -- in that instance, reduces the dwell by 16 hours. So these are the things we're looking for. We're looking at a more linear pros, the further we can move the car without touching it is our goal, and it's going to take some alterations and they're not over -- they're certainly not overly capital-intensive. A couple of benefits from this is we have a major locomotive facility in Cumberland. And as a result of the way our service was running. We have to take locomotive stuff premium intermodal trains to take locomotives off to get them to the shop for their regular maintenance or run by it and have the unit go out of service. And so now we have the right amount of manifest merchandise trains going through there that we can cycle the power on a regular basis, probably improve the efficiency at Cumberland in locomotive shop. And here's the best thing. Using some lean principles, but really using team work. We found the capital by better improvements to our engineering capital programs, and that was between transportation, engineering, focusing on getting the track and all those things that seem easy well, although things paid for this yard.

Maybe we could bring up and you could a real quick question or a quick view of what was at Cumberland before and then what Cumberland looks like after, which I think is pretty stark.

So there was nothing there on that side, and there was tracks on the other side.

Casey, as you're looking at this, when you're thinking about the entire network, are there other opportunities at CSX to do something similar to here?

There are, Matt, and we continue to look at this as we just look how our network is shaped and how we can take advantage of it. Just a few to mention on there. I mean you see Willard just last week. Again, we put an addition a couple of hundred cars into Willard just by connecting a couple of tracks there. If you think about where Willard assists in our network, it's a primary spot between Chicago and New York, New Jersey area, right, a very key initiative. So you got a traffic there that can go and prevent touches at other locations like Mike's talking about, less touches, means you need less cars. I mean, you're moving across your network faster, right? Should you have the cars just fall out of your investors that less risk. A couple of other ones on the map there. You see Louisville and Richmond. These were yards that were built decades ago. And over time, things change, right? I mean, Louise was a primary spot for our auto network. But you got -- like I said earlier, you got Arthur-Ercan team out there. We got a major steel customer that's going to almost double in volume next year and they are sitting right outside of the global. Being able to just make these minor changes inside these yards, getting the additional capacity, but also taking miles out of the existing traffic. That's what we're looking for as we go through these locations. Everyone is going to get to see way cross today. You saw the heat map that Christina put up there of how Waycross basically protects Florida for CSX. You come to Florida, you're going to go through a Waycross. -- more than only Class 1, that gets all the way through the state of Florida. So any capacity we can generate in the art of Waycross is going to be nothing but help us with this growth that's coming to the state of Florida very, very well positioned.

All right. Let's just the last thing. I want to make sure we can cover even to cover it quickly. Let's talk a little bit about technology and how you're all using it. It's been a big factor at both of you in terms...

That's my baby there on the screen.

How are you using data more effectively here at CSX to drive better, quicker, more effective decisions. So how is that going into effect today?

Do you want me to kick it off? Again, I come from a linear railway. And what I found when I came was from an operating perspective, the systems that we have were more focused on either a regional, a customer or something that wasn't far enough out that the operating officers can really see what's going to transpire, not having something come do your job and then get measured the next day. So all this does is provide 1 single source of information, one single source of data of truth, where we can have a common language, when we have calls, which we like to do, and we use these types of tools, not only to manage the business coming into terminals. But in today's world before this, our operating officers had to go to 4 to 5 different systems to get information. And then somebody in another terminal will go to 4 to 5 other different ones and then try to get the language and try because communication in the railroad is everything. Specifics? You can't -- it's even how we move our -- we don't allow crews to say forward and back locomotive identification because everything needs to be specific or things go wrong. This gets to the specifity excuse me, of what that terminal far enough out is going to have to do in the next 24 to 48 hours. Everything they want to learn or know about that locomotive, that crew, that subdivision is a click away. Now we haven't completed it yet. It's being done in stages. And again, Steve and Dave will talk to you. But to give real-time driven information and it's streamlined, it's very actionable. And what we're really trying to do is help them make better decisions. That's really what it is. So it's the speed of information, it's a single source. It's consistent and it's a language we could all speak. That's 1 little thing because the other suite of tools, everything is geared again to help our supervisors find what the value is to extract and give them the right tools to extract it. That's what we're all about, and that's what, again, Steve and Dave will walk you through some exciting things we're doing. They're doing the heavy lifting right now, but this is extremely important. Actually, we're over the time limit. It's pretty good though.

No, it worked out well. It worked out well.

And we're here all day folks, so got lots to talk about.

These 2 do well together, as you can see here on the screen, here and in place. So thank you both. Mike, Casey, thanks so much for being part of this and thank you.

Thank you.

For those on the webcast, what's happening in the conference room here today is we're passing out my presentation. So folks are eagerly awaiting that because it's got the numbers in it. It's probably already posted on the webcast. If it's not, it will be up there momentarily. But as that goes around, I'm going to go ahead and get started. And just by way of background, many of you know, some may not know, but I've been with CSX now for about 20 years. And during that time, there's been a lot of different things that have changed, but there's been 1 thing, and it's a distinct competitive advantage that CSX has, that simply has not changed, and that is the power of our network, right? Well, you've heard it today. We have 20,000 route miles in the eastern half of the United States. We serve 2/3 of the U.S. population. We have a merchandise franchise that's unparalleled. We've got an intermodal profile that's growing and has opportunity. And from an industrial development standpoint, we're right in the heart of all the activity. It's an exciting time to be at CSX because what I'll tell you is that up until now, we really have not fully leveraged the power of this distinct network that we've got here at CSX. So before I get into , and you've already flipped to it. Before I get into the forward projections, I want to take a minute to go backwards, right? So I mentioned the last time we've been in front of you at an Investor Day like this, it's been 6.5 years. And some of you may or may not have followed our stock in our company for that long. So just to kind of set the stage of where we were all the way back in 2018, it was a period of time, where we were still at the beginning of our operational transformation. And CSX was the first U.S. Class I railroad to adapt scheduled railroading, and there were a lot of skeptics, particularly because we were an Eastern U.S. railroad with a lot of population, a lot of complexity in the network, as you heard from Mike and Casey. So the question was, can it actually be done? Can it be done efficiently? But regardless, we put out targets that said that we were going to hit a 60% OR, what we now call a 40% margin by 2020. And even though 2020 was a pandemic year, I'm happy to report we hit a 40% margin in that year and our average margin, since then has been in excess of 40%. And we also talked about how the margin improvement, along with improved asset efficiency resulting in lower capital spending would drive an increase in free cash flow. We were averaging a little over $1 billion a year in free cash flow. We told you that in the 3-year period, we'd get to $8.5 billion. We exceeded that, and it's continued. So our cash flow today is 3x greater than it was pre-transformation. We also promised that we would give a lot of that cash back to you, the shareholders in the form of dividends and share repurchases. And we've done just that over $25 billion in the last 6 years, and that model will continue going forward. When we look at how CSX has performed relative to the rest of the industry, if you look at any key valuation metric, we've far exceeded the performance of our peers during this time frame. We've grown operating income in the mid-to-high single digits. We've grown EPS nearly 20% a year. And free cash flow has gone up by over 20% annually. This is a significant outperformance, if we look at margins, we've improved our operating margins by almost 700 basis points. And this is a period of relatively low economic growth and recent high inflation. So half of the S&P has actually kept margins flat, we're seeing margin degradation. CSX is in rare company, particularly when you consider the fact we acquired a trucking company. And if you were to adjust for that, our margins are up nearly 1,000 basis points during this time. When I look at these numbers, I think it's evidence of a company that's well run that's got momentum, and that's committed to meeting and exceeding the targets it sets. So how do we get there? It's no secret that safety, service and efficiency were a key driver. You all look at a lot of data that this industry and our company produce. We've got even more metrics that we track internally. So there's dozens of things I could have put up on this page. And most of those service and efficiency measures have improved at least 20% over this time frame. You see evidence of that here across locomotive, freight car, employee efficiency, velocity. So what does this do for us? The first thing is it gives us a cost structure advantage, not just relative to our rail peers but also importantly, relative to our trucking competition. As the trucking market continues to normalize, this is really going to work to CSX's advantage. It also provides capacity. Having fewer assets on the network running fewer trains, gives us the ability to grow and absorb that growth at high incremental margins. And lastly, it reduces the capital intensity of the business. So we reduced capital and we're able to continue to invest at a ratable pace and support the growth that we see coming in the next few years. So let's talk about growth for a minute, right? Because the knock on the rail industry has been for the 40-plus years since we were deregulated, we haven't been able to grow our merchandise volumes, and there's truth to that. But what you heard from Arthur earlier is that in the last couple of years, we're shifting the tide, we're turning it here at CSX. And it hasn't been profound because the industrial economy has kind of been stuck in neutral, but we've outperformed industrial production by a full 2 basis -- 2 percentage points during the last 2 years, driven merchandise revenue growth ex-fuel in the mid-single-digit range. And in fact, over the last 7 quarters, merchandise revenue ex-fuel has been up at least 4% year-over-year every quarter. The last time we did that was about a decade ago. And if you'll remember, that was largely driven by crude by rail. We don't have such a phenomenon today, and yet we're still delivering that performance. If we look at intermodal, it's been a challenging period for intermodal and trucking over the last 5 years. We had the pandemic. We had supply chain disruptions and hiring challenges that followed. We had inventory destocking that heavily impacted international last year, and then we've had port strikes this year in the East. Through all of that, CSX has grown our intermodal volume. And in fact, our volume has grown faster than the U.S. average and well ahead of our trucking peers. Mary Claire outlined the opportunities that we have in front of us to continue on this path and deliver even more growth over the next few years. We get a lot of questions about price, particularly price versus inflation. So what this chart is showing you is the difference in dollars of price that we've realized in merchandise and intermodal relative to cost inflation. It's been contributory for every single year on the chart, and what you'll see is that the last 2 years, the gap between price dollars and inflation dollars has been about as large as it's been in the last decade. There was a little bit of catch-up coming out of hyperinflation in '22 and '23. We do see inflationary pressure subsiding over the next couple of years. So price dollars may come down a little bit, but that dynamic between price and inflation will remain, and we think it's a key driver of bottom line growth going forward over the next 3 years. But our operating income is down, right? Nearly $6 billion of operating income in 2022. And over the last 12 months, we're down almost $500 million. But you have to remember that in 2022, we were facing unprecedented times. The supply chain crisis led to an opportunity for CSX to collect record storage revenues. Export met pricing was at all-time highs and CSX was a big beneficiary of that. We also had high fuel prices, which was a net benefit and real estate gains in 2022. All of that was over $900 million of operating income. So if you were to do the math, and adjust for it, you get to an operating income growth rate in the mid-single digits over this time period. And you also have to remember that during this time, we were catching up on the hiring front coming out of COVID. So our headcount is up 8%, while our carload volume is only up 1%. We're turning that dynamic around. In the third quarter, carload volumes were up 3% and rail headcount was up just 1%. That's the kind of headcount efficiency you can expect going forward, which will take that mid-single-digit operating income growth and make it even larger. So let's talk about the growth opportunity and look at the numbers on the slides. You heard a lot of the details from Kevin and the team, saw a lot of the numbers, but I'm going to put it in perspective for you. The three pieces of the revenue growth algorithm are here on the page. The first is economic growth with our existing customers. And this, I will tell you is the smallest piece of the mid-single-digit revenue growth that we expect in the next 3 years. We are hoping for, but not necessarily baking into our model an economic recovery rebounds in certain markets. We're optimistic about that. But when we look at the projections, we've got industrial production at 1%, and we've got GDP at 2%. That's what's in our model. The biggest piece is modal conversions and industrial development. You heard a lot about that from the team. So I won't go into a lot of details, but just to reinforce the pipeline of opportunities, and the way that the commercial team is approaching the market is distinct. It's bigger than we've ever seen before. We talked about price just a minute ago. We expect price to continue to exceed inflation. It will be a key driver. You can expect that mix will be slightly negative if you think about the numbers Kevin showed with coal flat and intermodal being our highest growing segment will have a little bit of offset from mix. You add all three of those pieces together and you get to mid-single-digit revenue growth. And as you heard from Mike and Casey, we've got opportunities on the cost side to drive continued efficiency. I'm just going to go through a couple of the buckets here. There's more that aren't on the page. The first and one of the biggest is the amount of money we spend on our assets, $1.5 billion to support locomotives and freight cars with over $1 billion of that being in OpEx. We talked about the Cumberland project. We talked about the leveraging technology to optimize the network, the better we get at that, the more cost we can drive out on this side. That also helps with our fuel efficiency, as do the investments we're making in fuel technology and the process improvements that we're driving. We're the best U.S. Class I railroad by a wide margin on fuel efficiency and we expect to continue to drive gains here. In fact, this year, we're on track to deliver $50 million of fuel efficiency in one year alone. I've got safety up here, right? And safety is not necessarily about the dollars. It's about bringing our employees home and keeping the communities where we operate safe. But there is a direct cost when there are incidents out there, $200 million a year on injuries and accidents. Let alone the impact that those incidents have on our network. The disruption when you have one of these incidents in a yard or on the line of road is significant and hard to quantify well beyond the $200 million that you see here. So investing in cultural transformation that drives safety improvements is critical and investing in the technology that helps to prevent these incidents is also important. I talked about headcount productivity, which will deliver over the next couple of years. But along with that, our costs associated with the employees that we have today, inefficient labor costs like overtime and crew travel, nearly $0.5 billion in that bucket. I'll just give you one example of an initiative we're working on this year to reduce labor claims. We have a lot of labor agreements out there, they've got a number of different things that employees can claim dollars for. And we didn't have a great process to understand what was driving some of those claims and figure out ways to reduce them. We got our payroll team and headquarters together with their transportation field team, those leaders out in the field and figured out ways to reduce this spend. We've delivered enough savings this year to essentially offset all the inflation within that $500 million bucket. Over a 30% improvement in labor claims this year alone, and there's a lot of those opportunities here. And then discretionary spend. We're a big company, $1.5 billion of nonlabor discretionary spend. It's been a big focus of us this year. In fact, we're tens of millions ahead of our plan in this line item, and we continue to look for ways to negotiate with suppliers bring in new suppliers, think creatively about how we spend going forward to continue to drive efficiencies. So when we put that together, we say, what is growth going to mean in terms of bottom line profit. What we're showing you here on the left side of the page is our cost structure. About 20% of that cost structure is fully variable. That's fuel and trucking related expenses. The biggest piece of that is our operations costs, which are semi-variable, 30% to 50% variable. And that's because we have significant capacity in our assets. Our trains have room, our terminals have space to continue to drive growth. And what you're seeing here is the fixed cost as a percent of the total has actually gone up over the years because of the efficiencies we've driven in our operating costs. So I used to be an analyst and one of my jobs was to figure out what proportion each of these was and do the weighted average math, I'm going to do that for you. This gets you to a 50% to 70% incremental margin, okay? That's what we expect over the next 3 years. And I want to emphasize the fact that when we say 50% to 70% incremental margin, this is for all of the growth opportunities. There will be opportunities that on a fully allocated basis are at an all-in margin below the company average. But even on those opportunities, we expect incremental margins to be 50% to 70% or greater. So this is the guidance, right? Volume growth, you heard it from Kevin and the team. It's going to be somewhere in that low to mid-single-digit range, which translates into mid-single-digit revenue. We've got capacity. We have efficiency initiatives, that's going to help us translate that mid-single-digit revenue growth into mid- to high single-digit operating income growth. We'll continue to generate a lot of cash flow. We're going to invest that cash back into the network. We're going to find strategic investments to put our dollars to work and earn a high return on it and will continue to support shareholder distributions. Those distributions will help us to achieve an EPS growth in the high single-digit to low double-digit range over the 3-year period. Now it's not necessarily going to be a straight line up because as I talked about last month on the quarter call, we do have some distinct challenges we'll face in 2025. Domestic coal will be a difficult year with a few utility closures. And more importantly, we've got some network disruption. So Hurricane Helene knocked out a portion of the network. We're rerouting around that. that's probably going to be into the first half of next year before we get that cleaned up. And we've got the Howard Street Tunnel project. We're going to get all of that done in a year, which is phenomenal. It's going to unlock value for us, not only from a cost standpoint but also from a growth standpoint, but it's going to require reroutes and it will be disruptive next year. So there'll be some costs associated with that. Merchandise will still outpace the economy. Intermodal will grow ahead of IDP, we'll price ahead of inflation and will drive efficiency gains, but some of those items will offset it in 2025. Even with that, we're confident in these numbers over the 3-year period. So let's talk about capital allocation. Since 2017, our company has delivered nearly $40 billion of operating cash flow. About half of that has been either reinvested into the business or spent on M&A to help grow our business. We'll continue that approach going forward. And our intent is to try to invest more in strategic and growth-oriented projects. One of my key goals when I took over on this job was to find a pipeline -- fill a pipeline of those growth opportunities and find new investments that carry a high return. And I'm happy to report that we've tripled the amount of strategic capital we're spending versus just a couple of years ago. One of the things we did is we stood up an innovation team, you'll hear from that team and see some of the things they're working on, on the train. And importantly, we've been working to increase psychological safety across the 23,000 employees that we have across our network. What that does is it allows those employees to speak up when they see something. They were part of the solution on Cumberland, helping us to engineer that yard and bringing forth even more opportunities. We have an opportunity for all of our employees to submit ideas that we can then bet and look whether we can develop a business case and invest in those opportunities to develop high returns. Shareholder returns are also a key component. We've spent a lot of dollars on shareholder returns, and we'll continue to do that. I'll outline that in a few slides. Let's look just at capital investment to begin with here. So punchline is, over the next 3 years, the capital spend at CSX will be pretty similar to what it was in 2024, roughly $2.5 billion a year. Now that does exclude the rebuild of the Hurricane Helene impacted area, our Blue Ridge subdivision, which will carry into next year. And the biggest component of it is our maintenance capital that will continue to be the largest part of our capital spend. But we're getting a lot smarter about how we spend those maintenance dollars. We're leveraging a lot of technology. You've heard us talk about autonomous inspection cars. Those cars are gathering a tremendous amount of data. We're pairing that data with our visual inspections and the Sperry cards that are doing inspections. We're putting that together with machine vision data as we inspect our ties, and we're using all of that and layering on artificial intelligence on top of it to help us understand where do we need to prioritize that capital spend to reduce rail break and tie issues. And then we're getting more efficient in the labor that's actually installing that rail and ties. Over the last couple of years, our rail and tie labor is actually 35% more efficient on a per hour basis than it was helping to offset a lot of the inflation that we've seen in the material and labor costs. In terms of rolling stock, we don't see a need to invest in any new locomotives over the next 3 years to support the growth that we project. We have been investing in locomotive modernizations and we'll continue that at a similar pace to what we're doing this year. And we will have some freight car investments as well at a similar pace to what we did this year. Those investments will be both for fleets that are falling out that carry high returns, but also to support some of the industrial development projects you heard about from Christina. And then strategic capital. We're spending money to support the growth of the quality ISO tank containers, growth in our transload terminals, investment in technology and other high-return projects. And so that bucket will hopefully continue to grow giving us that $7.5 billion to $8 billion range over the next 3 years. And our network is in better shape than it's ever been. You heard that from Mike and Casey. You even heard it from the commercial team. We've got over $50 billion of gross assets on the balance sheet. And the track has gotten significantly more reliable. You see that in the nearly 50% reduction in track cause derailments over the last several years. We've also got fewer assets on the network. So capacity to grow, and those assets are in better shape. We're modernizing locomotives. We've extended 16 sidings, primarily in the Southeastern part of the network. And you heard it from Mike before, we're doing a couple of these projects here and there, but there's not a huge pent-up demand. There aren't significant areas of constraint where we need to extend Siding Lake in order to accommodate growth and continued consolidation of cars on to trains. So the asset base is relatively fixed as we grow operating income that generates increasing economic profit which drives value to you as a shareholder. So I want to take a minute to talk about capital allocation because our approach is a little bit different than our peers. We are an A-rated credit profile with a very strong balance sheet, but we also have significant financial flexibility, as evidenced by this chart. What this is showing you is retained cash flow minus CapEx divided by debt. Higher is better. And CSX has been at or near the top over this time frame. This is the amount of cash that we have left over after we fully funded our capital and distributed the dividend. And so this gives us a lot of flexibility. It's evidence of our high margins. It's evidence of our capital discipline. And also importantly, our dividend has grown over the last 20 years, but our dividend payout ratio is lower than our peers. That gives us the flexibility to invest in growth-oriented projects and also says, hey, when we're in periods of financial stress or we've got challenges that we're facing, we can continue to invest in the network to set us up for the future. We can go after opportunities that our peers can't, and we can continue to support shareholder returns even in challenging times. And that's what we've done, right? The dividend has gone up every year. It's been 20 consecutive years, and we've got a board that supports continued modest increases in the dividend going forward. On the share repurchase program, we've described our approach as opportunistic, and you see the evidence of that here on the page. Since 2017, we've bought back over 30% of our shares at an average price less than $26. That's a 5% discount to the average trading price. So we're beating it by timing, but we're also beating it by execution within each year. That's generated a return for ongoing shareholders of nearly 45% after the election results, over 50% and now, but a very strong return for ongoing shareholders, and we expect to continue this approach going forward as we generate more cash. So I'm going to close with this, right? We have got a proven operating model. We're best-in-class when it comes to railroad operations. It's in our DNA. And we've got a lot of momentum at CSX. You've seen that in some of the customer testimonies you've heard. You've heard it from our employees, those that you've interacted with, and you're going to hear it when you go out in the field. The team is excited about where we're headed. And my job was to translate that momentum and show you how that was going to build an equation for profitable growth. My intent has been to do that, and we are excited as a team now to deliver on those commitments. What we're going to do is we're going to take a 5-minute stretch break here. If you do need to exit, come back promptly because Q&A will begin in precisely 5 minutes. [Break]

All right. So far, so good. We do quite well of time. So I appreciate everybody. This is a cooperative effort, and you're doing great. At this point, we've got a few -- a little while. I'm sure, look, you're already seeing the hands raised. We do have about 20-something minutes to ask questions. You've all seen a lot of content this morning. We have a couple of runners around here in the room with microphones, and so we'll go right through it. And so I'm going to go right to my friend, Mr. [indiscernible].

Please use mic so the people on the.

Yes. If you would, please announce your name and where your affinity.

Jon Chappell, Evercore ISI. Kevin, minds for you. Your takeaway chart on the IP plus 1% to 2%, the GDP plus 2% to 3%. I understand we're talking about 3-year time horizons here. You kind of gave the view that a lot of the investment was done, you're kind of ready to reap the benefits of this. But is this something that happens in '25? Or is there a 3-year runway where it kind of continues to ramp? And I know it's all above the macro, but do you need a little bit of macro tailwind to kind of achieve these targets that you've laid out?

Yes. I think I did split the growth in the 2 factors. Obviously, the economy does matter for our business. And some of the businesses we do serve are cyclical and quite frankly, they're probably facing a lot of headwinds currently. So I do think that's an opportunity. We're not baking it into necessarily our 3-year forecast, but I think that's a likely scenario that some of these markets rebound. But when we add it up, I would say, from an industrial development side, we certainly expect that to ramp because if you think about a facility that comes online, even if it's in first quarter of '25, there's generally a 12- to 18-month ramp in production to get up to that full rate. And so we do think that accelerates. The other initiatives, we absolutely expect growth like next year and we see the pipeline of opportunities that start in '25. So -- but we -- I would say the nuances on the industrial development side, that will accelerate in '25 to '26 to '27.

Let's go over here, Mr. Kauffman here.

Jeff Kauffman, Vertical Research Partners. A question for Sean. I'm going to use an election analogy here, right? You got your core states where you're pretty sure you're going to win then you got your swing states where you're hoping for a good outcome. If I look at the key elements of your forecast, what parts of it are core and what parts are swing state.

Good question. Yes. And can you win in all the swing states.

Look, I mean, I don't know there's a whole lot of swing states. I think we feel pretty confident across every aspect of the forecast, right? We can't control the economy. But at the same time, as Kevin just said, and I talked about it in my part as well, we're not banking on significant economic growth in order to meet our numbers. So look, if the economy is kind of what it's been the last couple of years, that's supportive. Pricing gains, we keep a close eye on that. Obviously, the teams out there selling. The service product helps with that. Mike and Kevin being joined at the hip with our customers helps with that. There's trade-offs you make, but we track that every week, every month, and we're -- that will continue to be a key driver. And then the incremental margins, they're there. The capacity is there. And we've got -- all you need to do is talk with Mike a few minutes. There's opportunity out there, right? So there's cost to be had. The cash flow will get generated. We feel good about our ability to hit the capital numbers. We think that's going to -- that level of spend is going to be what we need in order to support the growth. And that's going to generate a lot of left over cash that we can invest and get back to you, the shareholders. So I think we feel good about each of the components of it.

Let's see [indiscernible]. Let's go over here in the front row. Again, Mr. Wade.

Great. Thank you. So I wanted to see if you could offer some thoughts on kind of quality of the new business that you get. Inherently, if you're taking truck business, you think, well, trucks are better at shorter length of haul. So it could be that the more natural incremental business you get might be shorter length of haul. So just wanted to see if you could offer some thoughts about that. Is that something we should consider as you take more share from the market over time? And then one for Mike in terms of how you think about the network and frequency versus length of trains. So you run longer trains, that is better, but maybe the customer doesn't see as much in frequency. So I know a lot of times things go the same way, help the customer help CSX. But how do you think about changing the network to kind of reduce frequency, increase train length and how that kind of could affect the customer.

Yes. I'll go first. When you see our industrial development pipeline, it's in very attractive industries when you think about metals and others. So I think that's very much a positive mix for our business. When you think about potential truck conversion, I think it runs the gamut. Some of it's shorter length of haul, which is on the inland ports that Mary Claire talked about on the intermodal side. It's a very good business for us. So maybe the ARPU doesn't show up at the levels at the average business, but it's a very, very profitable business because we can do it very, very efficiently from an operating perspective. So as Sean and we highlighted, this is not going after a business that has a lower margin profile for us across the portfolio. And there's a lot of opportunities in our most key markets when I talk about what we're doing on the chemical side, with quality carriers and transflow that's a business you want to bring on to the network. And traditionally, we haven't had the opportunities in those segments like we do going forward. So I don't think anything fundamentally changes with our mix in terms of the new business we're bringing on.

Yes. And Tom, when you talk about -- it's not so much train size. We start with the customer. always looking for efficiency. So yes, I'd like to have one drain out there if we can do it, but obviously, that doesn't work. But seriously, it starts with the customer, and that's where and Kevin could speak a little bit to it when I first came, one of the first things I wanted to make sure we weren't doing was just throwing a service out there and customers not really getting as much as -- or we weren't getting as much out of what we were putting in as what was there to have. And so we did reduce service, and it affects well. But we really stay close with the customer so that they can accept, that's the service that they can handle and that they need. But we're always looking to minimize the amount of activity in our railroad, whether it's in yards, whether it's on the main line. We don't want a lot of different separate activities going to separate little points on our network. We want to create mass, which then takes the noise, the exposures that are out there. It takes it out. So yes, bigger less of them, but really first, it starts with the customer, what do they need? And we find that we work that way. Customers are more than happy to work with us, change some of their processes. And then the last piece to it is we're not right about it, we change it back, right away. We don't like multiple failures. We don't like -- we don't get stubborn in our plan to get efficiencies is the way to go. If that doesn't work for the customer, we go back to the drawing board. And it's hard work, but that's what we're teaching everybody to do because that's where the value is.

Yes. I mean the difference has been really the communication when these opportunities -- when Casey and team and Mike are coming up with changes to the train plan, the we're communicating and we're getting in front of it. Does it impact the customer 90% of the time, very, very little impact to the customer. In fact, a lot of times, it actually is helpful from that area.

But when it does, we stop. We listen. That's number one. You'll get more from Chantel and Shannon on the train that talks about it, but really that's extremely important to us to the customer.

So a question over here and Mr. Seidl.

Thank you. First of all, Matt, Sandy or CSX team, thanks for hosting all of us here. This is going to be a sort of Casey and Mike, you guys did a great job with the Cumberland reconfiguration here. You mentioned that was, I think, $15 million in direct savings, but then you said, "Hey, we have 8 additional facility reconfigurations coming up. Can you give us some numbers around that in terms of what you think the total potential direct savings is? And then is that number in the longer-term guidance that Sean gave us?

I think it's no and no. So Jason, really what my focus has been on is learning the business, learning the network and these -- and then at the same time, there's a wealth of knowledge at this railway. So you can ask them, I have a [indiscernible]. Anybody that can come comes with me. And we found these 8 of -- there's probably 40 places. These are just the start and they really reflect where we either find we have a pinch point, a bottleneck or in the case of a Louisville where that automotive network is so important to us. We have an opportunity to just not just build resiliency into it but speed it up. And so those are the 8 things we're looking at. If something as simple as in Indianapolis, we have a hump yard. We have a 6,000-foot pullback track. The tracks coming -- the car trains coming in are 8,000 feet. Every time we go to pull it track to hump, there's 2,000 feet sitting, it's an extra exposure, it's an extra step. Guess what, extend the pullback. I know it's not rocket science, but it has to be part of an integrated plan that grows with Kevin and his team with Christina and Mary Claire and Arthur. So it's extremely integrated, and we're not projecting anything yet in terms of back over to second question, Sean, you can go ahead, Sean. But these are great opportunities that we just see over and above. And they spiral into other opportunities. Sorry, I'm going to take a minute here. At Cumberland, we did that work. And then in subsequent visits, we were there a few weeks ago, and we brought the whole team and we talked about, okay, what do we learn? What can we do different? What do we have to do still. And it came to bear that we were storing locomotives in a yard in Cumberland that we've now made adjacent to this one, and we've increased the blocking even more by moving the storage locomotive. It sounds simple, but when you bring people together and you include them and you allow them to say what they think.

Why were they storing them there.

They're storing them there because they were freight someone who's going to rip the track up. you want even more, we relay it 3 years before. It's brand new rail. I'm not saying it's everywhere, but it's -- there's a multitude of opportunities. And we will not do something unless it makes sense. So we have the 8 opportunities. We're going to do them in line when we need to do them as well. So it's a step approach.

I had them highlight the extra point because that's all this stuff fits together and so critically important. The on-site visit with everybody involved and creating a space in an environment and a culture where people are part of the solution and they work together and then they raise their hand and say, "Oh, by the way, what if we did this, and we didn't even know about it. And they were hiding it because they were worried that someone who's going to come in and because of what has happened in the past. That's -- those are out there. I will say for Sean's sake, Cumberland is a more exemplary example of opportunity because of the out-of-route miles opportunity. I wouldn't take 15 times 8 because of the just the extraordinary notion of that [indiscernible]. But there's -- as Mike said, there's a lot more.

Mr. Wetherbee.

Chris Wetherbee from Wells Fargo. I guess maybe a couple of questions for Sean. So I guess, first, when you talked about the next couple of years from an EPS perspective. I guess there's a couple of headwinds that you're highlighting for '25. So I just want to get a sense of '25 inside of the range of growth that you're talking about for all the metrics. I guess that would be the first question. And the second one is you outlined some of the opportunities for efficiencies in cost and asset utilization, fuel efficiency, those kinds of things. Is there a way to put a sort of number around what's capable sort of absent the volume opportunity or the macro opportunity? I know they go hand in hand because a lot of it is productivity, but is there any way you could kind of put some numbers around that would be helpful.

Yes. I mean we're not going to break out the year by year. And clearly, we're still putting our plans together for 2025. So I don't want to give you any kind of specific '25 guidance. But when you think about the 3 years, the growth in '26 and '27 is going to be higher than what we would expect for '25 because of some of the things I outlined. And then in terms of opportunities, there's plenty out there. I think the way that we think about it when we're building the plan is, here's the amount of cost inflation that we expect to have let's build up the pipeline that offsets most, if not all of that cost inflation. There will be some years where we get fully there. There are some of these years were a little bit below, but we've got the price to offset it as well.

Ravi Shanker, Morgan Stanley. Two questions, one for you, Kevin. Can you just talk about the mix of inland port. And how does that opportunity compare with domestic and international intermodal mix? And one for you, Sean, how do we think about how much pricing you need for -- to be accretive to margins net of inflation and mix?

Yes. I think from a profitability standpoint, as I mentioned before, I used it as an example, we can do it very, very efficiently, moving it from the port into the -- it's shorter length of haul. So ARPU might be a little bit below the average of the international side and even obviously, on the domestic side, so there is a mix factor in that, but at a very profitable level that we can deliver it. But we also have, obviously, a lot of opportunities on the domestic side to continue to grow that business, as Mary Claire pointed out as well.

Yes. We get a lot of questions about pricing being accretive to margins. It's just not really how we think about it. If we can price ahead of inflation, it's going to be a driver of bottom line growth. And we think that that's going to be maybe a couple of points a year towards mid- to high single-digit operating income growth. So some years, it may be a little bit accretive. Some years may be a little bit below that, but not meaningfully. So I think -- and I'm sure there's a margin question out there, so I'll just go ahead and hit it, right? You all can do the math. We did not put a specific margin target out there. But obviously, if you follow the logic of everything I laid out, you're going to do the math and you'll see that margins will improve over this time frame. We don't have a specific destination that we're headed towards, right? Because I think part of the reason we changed from OR focus to talk about the nomenclature of margins is getting people focused on growing the business, doing it profitably, driving efficiency. That's going to result in higher margins. And that's part of the model, just not something we're going to put a specific number around.

Mr. Vernon here in the front.

David Vernon with Bernstein. Thanks again for hosting us today. So Kevin, we talked a lot about industrial development as being a big driver of incremental growth, big carload potential opportunities in the pipeline. How do we think about the incremental impact into what we should actually putting in a model a couple of years out? Because I know there's always some amount of attrition year-to-year. Can you just help us think about what that baseline level of attrition is? And how much of that gross opportunity could actually come in to the network on an incremental basis.

Yes. I think when Cristina was going through her slide, you may not have caught it, but what she said when it was 1 to 2 points of incremental growth, particularly on the merchandise side. That's a net number that we expect. So typically, I think we've seen over time some of that slowing down now is 50 to 100 basis points of basically headwind that we go into every year given some of the, obviously, offshoring and those dynamics that have taken place, we do expect that to come down. Obviously, taxes, all those things are factors in that equation, but we do think that degradation is going to come down, and then we're adding a huge pipeline of opportunities top of that. So net-net, 1 to 2 basis points, and then we expect that to accelerate over the next couple of years.

Garrett, back in the row.

Garrett Holland with Baird. Thanks for having us. I'd be interested to hear more about the collaboration between sales and marketing and operations. Clearly, these are some pretty ambitious growth forecast from the operations side, how do you underwrite that especially with the focus potentially to take more resources out of the network. I'd be interested in hearing more about that collaboration.

It started when I got here, I stayed at Kevin's house for 3 months. So I know I got to start right at the ground floor. But we -- our operations team is lucky that we have a really good diverse book of business, and we have a stable railway. So it's allowed us to take the time to really take part in what Kevin and the team are out there doing. So we understand it from the customers view and we could take that back. And it's not about just taking out assets, just more efficiently using them. And so we spend an awful lot of time at each level working with each other. But I don't find -- I find it old hat. That's what I was used to -- this is it's how you run these companies. I mean we're a service provider. So that's second nature to what I think. So I'm probably bugging Kevin more often than he used to about what is it we're doing, what are we trying to do? And then we're really integrating our teams together. We have some serious. You're going give you on a business card today that we'll take a trip and we'll spend 12, 14 hours a collective group of people every day in this car, you're going to have lunch in. And it's a real office card. And that's where we've come up with many of the things you saw today, talking about them, sharing the ideas, but really leveraging everybody's expertise and creating one common goal. That's to serve the customer, create the value we know that's there and then return it to the people that support us. And so that's -- there's no broader chart for it. It's just how you do business.

I mean I'm having more fun than I have at CSX and a lot of it is because of just Mike and being able to interact with him every day. And we don't always agree on everything, but we can come to a solution. And he listens and we can figure out what's best for the customers. Sometimes, the revenue doesn't make sense for our network, and we can agree that it doesn't make sense. The cost factors are -- we're not going to go after business that doesn't make sense for the network and -- it doesn't -- that could impact negatively other customers. But having that communication channel, it starts with us. But I can tell you, and feel free to talk to the team today, the amount of collaboration that's occurring with Casey's team between Arthur and Mary Claire, it makes a difference. It really does because we have finding solutions very quickly. And if you're wasting time and taking months to make these decisions, the customers already moved along. And that's where I've just seen a dramatic change in our ability to react very, very quickly. And sometimes, the answer is no to customers, and that's fine. Let's get to that answer quickly.

We act as filters. But at the same time, if he comes to me and says, we need to do it, we do it. represents the customer better than anybody in the company, he and his team. So that works.

I don't forget my overall. I want to do a very prop. I also got a finance background. So that...

I think Mr. Oglenski, here in the back.

Brandon Oglenski from Barclays. Thanks for having us down here. Sean, maybe if I can just ask it another way for 2025. You did mention 3 things. The tunnel expansion, I think the hurricane impact as well as lower domestic coal. Can you just quantify any of those for us? And then, Joe, maybe longer term here, you guys have definitely departed from conference negotiations with your unions. What have been the initial benefits that you've gotten out of these new agreements that you've been kind of leading here?

Yes. I mean, it's a little too early for me to give you specific quantification around each of those because they're a bit of a moving target, right? We're still honing some estimates. And look, there are some things we're doing to try to reduce the cost of the reroutes and do it smarter and cheaper. So they're big enough that they're worth mentioning, but we'll give you more details on that in a couple of months.

I think on the union side, just quickly, -- there's so many ways to address this and talk about it, so I'll try to be quick. I mean, first of all, I can tell you without hesitation that the most disappointing thing that affected our employees in the last couple of years was how the last round negotiations went. When I'm out in the field every week, Mike and the team, that made our employees feel devalued not important, not part of the team, all these things, took 3 years, didn't get a raise, had to fight for, had to go to Congress, all those things. So just the fact that we've been able to get in front of it is just such a different environment. And our people appreciate it. They mentioned it to me when we're out. They appreciate it. They always want more, especially with all the noise going on around things, but they understand that we're working hard to find solutions, and we're doing it collaboratively and together, all the railroads in different places, and that's what makes coalition bargaining very difficult. We're all in different places, starting points are different and the contracts are different. And that, I think, is broadly misunderstood by a lot of people. And so we may have a unique issue with Smart TD and someone else making a unique issue with BLAT and someone else with BRS or B&A doesn't. And so it's just -- it's challenging. But I'm really encouraged by the pattern that's been established for lack of a better term with [indiscernible] and BNSF coming along. And I think we've got a good baseline. Importantly, our union partners want to work with us to find solutions. And our belief is that we get the national type things behind us, wages, benefits, vacation, those kind of things. We can expect the next 5 years, working on the things that make this railroad safer, more efficient and better for the customers and then profitably grow. And our employees want that. They really do. I mean they certainly want a safer environment. They want to serve customers. No one comes in today, say now I don't want to serve the customer. And they certainly want it to be more efficient. They have their own views on what efficiency looks like work-life balance, scheduling. So their vantage point is different, but we weave that together. But we have to create the time and energy and relationship to work on that. And with -- and if you're always fighting over national negotiations, you don't get into that you don't get the time and energy and the relationship to work that. So really important. It's all part of what you're hearing here. I think we're wrapping up. So I guess I can -- I'll transition because we want to make sure we stay on time. Sorry, we didn't get to everybody's question, but we're going to be together for those of you that are here for the next several hours, so please grab us. I'll stay seated because there's no reason to kind of preach. When you think about the environment that we're in. And I think I'll take that. So when you think about where we are, and I think this team has done a great job of showing you not only the journey we've been on, and I think the CSX team deserves tremendous credit for that journey. It wasn't straight line, it wasn't easy. And what we've accomplished in the 2 years I've been here and the potential of this business is amazing, and that's why it gets us so excited. But it's -- but there's so many more components to this that I want to highlight. When I started 25 months ago, and I remember what Matt and I were sitting down and talking about we're going to talk to customers -- sorry, we're going to talk to investors and the analysts and then we still have a big strategy. You can see I've talked to a lot of customers we said we're going to focus on our employee culture, the employee engagement to lead to better customer service. That comes from someone like myself who had benefit of this relationship for decades. And frankly, you didn't feel like the railroads provided the kind of service we deserved and frankly didn't prioritize those. Okay. And we talked about the interplay between you can't create the service. Mike said it several times, and I love hearing it, that we're a service business. You can't create the service that we expect and our customers deserve without having your employees engaged part of the solution and wanting to do that and motivated to do that. We've added safety to that because, of course, we've had some fatalities and also importantly, what's happened in our industry. They're all related. But I want to go back to where Sean took us, which is we've delivered, we have a proven model. It's getting better, and we have the team to make it even better and to do what we said. Now the team today want to lay out. The vision that we see, not in a 5-, 10-year horizon, 3 years, that's within planning time frame. And that's without major changes in the economy, doable from what we see the lens we have into the business. It's very exciting, and it's a big opportunity. And we're highly motivated by as you can see. But let me just describe this to you. One of the joyous of this job for me is that I get to kind of be the coach. When you have talented teams, talented players, your job as a coach is to put them in the right positions, make sure they're a team, they're working well together and you have the right strategy and the right plan. To win. We have a talented team. Most of those people were here when I got here, 90% of our VPs and above were here when I got here. All right? We brought some operating people in. We're really glad Mike joined us and some others in the operations side. But this is the team that's been together for quite some time and has learned a lot and has been through a lot and deliver the results that Sean said. But you can have faith and confidence in this team. You can also have faith and confidence that this team is working extremely well together. You can't fake that. And having worked 10 years at General Motors, 19 years at Ford, a couple of years in private equity, 2 years now at CSX, been on several boards. That is the magic. Talented people working together, motivated to deliver the same goals, that's what you achieve or if try to strive to achieve that's where the power comes in. We have the same locomotives as other railroads. We have the same steel. We have the same ties with the same unions, all of the above. What's the difference of CSX. It's the operating model, the track record of success, the team and how we work together. And importantly, the culture that we're establishing. And what we said 2 years ago, our stretch goal, the stretch goal at the time because my first day on the job, we had a town hall and I said, "I have to tell you guys and ladies a generic term. I got to tell you, most of our customers are doing business real because they have do not because they want to. What if we could create customer advocacy for rail? What if we could treat customers in a way that they want to use rail because they should use rail. There's all kinds of reasons, economic reasons, environmental reasons, safety reasons, all kinds of business reasons why they should, but we treated them so poorly. They couldn't count on us. They had to go somewhere else, even though it was as good a business for them. So what if we create an environment at CSX, where we're all here to serve the customer. How many times have you heard it come from Casey and Mike's words. They're the operating guys that we create an environment where we are focused on serving the customer, doing that efficiently and safely. There's good business reasons why customers should do more business with rail. We already have that. With lower costs, we're better for the environment. We're better for the taxpayer. We're better for congestion. We're better for all these things. It took -- it takes us working together to be motivated every day to serve that customer. And you can't do that if your employees aren't part of that. If they don't feel empowered to be a part of that, they don't feel valued appreciated respect it included and listen to. That's why ONE CSX is so important. And positive energy and teamwork is infectious. It creates energy, it creates opportunity, and it delivers great results. That's what differentiates CSX. We didn't have to ask these customers to say we could have had 12 -- 24 more customers come up here, because they want CSX to be successful. They want railroads to be successful. I say all the time, people love trains. They don't love railroads. We can make them love railroads by how we treat people and how we -- because we're such an important part of the economy, and that's the higher purpose. You can get people motivated to do that. When your higher purpose is that safety, customer service efficiency and you come into work every day, working together to serve a customer and profitably grow that business, who can't get behind that. And then we share that with our employees, with our shareholders, everybody wins. Sounds really great. Hard-to-do. Hard to do. Mike and I have the benefit of having retired. When you retire for a couple of years, you get to reflect on life a little bit and you get to think about what would I do differently next time? And you also get to say, "Man, I want to -- if I'm going to do something, I know we're going to do it right this time. This is fun, not easy every day. I don't like hurricanes and things are going to happen. But this team is amazing. This team is working together. Kevin, you said it? I move Kevin and Mike's office down right next to mine, so we get a lot of quality time together when Mike came. And it's so much fun. And the energy that comes from everybody wearing a CSX shirt, and it's like, why is everybody wearing CSX shirt. Why do you do out that? Because we're on the same team, and we're proud to be on that same team. And we're winning and we're going to keep winning because we support each other, we care about each other and we're here to serve the customer, that's why businesses exist. And then the shareholders get returns, by serving the customer well and doing that in a way that's better than -- that has provided returns over your cost structure. We can do that. So I'll leave you with that. There's so much opportunity still in this railroad. And we have a phenomenal team. It is everybody. I appreciate railway age naming a railroad of the year, but CSX is the railroad of the year. And that's how we think about it. It's everybody. And when we get 23,000 people working together with the ONE CSX culture, we can do more than what you see on here. If we're at a double-digit, again trouble here. If we're not in double-digit EPS growth, that would be disappointing because of the potential of this business. And so what an opportunity that we have. And so we wanted to share that with you, and we're creating customer advocacy. ADM does more business with CSX than it's physically connected to, and we talked about that last night. WestRock did a longer-term contract with us because of the relationship. These are the kinds of things that are part of that advocacy and that's what these teams are doing, and that's what we're committed to doing. And it's a phenomenal opportunity to growth. And I can -- it's easier to say now than it was 2 days ago, but I was going to say, with all of this, why in the world do we have the lowest multiple in our industry, but the last couple of days to help correct a little bit of that. But seriously, we have growth potential, undeniable. We have a great track record, undeniable. We have a great team. I hope you believe that. I'm not going to say undeniable because you got -- that's not for me to say. And we're working well together, and we're delivering -- so what an opportunity? I'm excited about it, wake up every day, and I'm proud to work with this team. I'm excited about what we can do and we're -- we never take for those of the investors in the room or on the webcast never take your investment for granted. We appreciate it. We respect it. We cherish it. We're stewards of your capital, and this franchise that we get to lead, we take it very seriously, but we want to do it the right way, make it sustainable. There's a reason why we haven't grown in this industry, it's because we didn't get customer advocacy because we didn't treat customers as the valued customers that they are. We are doing that at CSX, and we're going to keep doing that. And we'll do it efficiently. One of the best things about this business that I've learned is the only way you can serve the customers better is if you get more efficient in the network. They're not in conflict. Yes, sure, you could add a bunch of short trains and small trains. That's not -- but that's not efficient, but it comes a network up and frankly, then you've got the problem with the network. So the best way to do that is what we -- is how we're doing it. So they're not in conflict. Yes, I think you've seen that. What an opportunity we have, we're excited about it. We're glad you're here. We're glad you joined us, and we look forward to what we can show you in the next 3 years. Okay. Let's go on a train ride.

Thank you. All right.