Norfolk Southern Corporation (NSC) Earnings Call Transcript & Summary

All right. Good afternoon, and welcome back, and thanks for joining our discussion with Norfolk Southern. We have the CFO, Mark George; and CMO, Alan Shaw. I'm Brian Ossenbeck. I cover transports and logistics for JPMorgan. We're excited to have both Mark and Alan here today. They're going to be able to cover a lot of ground. They're going to start off with a quick slide introduction, just a quick business update. If you have any questions, just like the rest of the day and yesterday, just put them in the chat box, I'll see them online. And I'll be able to try to work those through into the conversations as we go along. So with that, welcome, Mark and Alan. Let me thank you for joining. Let me turn it over to you to get us started.

Thanks, Brian. I'll start with a couple of slides and hand off to Alan. But before we get going here, as a reminder, today's presentation will include certain forward-looking statements, which are subject to risks and uncertainties. As noted in our 10-K, and I'll plan to speak to adjusted 2020 results. Recall, in the first quarter, we had a noncash charge of $385 million related to rationalization of 703 locomotives. And in the third quarter, we had a $99 million noncash impairment charge related to an equity investment write-down. So any reference made to 2020 excludes both of those charges. And you should refer to the non-GAAP reconciliation posted on our website under this event. You can see here on this Slide 3, 2020 results were against a very difficult backdrop for the year with volumes that were down 12%. But with our continued focus on productivity, it allowed us to more than match the rate of volume decline with expense reductions in the range of 14%, and that helped drive a 30 basis point improvement in OR. With the exception of the economic shutdown that we had in the second quarter and the accompanying 26% volume decline in that period, we consistently drove strong margin improvement in the 230 to 240 basis point range. So 2020 did mark a significant year for us of structural changes within the company. We idled 4 hump yards, 2 of which were in the second quarter. And we reengineered our network train plan as volumes returned in the second half of the year, and that helped us produce very strong incremental margins of 78% and 67% in the third and fourth quarters, respectively. We achieved these incrementals by running longer and heavier trains, which produced record fuel efficiency, and we also rationalized assets and resources that were no longer needed. And as you see, our workforce was 18% smaller in 2020. But importantly, it was much more productive. Digging a little bit deeper in on the productivity theme on Slide 4. You see it provides a view of our workforce productivity by 2 distinct measures, whether you look at this through the lens of units per employee or GTMs per employee, you'll see our intense focus on productivity through the first 2 years of our 3-year plan. These metrics are up 28% and 20%, respectively, from the first quarter of '19 to the fourth quarter of 2020. And as we said on the fourth quarter call, our goal for 2020 is to maintain headcount that is either flat or lower than where we exited 2020, absorbing the anticipated volume. And while a lot of that productivity is a function of our PSR adoption and the changes we've made to our train plan, keep in mind that a lot of productivity gains are also enabled by technology improvements that we've made. And I'd say that our continued investment in technology will drive more productivity into the future as well as other benefits. We're very proud of the meaningful progress we've made throughout this period, but we're very confident that we've got more runway ahead of us. So let me hand it over to Alan now for thoughts on the 2021 markets.

Thanks, Mark. The year started off pretty hard for us. And we had broad strength across all of our markets, including our coal franchise in January. And we were actually running about 3% above plan in terms of volume in January and frankly, about 3% above last year. And then February, the storms that plagued the whole North American transportation network hit. And in fact on our network on our interline partners and our customers' franchises too as well as the drayage community. And so we saw a pretty steep downturn in volume sequentially in February, and we actually exited February with volumes about 7% over prior year levels. We were pretty confident at that point that we really hadn't seen a lot of demand destruction that this was kind of an anomaly caused by disruptions associated with the weather, and that volumes would return sharply. And we've seen that as we moved through the last 3 weeks. And so far, through March, our volumes are up about 10% year-over-year, again, with broad strength across all of our markets. I'll flip over to the next slide. Our growth outlook, and we were pretty forward-leaning and pretty specific. And our guidance for this year was 9% revenue growth for the year. We still feel very comfortable with that. If anything, the underlying macro economy has improved. We see more strength in our intermodal franchise, the merchandise network. And the merchandise customers have increased their demand for utilization of our product. And we're starting to see strength in commodity prices as well, which will create more opportunities for us. I've previously highlighted the opportunity in the export thermal sector as being something where we've got pretty clear guidance to strong growth at least through the first half of the year that recognize the RPU drag that, that has on our coal franchise and overall. But we are still very happy to handle that business. We're still dealing with elevated stockpiles within the domestic utility sector. Although they are down below where they were in January, it's still elevated compared to target. And our utility customers, frankly, are adjusting their targeted levels for inventory and pulling it down. Within merchandise, we see a great opportunity for inventory replenishment. We had some pushback in the auto sector associated with the semiconductor shortage. But again, I think that -- all that does is push volume out of the first quarter into the second quarter and into the third. So in summary, from a market outlook, Mark, I think despite the downturn that we saw in February, which is unanticipated, we still are confident in our 9% year-over-year full year revenue growth.

Yes. And you can see here on this outlook slide, wanted to put this up again because the special circumstances and all the interest and what happened here in February, thanks to the polar vortex, we wanted to just reiterate that we don't think it impacts us for the year. We still feel good, as Alan mentioned, on that 9% year-over-year revenue growth, high single-digit volume growth. Yes, we do see coal still in secular decline, even if we get some near-term upside, in particular, with export thermal right now. But generally speaking, we feel like February's events don't really adversely impact our outlook for the year on the top line. And even on the cost side, we still feel confident, we are going to drive the OR improvement that we originally guided with over 300 basis points of improvement year-over-year on an adjusted basis versus 2020. And we'll be getting into that 60% run rate during the year. And we're not done there, we'll go down below 60. And our capital allocation, we feel really strong about our liquidity. Yes, we're going to spend roughly $1.6 billion in CapEx as we go through this year. But we're going to pay out a dividend that we just recently increased and announced on the fourth quarter earnings call. And I expect a very healthy level of share repurchase activity as we go through the year. So all in all, we think it feels good. Still, notwithstanding the disruption we had in February. And look, we remain very focused on creating long-term shareholder value and value for our customers through continued network efficiencies that we're building in. So I guess with that, Brian, we're ready for Q&A.

Okay. Great. Thank you very much for running us through the overview there. One thing we've heard from all the rails so far is just the impact of fuel that's gone up quite a bit. Obviously, there's a lag in terms of the surcharge, and then there's an OR impact as well. So I don't think Norfolk is any different, but you have in the past had some different surcharges that they're more tied to WTI. I think those have kind of all rolled off. So maybe you can start with just giving us a sense as how we should think about fuel going up? And then what it means in the short-term from a cost and an OR perspective?

We'll tag team this. But I mean, what do we say, roughly 80% or so of our contracts were tied to on-highway diesel then...

85% of our revenue base is tied to on-highway diesel and basically, anything in the money right now, Brian, is associated with on-highway diesel. From a revenue standpoint, as fuel prices go up, it will increase demand for our service product. And so that will create some tailwinds for us from a volume perspective as well. So that's a positive for us.

Yes. So as we deal with the inflation on the cost side of the P&L, the structure of what we've done here tying the contracts on-highway diesel, we really view this as a cost recovery mechanism. So it's going to provide a headwind on the cost, but it will be offset with the surcharges. So no real drama here.

And I think the bigger story for us within fuel is our continuing efforts at our fuel efficiency.

Absolutely. So we had -- to that point -- thanks, Alan. We had 5% efficiency gain last year, and we have a lot of activities in the hopper to continue that momentum of driving more and more fuel efficiency. And obviously, the benefit of the efficiency is more acute, the higher the fuel prices are. So the 5% that we gained last year when we only spent $0.5 billion on fuel compared to 2 years ago when we spent $900 million on fuel is a big difference. So now as fuel prices rise, we'll harvest the benefit of our efficiency gains. And those efficiency gains are really driven by the multiple initiatives, but one is the DC to AC conversions that we're doing. We've got roughly 56% of our fleet today that's now been converted to AC, and we're on a path to get about 2/3 of our fleet AC ready by 2022 during this program that we have. So that's one thing. We've got about 95% of our road fleet enabled with energy management systems. And so you might think, well, okay, you're already fully penetrated there, but the reality is we are integrating EM now with PTC to make it even more beneficial in driving fuel efficiencies. So we've got that as runway. And then I'd say the third big thing that we're doing. Obviously, we're making heavier, longer trains, which is good for fuel efficiency. But Cindy is really trying to drive focus on what she calls full pin, making sure that we don't waste any capacity of locomotive-tractive capacity. So if you've got room to fit another 20, 30 cars on a train without adding another locomotive, that's what we need to do to make sure that we don't waste any particular capacity and maximize our fuel efficiencies. So there's a lot more focus on the transportation side to leverage our capacity and drive fuel efficiency.

Okay. So I think we'll get probably a little bit more into the fuel side and the operating stuff a little bit later, but it does help to understand the lag impact on the expense side. I guess just to be clear, though, if you have a higher fuel surcharge revenue coming through at a higher OR, I mean, that will just have an optical impact on OR itself. Clearly, you haven't guided to first quarter, but at least that's just the way the math works, is it correct?

That's correct.

Okay. Okay. So just thinking about the -- going back to the network and the weather, the resiliency does seem to have improved. We saw in the last quarter with -- everybody had service challenges with [indiscernible]. Weather hasn't made it any easier, but Norfolk, I think, has been performing better than we would have expected and better in the past. So when you look at the network and some of the pinch points, is that a fair assessment? Like things have really started to gain momentum or turn a corner? Or these were proof points that you feel better about how the network is coming together?

Yes, I think where we've seen issues within our network, Brian, has been in our northern region. And that is a result of kind of us reopening and gaining fluidity and frankly, the western roads also. And so we -- right now, we're in the process of -- lack of -- and we're processing a bevel of freight that's moving across the northern region. And we're iterating, we're iterating our plan. We're adjusting things. We're moving around some resources in order to handle that and improve the fluidity. That's where our focus is right now is in the north as you attend it with the weather disruptions.

Okay. Got it. So when you think of just volume in general and pricing, and especially in this sort of environment where you've got strong areas in both and some of it is not necessarily balanced. Alan, you've had RPU growth less fuel for, I think, last 12 quarters, 16 quarters actually for intermodal, longer than that for merchandise. So how do you think about the pivot between those or the balance, rather, between continuing to grow and yielding up? Is it maybe time to start to grow a little bit more? How do you have that balance figured out in the 9% and the full year outlook for this year?

Yes. Thank you for that, Brian. It is -- as you know, it's a 16 consecutive quarters of RPU ex fuel and merchandise growth -- pardon me in intermodal and 23 in merchandise. So frankly, what that tells you, I repeat that. Number one, it makes it proud. Number two, it's reflective of a long-term strategy. You just don't get that by pivoting. And the long-term strategy for us really is about margin growth and providing a good product for our customers. Margin growth is important because that incorporates elements of volume, elements of price and elements of productivity. We will continue to focus on margin growth is our primary objective. I think this year is going to be a great year for volume growth. And the macro outlook is actually a little bit better than what we based our forecast on late last year. We take a long-term view of things with our contracts, with our customers. We don't chase the spot market. And so as a result, you saw our RPU strength and our yield -- the yield that we delivered to our shareholders and to the bottom line as we dealt with a freight recession in 2019 and the pandemic in 2020. As a result, you're not going to see a huge uptick in RPU in 2021, attendant with improvements in spot trucking. We're going to take a long-term approach to this. And over time, we will continue to outperform the truck market and our pricing.

So when you look at the capacity, excuse me, on the network, how do you feel about handling that growth, maybe we can start with just the network in general, the line haul, the terminals. Mark you mentioned that Cindy is pushing a lot of the operational knowledge or the framework that she's bringing to the table into the field. How do you feel that, that's been received? Is it all the way out there in the first version? And just in general, how you view capacity when you're looking at some pretty healthy growth potential this year?

From a train network, I'm very confident in our capacity. The ability to run a blended network as part of PSR, gives you a lot more flexibility to add business into your network without launching new trains. As energy markets move up, that typically utilizes unit trains. And so that will create the need to add some trains. But that's pretty much in pretty defined corridors, as you can imagine. The rest of the stuff, the consumer-oriented, manufacturing-oriented markets that we serve generally move into this blended hybrid network of ours in which we're really focused, as Mark noted before, on an increasing train size, which improves locomotive utilization, fuel efficiency and labor productivity. A proof point of that, Brian, is the fact that our intermodal franchise, we have generally increased train weight by about 20% and train length by about 14%. So we're handling this double-digit increase in growth in intermodal without adding any additional trends.

And that, of course, means that you're not creating congestion -- more congestion into the network because you're not adding trains, you're just adding cars and length. So that's part of the whole overall strategy that Cindy is certainly bringing in as well as eliminating some of the excess assets by turning cars faster you need fewer cars on the network in the yards, and that also enables more fluidity as volumes come in. So that's another big focal point. So I speak for both of us. We believe that the strategy is good and will enable us to handle the volume that we do see coming. There's certainly a learning curve that's coming from a lot of the initiatives Cindy is bringing, but she is a great teacher. She's flattened her organization, and she's speaking directly to her people in the field. And she brought in some talent from the outside as well to help her. So we feel as though the seeds are being planted, and we're starting to see sprouts come up to really transform this network to the next level. Anything else to add?

No. We're making good progress.

So when you look at the headcount side, Mark, you mentioned down -- basically down 4%, which is the guide for the year and high single-digit volume growth. I just want to make sure I understood. It sounded like maybe there's some challenges in the Northeast. So are those being addressed through moving people around at this point? And just generally speaking, how do you feel about bringing the right number of people back in the right spot what you have lined up what the pipeline looks like, if growth does exceed to the upside. So if you can address those to the Northeast and then just generally for the rest of the year, how you feel labor wise?

Yes. We wouldn't attribute the challenges that we're seeing up north to lack of headcount as much as some of the plan changes that we've had, some of the learning curve that's been associated with some of the changes we're making, the weather, of course, other episodic events. But we don't feel as though we have an issue from a headcount perspective that's causing those. So -- and with regard to the second point, look, I think if there's an increase in commodity levels that increase the unit train counts that are out there, we need to add crews to handle those, bring it on because that's good business to have, and we're perfectly happy adding crews as we need it, for sure. But for the rest of the volume, to the extent that it's coming in intermodal in particular, or other areas where we can just make our trains longer, that's our strategy just to basically continue what we proved out to ourselves in the third quarter or the fourth quarter when volumes really surged back and we saw our ability to grow our trains. We did it. And as Alan said, we didn't just make the trains longer, he alluded to, we made in the case of intermodal, we made them higher. And we added more weight than we did length, and that's a big deal. So that's been our key to being able to put a lid on headcount as we've head with -- as we've dealt with the volume growth and that's kind of what we see as a road map playing out here in 2021. Again, there will be areas where we have unit growth -- unit trains that we'll be adding headcount maybe in specific geographies to handle that. But I think that's on the margins.

Yes. I think a perfect example of that, Brian, is the export thermal coal. As you know, that generally originates on the Monongahela and goes through Baltimore, we had good foresight into that. We've got a very good contract structure, which allows us to play along with our customers. The marketing department gave good notice to our ops team. And our ops team make sure that we have the resources in place, and that's one of the reasons you see the strength in our coal numbers right now is because of our ability to adjust very quickly to market conditions and a willingness to add resources where it creates margin improvement for our shareholders. We're not dogmatic about any one component of our strategy. We're going to adjust to what the market offers.

So leaning off to the coal side, and it's obviously been a challenging market for some time, probably will be for a while other than these episodic export cycles that we see. But is that -- does that somehow impede the ability to improve fuel economy when you look at the next couple of years. Clearly, it's been pretty good growth trajectory in recent times in growing the fuel economy. But does that -- does that become harder when you have less coal on the network. You mentioned the PTC integration. So that would be another interesting point if you can expand on as well.

I'll answer that in the other direction. We've proven that we can improve our fuel efficiency in a declining coal environment. So and -- and we've proven we can improve our fuel efficiency in a rapid growth environment in intermodal. So that's part of our plan. Our intermodal -- our consumer-facing franchise is one of the unique strengths of Norfolk Southern. Our diverse merchandise market is one of the unique strengths of Norfolk Southern. We face the fastest-growing segments of the U.S. economy, and we're embracing that from both a top line perspective and an opportunity to run a blended train network and accommodate that growth without very much incremental cost or train starts, which leads to these pretty strong incremental margins that we've been delivering.

It wasn't too long ago that coal was more than 20% of our business, and now it's less than 10%. And during that decline, we improved fuel efficiency. And yes, it was a headwind. Coal going down was a headwind to fuel efficiency during that time, but we still delivered net efficiency gains. So we will continue to be, as fuel -- as coal goes down, it will continue to be a headwind to fuel economy, but we still think we'll deliver net gains overall.

Okay. And then the point on PTC in terms of just -- it's now in everybody's system and everybody's network as the end of last year. You've been clearly working on this for quite some time. It does sound like maybe there are some areas to get a little bit of benefit now that it's in place. So is there anything else that you're looking at, testing, excited about when it comes to finally putting this tool, this mandate into action in the field?

Well, I'll -- I mean, clearly, the way we're integrating PTC with energy management, as I touched upon, is going to provide us some benefits, certainly in the case of the fuel efficiency. I think there's leverage we can do on the communications side with regard to new technology that PTC brings compared to some of the legacy technology. And there's also more remote data access that we'll have today in the locomotives that we didn't have in the legacy. So we're really just now scratching the surface on all the capabilities. But I think certainly, the holy grail that this enables is autonomy as well. So we're really working on an overall plan on how to fully leverage all the benefits. Alan, do you have any other thoughts?

From a customer-facing standpoint, Brian, as you can imagine, it's just this enormous data platform. And as we talk about providing a truck-like product with transparency and visibility, it provides the opportunity for us to put a lot of data and a lot of information in front of our customers as about the location of current shipments and estimated time of arrival, which is what's important to our customers. So we're excited about that aspect of it as well in addition to the productivity initiatives that Mark articulated.

When PTC was mandated, it was billions of dollar investment for the industry. And I think at the time, the view was there's going to be no return on this. It's just you have to do it for safety purposes. And I think, fortunately, as an industry and as a company, we've all recognized that, no, there's something to be harvested and leveraged here to our benefit to create a return. So I'm very proud that the organization has been looking at all the areas where we can look at PTC as a point of leverage now.

So when you look at the conversion, you mentioned, Alan, or at least the truck-like service, leading to conversion. What is it -- are you seeing any momentum in that with a tight market in truck and just with capacity overall, what are customers are asking for? You alluded to it just a minute ago, but what are they saying you don't have yet or why they aren't doing it. And I guess in the long term, what makes it sticky? Why won't they just go back to truck when the rates go back down.

Yes. We are seeing opportunities for truck conversions. Our revenue in our intermodal franchise grew a 29% and from 2016 to 2019, and truck revenue grew by 17% during that period. So we've proven that we can convert business from the highway. Our focus is on doing it in our merchandise franchise as well. And as you point to, making it cycle agnostic. And I think the way you do that going forward are a number of things. You've got to provide a very consistent and reliable underlying service product. It doesn't have to be as fast as truck. It's kind of -- particularly in the intermodal franchise, it's got approach of truck in terms of speed, but it's got to be consistent and reliable. So our customers and the warehouses and the drayage community can plan their activity around it. You got to make it as easy to do business with rail as it is with truck. That's a place where rail is not yet. You've got to offer a great level of visibility and transparency. And you have to understand that you operate in this whole supply chain ecosystem. 50% of our business originates or terminates on another railroad. And so we've got to stitch that -- those different legs together for our customers so that you can effectively offer something of a door-to-door like solution, which is exactly the ease of doing business that truck offers. Our focus right now is offering the simplicity of truck with the efficiency of rail because we firmly believe that for any appreciable length of haul, rail is going to have a cost advantage relative to truck. What's becoming increasingly important to our customers, to our shareholders and to our employees is sustainability. Rail will offer -- also offer a competitive advantage there as well. As you know, we've served a majority of the consumption in the U.S. economy. And we believe that with kind of trends that were accelerated by the pandemic for positioning of inventory and willingness to hold a little bit more inventory in warehouses closer to the consumer, sustainability and growth in e-commerce, which is particularly intermodal and sensitive that we're positioned very well for where macro trends are headed.

Okay. And on the ESG front, do you feel like you're having conversations where people are actually making the conversion from truck to rail? Or is that still kind of working...

Yes, we are. It's a new discussion because a lot of times, as we talk to our customers, the person who's making transportation decisions may not be the same person who's making sustainability decisions, right? And so we've got to -- we have to make sure we're talking to the right people. But we've got a broad swath of customers and basically our merchandise space and then our intermodal space and our BCOs who are very interested in having that conversation.

Got it. Just coming back to the operating, and we've got about 10 minutes left here. Coming back to the operating leverage in the model and Mark you shared some of the productivity stats, which are pretty strong from a labor perspective. But you look at the revenue growth, OR guidance, that implies incremental margins year-over-year in 75% to 80% range, which is pretty strong. So it sounds like that's still on the table because you haven't changed the guidance. But what are -- how do you get confidence in that? Because I think -- and you alluded to earlier, the last time we saw the strong leverage was basically in the third quarter. And that was on like 20% sequential volume gains. So not that, that was easy, but at least you had a huge lever going in the right direction. So high single digits, still getting similar sort of results. What gives you confidence in making that big change or big step change this year?

Yes. Look, certainly, we challenged ourselves. I mean, this is an aggressive goal. We proved ourselves in the third quarter and the fourth quarter that we can deliver big incrementals. We've got the strategy to do that with -- like we talked about lengthening the trains and leveraging our existing resources. So we do feel as though the path is there for us to do it. On top of it, think about it this way. We've got an average train length today that's a little bit north of 7,000 feet. Yet today, 20% of our trains roughly operate at 10,000 feet. So we know if we can just bring the other 80% up closer to average, we're going to have an ability to really limit the number of new additional crew starts and just make the trains longer. That was the road map that we followed in the third quarter and the fourth quarter. We're challenging ourselves to do it again. And yes, as we talked about, when we do have unit type of volume, we will add those crews and do what it takes on a headcount perspective to get the business because it's really attractive business. But the preponderance of this growth that we see coming should allow us to leverage our existing resources. So that's really where we're going to go. On top of that, I think you've got to combine it with the work Alan and his group is doing on yield up. And those 2 things combined really help us get into that incremental range of margins.

Is there -- are there any restrictions or I guess, physical restrictions when it comes to sidings or grade crossings. When you take that much -- assuming you're not banking on all the [indiscernible], but what could be the, I guess, the challenge of getting there just from your network perspective?

It's an excellent question. Yes, look, our network, we've got tons of capacity up north. We've got a lot of double track; in some cases, triple track up north. And we were really unrestricted from a train length perspective. We do have more restrictions as you get south. In many cases, a significant restriction. So in fact, I just authorized, Cindy, to go and do a siding extension somewhere in the southern network for exactly this purpose. So we will start to allocate some level of capital to afford our strategy of longer trains in key geographic areas.

Yes. And that new side and it fits within our capital plan that you have articulated already, right?

Yes.

The other thing that we're doing, Brian, is we're continuing to work with our unit train customers to increase the length of those trains to match the attractive effort the locomotive configuration that we put into that lane as well.

Okay. So it is twofold. It's the mixed unit trains blended and balanced, getting that together. And then also, whatever it has sustained unit or risen unit, working to get those longer as well. Do you have to offer anything to customers to get that done? How are they receptive to doing that? I mean at some level, it's a win-win, but it might not be an easy conversation to start. How does that work?

It's generally not too difficult because if you can work with your customers to give them a bigger train, there's more product that they can handle. And in return if they agree to load it or unload it within a certain specified time period, then we'll believe the locomotives attached. And so they will -- they'll receive a much better service product. And we'll improve our locomotive efficiency as well. So we're both aligned on the goals there.

Okay. I probably have time for 2 more questions. One that just came in, and it ties in with the efficiency perspective. Like if you're making trains longer, should we see the speed slow down a little bit? I guess the question is, how do we know it's working? And if there's other things that we should be mindful of that, hey, the train speed might come down, the total miles go up, but the net result is a positive. And I think we saw that a bit last year, just generally speaking, across the industry. But is that something that we should be sort of prepared for? Or can you get the bigger trains moving at higher speeds.

The longer trains won't generally result in a material degradation in miles, train speed miles per hour. What does impact overall train speed are work events. And so if you've got a train originate from one terminal going to another one, say it's going from Chicago to Conway. And you want to make a stop and do a work event in the interim and pick up more additional business or set off additional business. That will impact overall train speed. But just long trains in general will not. Does that make sense?

Yes, that makes sense. So I think just to wrap up here, maybe one more for you, Alan. When you think about growth and growing faster than the economy, clearly trade wars, pandemic, if anything is challenging for the industrial economy. What do you -- how are you positioning the development pipeline from the industrial side with some of the land holdings, especially as the network has gotten leaner. You probably don't need as many. Is transloading something that we should be thinking of more broadly speaking, when you look to do more truck conversion on the merchandise side, putting more dots on the map for the East Coast ports. Like how does that fit into your strategy now and in the future?

That's a big part of our strategy, Brian. As you know, we've got a best-in-class industrial development team reports up through marketing. We've got a real estate team that Mark has kind of challenged us, and I am as well to think about assets in terms of what you could generate from sales, but also, is there an opportunity to use that to generate recurring revenue. The best kind of recurring revenue for us would be recurring revenue, that results in additional volume. And so we've got some unique real estate assets that we're basically challenging our team and our industrial development team to see if they can sight new industries on there or transload opportunities. Ultimately, transload extends our reach beyond our tracks just like our -- the 250-plus short lines that we serve. And ultimately, transload helps you offer a more flexible door-to-door product to your customers. So that is a part of our growth strategy. As I noted before, within merchandise, we're going to be handling less and less commodities and more and more of the consumer-oriented product within merchandise, which probably requires more flexibility, smaller shipment sizes, maybe even a door-to-door solution, which fits -- which would fit neatly into that product.

And the door-to-door is something you would partner with, not necessarily look to build up on your own?

Yes. That's not a core competency of ours. We've got a triple crown network that does some of that within the auto parts network, and they do it very well. But there are other folks out there who can provide drayage who are more efficient at it than we are because frankly, they've got greater scope, greater scale and they can deliver kind of triangulation because you can't make money in drayage by just going one direction as a load and back as an empty.

Right. Right. Okay. Well, unfortunately, we're going to have to end there. We are out of time, but thank you, Mark and Alan, for joining us today. Appreciate the update. Thank you, everybody, for listening into the call today. And that concludes the call. Have a great rest of the conference. Thank you.

Thanks, Brian. Wonderful to spend time with you.

Thank you. Bye.