Vistra Corp. (VST) Earnings Call Transcript & Summary

Okay, everyone, welcome to the Wolfe Rail Shipper Panel. I promised my kids that if they were quiet today, and we didn't hear them that they could come and just wave for a second. So thanks, kids. You guys are doing a good job. And you want to wave now? Okay. All right. Thank you, kids. All right. So let's get going with the panel. Really happy to have -- we've got 3 rail shippers, and then we've got the Port of LA as well. So I'll just quickly introduce everyone. From BASF Corporation, we've got David Jones, Manager of Domestic Rail -- Manager of Domestic Transportation Procurement. From Vistra Energy Corp, Lee Adams, Director of Coal Trading. From Koch Fertilizers, Michael Dalton, Manager of Rail Transportation. And then from the Port of LA, we've got Chris Chase, Marketing Manager. And I should mention that Michael from Koch, he's just on audio, not on video. So thanks, guys, for being here. We've got about 45 minutes. We're going to focus primarily on rail shipping trends. I'm also -- I thought that getting an update from the Port of LA would be helpful as well. So maybe, Chris Chase, if you'd start us off with a very quick introduction of your role at Port of LA. And then I've got a couple of questions.

Sure. Thanks, I appreciate being here. Yes, Chris Chase, Marketing Manager, Port of Los Angeles. My job is to keep our docks full of cargo, both inbound and outbound that I work. In the container trades, for the most part, I also handle railroad activities in terms of this development. And my fun job is I'm also the cruise guy, but pretty quiet in that arena right now. Actually, were quite busy in the sense of dealing with it. But those are kind of the 3 areas that I primarily focus on. And then the other big one is working with all the cargo owners trying to figure out what's next. And again, how to keep our docks full and how to keep the cargo flown through the Southern California.

Okay, great. David from BASF.

David Jones, I'm the Group Manager for Domestic Transportation Procurement for BASF Corporation or a subsidiary of BASF Group, which is a EUR 59 billion chemical manufacturer. We manage through North America a little over $1 billion worth of transportation and warehousing spend. I would say the breakdown, about 22% of that is packaged full truckload dedicated dray. We have some full truckload, that's about 18%, 16% of that is rail. The various ocean modes and airfreight is a little over 10%. The LTL making up about 4%, and the rest of that is in warehousing and let's say, like rail truck transfer and value-added services.

Great. Lee from Vistra?

This is Lee Adams. I'm the Director of Coal Trading, as Scott said, for Vistra. We're a huge electrical generator and retail provider across the United State. We're in 6 of the 7 competitive markets, and we're also in Canada and Japan now with our recent acquisitions. I'm responsible for all the coal acquisition primarily and then secondarily, have all the commercial relationships with the rail and larger providers. So we move about 25 million tons a year by rail over the 3 of the 5 Class 1s and then about 5 million tons a year of barge on the Ohio River.

Okay. Great. And then Michael from Koch?

Michael Dalton, I'm with Koch Fertilizers. Basically, our company has several plants as well as distribution centers throughout Canada and the United States as well as some import and export functions as well. My primary role within Koch is the management of our commercial relationships with the railroads, so contract negotiations, facility development, that sort of thing. Our company does roughly about 20,000 railcars a year. Mostly hoppers and tank cars. I do spend a little bit of time in the truck and barge space, but not much. And just before joining Koch, I worked 10 years at Canadian Pacific Railway. So I've had the opportunity to sit on both sides of the desk.

Okay. Great. So if you guys think about it, we've got intermodal, we've got chemicals, and we've got coal. So arguably 3 of the most important commodity segments for the rails here. So it should give us some good insight.

Maybe let's start with the Port of LA, Chris. April port volumes for you guys were actually pretty good, all things considered. Maybe give us an update on what trends you're seeing so far in May? Maybe what some of your port projections are and update on some of the blank sailings?

Sure, sure. Yes, April turned out to be pretty good, but that was a little bit of false hope because that was really cargo bed had been pent-up because of the closures in Asia. We actually -- year-over-year, April, in terms of import, loaded containers was a little bit higher than the year previous. That being said, most other metrics were down significantly. And that, like I said, was a little bit of false hope because we're looking at probably somewhere north of 30% year-over-year decline for April. I'm sorry, for May.

Future May projects.

I'm sorry, for May. And June's not looking a whole heck of a lot better. May is going to be a little bit of a tough comparison because May last year was quite strong. That was because of some tariff implementation that was coming online last year at this time or in June. So they're trying to beat that schedule. So it's going to be a real tough month. We're trending, we think, probably 200,000, 250,000 less containers in May year-over-year. So we are struggling a bit in that respect. And June is not looking great. Yes, we do have some blank sailings, not as much as we had in the first quarter, it looks like. First quarter, we had 48 -- or 40 ships skipped at L.A. in the first quarter. Most of those in February and March. For the second quarter, we're looking at about 28 ships right now missing from our schedule. So that actually has a big, big impact on what we're doing here. So that obviously changes things up. And recovery wise, it's still a big unknown. The positive note is obviously as stores around the country reopen in various areas and more freedom of movement's about more likely than not, that will indicate additional volumes coming to our direction. The other big one that we're very positive on is with automobile manufacturing restarting, that's going to help drive volumes higher. They do -- they have the inventory for the next few weeks, but the fact is they need to start shipping again here pretty soon if they are going to start manufacturing cars. It would appear that as of this week, almost all of these manufacturing plants in North America have reopened. If not, they're scheduled to re-open in the next few weeks. I know Nissan is, I think, will -- longer holdouts in there out until June, early June. So -- but other than that, almost everybody else is back producing. So that's -- our second biggest commodity group that we move is automobile parts. So that's a big deal.

And Chris, help us think about what's the natural lag of when something arrives at the port and shows up in your volumes in terms of how quickly that gets put on a rail or a truck that we might see in the data that we look at every week?

Right. So for us, if you look at basic consumer goods. There's a little bit more lag. About 1/3 of our volume ends up getting rehandled in local Southern California warehouses and then put, generally speaking, on to a domestic intermodal. And that lag time is anywhere from about a week to a month. So it's a little harder one to deal with. Yes, if it comes what we call direct intermodal, getting on the train and going out immediately from our docks, which is primarily like the auto parts. That's just a couple of days from when it gets off the ship until that train starts moving. So you figure -- it's usually about 100 hours from when it leaves our dock in Southern California until the rail depots in Chicago. So it's a couple of days, generally speaking. So we can move pretty quickly. Most of our -- the fast movers tend to be fashion, and they'll get it from a factory in Asia onto a ship, off the ship and into a warehouse in Southern California in about 25 days. So that's fast movement, especially for fashion shippers. But for most people, it's pretty consistent, and you're looking at typically 6 weeks from factory to store shelf, it's a pretty typical route, no matter where you are.

And do you have any view or insight here? Is there a lot of inventory that's either at the port, some stuff that arrived that's staying at the port that didn't move inland or right near the ports waiting to ship as things reopen here? Or is that not something that you think is going to be a big factor here as we think about rail, truck volumes going forward?

Right. It's a mixed bag. Because if you look at anything that is open or has been open that has not been impacted by the shutdown, it is flying. It's moving very fast. You look at the big box, guys like Walmart, who are more critical. Their food product stocks are flying off the shelves or anything kind of day-to-day related. The real question is like footwear and fashion, those are the ones that are sitting on -- that are sitting around. They're not on the dock right now, but they are in warehousing. So it's a real mixed bag. So if you've got anything that's moving, the warehouses are working quite quickly. You look at -- and then the home -- including stores, they're doing quite well. Lots of volume going across there quickly. The stores that are closed, they're the ones who are slowing down. They've canceled or slowed up most of their orders. So we haven't seen that huge impact that has really caused any sort of congestion. But at this point, yes, we do know that certain people have big inventories and other people are light. So it's not equal across the board. So it's a little harder to judge that. But at this point, everything is very, very fluid. So we're very positive in that respect.

Okay. Great. I'm going to come back to you in a little bit, Chris, with some longer-term questions. Maybe now we'll move to some of the shippers. So maybe starting with David at BASF. Maybe just talk about some of the near-term impacts that you've seen as a result of COVID on your freight volumes and any perspective on how much volumes have dropped off? And do you think that we're at a bottom yet? And how quickly you think they recover?

Yes. So we're a fairly diversified organization with regards to the products that we make. So we've got products that are like basic petrochemicals that we've definitely seen declines in, we think, in the auto industry, but then we've got segments that are feeding directly into sanitation, cleaning, nutrition and health that are, quite frankly, doing fairly well. So we've seen a modest decline. But I'm hoping that we definitely are at the bottom. And now since some of these autos have restarted this week and are slowly ramping up to normal production levels, I'm hoping, fingers crossed, that we have seen the bottom.

How big of an end market for you on the chemical side is auto?

On average, there's about 400 pounds of the BASF product in every new automobile. So it can be quite expensive.

Yes. I think that's something that we all need to be aware of is how much of the -- direct auto exposure is very easy for us all to calculate, but the indirect exposure on broader rail volumes is probably a lot bigger than just the headline auto numbers. Okay. And then, Michael from Koch, similar question, just sort of any color on what the volume trends that you've been seeing are on the freight side? And do you think we're at a bottom, how quickly things recover?

So on the fertilizer side, we were identified very quickly as an essential service. And that really helped keep things moving. We had a very, very strong spring season, which is when a lot of fertilizer tends to move in order to have the product in position so the farmers can get it out onto the fields. So our business has been very -- has been very fluid relative to this entire COVID time period. I would say the only place that we've seen some -- a little bit of fluctuation has been in the DEF market, which is the diesel exhaust fluid, which is actually produced. It's producing the same way as fertilizers produce because it's a nitrogen product. And just as truckloads have kind of gone down, drivers don't need as much DEF and therefore, we've seen those volumes slow down a little bit, but it hasn't been huge. But that's where -- that's the one market where we've seen things drop off a little.

Okay. So you haven't seen a big negative impact in your volume trends?

No. I think with fertilizer, like I said, again, the farmers need to get it onto the fields to grow the crops. It's really going to be -- I mean I would say that it will be a few months yet before we really see if there's any sort of impact. Obviously, if the farmers can't get the crops off and/or stuff is stuck in the silos waiting to be shipped, then you've got kind of that trickle-down effect, where it could impact us. But so far, it's been a very strong season.

Okay. Lee, let's talk on the coal side. So sometimes tough to understand how much of this is secular or cyclical, but we've certainly seen coal gone through -- go from bad to really bad to sort of awful from a rail binding perspective. I think we're tracking down almost 40% quarter-to-date. Is there any sense -- or maybe talk about what you guys are seeing from a coal shipping standpoint with the rails and if you've seen a material drop-off in the second quarter? And if you think that's kind of somewhat -- I mean it's going to stay under some secular pressure, but if you think it's unusually being pressured right now because of shutdowns related to COVID and maybe would that start to sequentially improve a little bit going forward?

So I mean Scott, you touched on it just perfectly. We kind of had the worst-case form we could have. We had a very mild winter, which for coal is always hard, especially with low-price gas. Then we landed into an environment where we shut down the world from an industrial standpoint. So Vistra being the size we are, we didn't really reduce our volumes tremendously. We still have to generate electricity across all of our regions. But what we have seen is that others have taken their cars off the line. And we're probably seeing cycle times faster than I've ever seen in my 12-year career with Vistra to the point where we've actually -- we still get the same volume. But we're taking railcars off the line, if that makes sense. You're just running fewer trains. I expect to see, as we walk into July. June is going to be interesting because it's always somewhat of a shoulder month temperature wise. With July, you should start to see rail traffic increase, which conversely will mean we will see a slowdown in the rail side. So you'll see more of the electrical generators needing coal at their sites, try to eat down a little bit of their stockpiles that they've created during this downturn in demand and go from there. But from a summer standpoint, I expect it to be yet another typical summer, and we'll all be hoping on a winter again.

So what we're trying -- I just want to make sure I heard that. You think that -- you said something about rail slowing in the summer? I wasn't sure what you meant?

So one thing we'll see that happens is people, as they come into your summer, your demand goes up. So you're going to have a natural increase and then desire for coal. Well, the railroads will have to put more trains on the line. And right now, we're at such a low volume that the trains are moving quickly. Well, the state to bring those trains on, they'll have to space them into that cycle time. And as more trains get on the system, naturally, your cycles go down. Your time -- I say that your cycle time increases.

Okay. So that was more of a service comment, not a volume comment?

That's right. To get the same volume, you will have to put more trains on the line.

Okay. Okay. And -- but do you think that -- is there some of the extraordinary volume weakness that you think recovers as you get towards the summer and things start to reopen? Or is this sort of the new run rate that we're seeing right now? Is this sort of what we're going to get?

I think as your industrial complexes recover, you'll see that volume come back. And the Midwest has been hit more so than Texas from electrical demand. So conversely, the coal trains have been hit harder there in the Midwest.

Okay. Okay. Let's -- but right now, it sounds like you're seeing really good rail service. Maybe David, Michael, your views of rail service and how we stand today? Anything good or bad to highlight? And then if you want to talk regionally or you want to talk about any specific rails that stand out particularly good or bad right now? Maybe I'll start with you, David from BASF.

Yes. Yes. I think overall, through -- at least with the UP and as to their PSR journey, prior to COVID, we actually saw a significant improvement in service, very smooth transition versus what the CSX had. And prior to, I would say, March didn't really have any major service issues. Now it's more of a frequency of service. So we have some railroads that are cutting back on the frequency of service. So that can tend to be a little bit of a challenge. Also, we have -- there's some railroads that are forcing some of their management and their employees to take a week off of unpaid leave. So it -- getting the turnaround on rates as well as anything else that's seeming a little bit challenging.

So if I understand this right, it's not that once it's on the train, it's still running really well, it's just that we used to get served -- service 4 days a week and now we're getting service 2 days a week?

Correct. And that's not really across the board. It's kind of spotty here and there for us personally, for our freight. It gets down to really what the freight density is in that particular area of the country and whether or not they can't run the train just for my 10 cars kind of thing for that particular day.

Right, okay. Okay. Michael, anything different to add here?

Not really. I mean I would say that the railroads have -- from a service perspective, have performed fairly well through this whole thing. Obviously, we are starting to see a little bit of curtailment of service in certain areas based as the volumes are dropping off, not necessarily our volumes. But if there's volumes in the general vicinity, they are dropping off. We're starting to see a reduction in the number of train starts that sort of thing. I'd also echo the comment around on just getting rates back. We're starting to see a little bit of a challenge on that front as well, again, because of some of the changes that have been made with the management or support staff within the railroads, taking a little bit longer to get those back. But overall, the rails have been -- have performed pretty good. I think going down the PSR path has definitely helped set them up for this. And we're curious to see how everything goes once the volumes start to rebound.

Okay. And by the way, I should mention that if anyone has any questions that they want to ask, feel free to type them in. So Michael, I want to make sure I understand -- I guess I'm not understanding what you're trying to say that you're having -- struggling to get the rates back. I'm not sure what you mean when you say that.

Just if you make a rate request, normally, you get those rates back the same day. In certain cases with certain railroads depending on what groups have been impacted, those turn times are getting to 3, 4, 5 days to get a number back. And when you're in -- when we're in season, when we're shipping pretty hot and heavy, we need those rates back very quickly. Otherwise, we end up having -- in some cases, having to pass on sale. So we've seen a little bit of impact on that, but it's different for every railroad. Some have been really good. Some of them have struggled, but it's had a little bit of a blip on the radar, but very minor.

So you're talking about requests for like tariff rates, spot rates?

Exactly. If there's no tariff published and we need the spot rates, that sort of thing.

Maybe let's talk about broader rail pricing trends. And we're in a much weaker volume environment or to the extent that any of you guys have rail contracts that are coming due this year, maybe talk about what sort -- what you're seeing from a rail pricing standpoint? What types of increases? Are any of the rails willing to lower rates in order to get more volumes? Any rails stand out as being particularly aggressive going after volume? Or particularly aggressive trying to raise rates? So a bunch of different things there. Maybe we'll start with you, David, and then work our way around.

Sure. So this year, I renewed the Union Pacific, the Norfolk Southern and the CSX. I would say on the lanes that are captive, that -- we're looking at coming through at a 2% to 5% increase with the CSX being the most aggressive on the upward portion of that increase. On the competitive lanes, they make up about 30% of my shipment, extremely aggressive price downward. They certainly -- what we've seen at the railroads is they certainly want to keep that business and if not gain business from the competitor within that organization. One thing that's interesting is they always take the competitive railroad threat very seriously, but the -- they don't really ever take the competitive alternative mode threat seriously. And we had one situation this year for one lane that's been really habitually overpriced for many years that we ended up switching to the inland river barge. It took us a couple of years to get the barge set up and the tanks set up. But once we did that, they immediately came back with significant reductions on that lane, but we'd already committed to several years with the leases and so forth. So I would say, in general, this year is really no different on the captive lanes than we've seen in the previous renewals, but on the competitive lanes, very much more aggressive. Also something I'd note to add as well is that typically, when we're doing these renewals, they're 2 to 3 years in duration. And overall, you kind of see that the railroads are really kind of focusing strategically on those 2 to 3 years, where I noticed this time with the NS renewal that they were really looking long term here. They were looking at what would really impact them long term with certain pricing decisions. So maybe we would have conversations back that if you do this, then we may not be able to do this for 3 years, but we're going to switch modes to barge or to some other truck-to-rail -- rail-to-truck transfers. So there's definitely, I would say, an attitude change there, where they are really thinking long term and not just thinking for the duration of the contract.

Okay. And so the 2% to 5% on captive, that sounds like more of the same. That's what you've been experiencing, the more aggressive on the rates down is a change. And would you say that was more -- lowering rates to keep the business, was that more apparent Eastern rail or Western rail?

More apparent Eastern.

Okay. Okay. Michael, how about what you're seeing from a rail pricing standpoint?

So we haven't had any real major renewals since this whole thing started up. But what I can tell you from a spot-pricing perspective is it's -- they are getting very, very aggressive for what they would consider to be new business. It's -- they're willing to price very aggressively on that, where we continue to start, where we've always struggled with most of the railroads is if we are in a situation where we think that -- if we're trying to proactively head off trying to keep business or trying to keep business from flipping to a different mode of transportation. If the railroad is already hauling the business, they're very reluctant to make any sort of price adjustments on an existing rate. So new rates, very aggressive; existing rates, not so much. There's been a few instances where they've worked with us, but they've basically -- there's been a few places where they've been willing to let the business go rather than try to make a few adjustments to try to keep it on their lines.

And so that go aggressive and...

That's not..

Go ahead. Go ahead.

Sorry, I was just going to -- that's not a really significant change in behavior due to COVID. I mean that's really how we've worked with them over the last few years.

And they being aggressive going after volume or new volume, is that a change this year? And again, similar question to what I asked David, is that more of an Eastern rail or a Western rail phenomenon from your experience?

I would say it's both, Eastern and Western. And I don't -- I wouldn't call it a new phenomenon necessarily, but there's been -- they're definitely more eager to add incremental volumes right now than they have. They've always been eager to get incremental business. But that eagerness has definitely increased over the last few months as they've seen, as the commodities' volumes fall off.

That makes sense. David, I want to come back to you, someone just typed in. Can you clarify your comment about Norfolk looking longer term? Are they offering better rates for longer-term volume commitments? Is that what you're trying to say? They just didn't understand the comment.

Yes. No, no, it's more around they're looking at the potential impact their pricing would have past the length of the contract. So one example is a particular lane was starting to price high to a point where maybe inland river barge might be attractive. It's not attractive today. It takes somebody -- you can't just switch that overnight. You have to have barges built or leased and then have a tank ready. So they were actually listening and when we were discussing this, let's just say, okay, for the duration of this 3-year contract, your volume is pretty safe, but it's going to put you in a position on the renewal that, unfortunately, we're going to have to remove this volume. So that's kind of where the strategy, I think, really came in. Whereas in the other railroads, they're really only just speaking between the start and the finish of the contract term.

Okay. And then someone else just typed in a follow-up. And maybe I'll ask it to you, David. So we've heard a lot about Norfolk and a yield-up strategy. Where there -- do you see an obvious difference of Norfolk's rates below CSX, where they have an opportunity to yield up to get closer to CSX? Or are they pretty comparable on rate right now? So if Norfolk is raising rates -- trying to raise rates, then they're likely to lose the business, if that makes sense?

I I would say Norfolk would be a little more competitive right now.

Okay. Okay. So let's talk to you, Lee, on the coal side from a pricing standpoint. Maybe first, just to be helpful. Just remind us sort of your mix of -- well, a couple of mix questions. So what's the mix today of coal versus gas versus renewables in terms of your guys? And then within the coal, the mix between PRB and [ Arch ]?

Perfect. So I mean I'll do it in just the coal capacity mix. So in '17, we were about 45% coal. This year, we're going to roughly be about 30% coal, and there is a forward view where by 2030, I believe we're down closer to 10%, is our ESG commitment out there. And then of the -- that renewable mix, gas is going to make the bigger portion of it. We're active in solar and wind. And if you're keeping up with Mars landing there in California, we're active in battery storage as well. Of the coal piece, we are primarily, I would say, 80% or more PRB focused. And the 20% is going to be split between Illinois Basin Coal and Northern Appalachian coal coming by barge and it's dependent on pricing.

So you mentioned ESG, which I think is sort of a -- you've -- you guys have been coming to our conference for a few years. It's sort of a new -- it feels like ESG in your world is really exploded as a theme. We've always thought coal is going to fall about 10% a year for the rails in some years, a little bit more when gas prices are particularly low, maybe some years, a little bit less, but around 10% a year is sort of the right sort of run rate. Is because of ESG, do you think that we need to start thinking about steeper declines in coal over the next 5 to 10 years because -- and the pace of shift away from coal is going to accelerate even beyond what we've already seen?

And I'm going to refer to -- our Q4 had a great -- I think it was Pages 12 and 13. When I look at it, it's definitely going to have to accelerate, but it will be chunky. So a lot of the Midwestern plants are small little plants. And so they're going to be easy for them to fall to the wayside as renewables attack as -- attack is not the right term. I apologize. As renewables get built out and natural gas continues to come into the market at -- I'll put this big caveat on the gas side. If gas is shut out because of our COVID event and we are crude, so you're not getting the gas off of the crude wells, it could be interesting to see how quickly some of the larger plants pay to the background, just from a size standpoint. It's easier to build a small CT or a small CCGT to compete than it is a gigantic 1,000- to 2,000-megawatt gas unit. So no, I would definitely -- as you get closer to 2030 and the various environmental rules come into play, there's going to be significantly less coal on the market than there is today.

But do -- So that 30% -- the 30% today and the 10% and by 2030, is that -- for you guys, is that more 2025 to 2030s when you see like the major drops? Or do you think you start to see that right away next year?

I think it's going to be pretty smooth, Scott. It's tough. I think Illinois is going to be an interesting state to watch going forward just from their industrial load and the PJM and MISO grids there.

Okay. And just 2 others on coal, just if we do see a spike in -- a temporary spike in gas prices, what's the price of nat gas where you actually think that, hey, for a temporary period of time that maybe we could see some uplift in coal volumes?

I think you'll definitely see -- if we got back to above that $2.50 to $3 range, the coal space would stand up and applaud. Anything -- $2.50 has always been the breakeven for PRB or right thereabouts. So in the East, it's dependent on the -- more on the producers than it is the transport. So it's -- it can drift down into that $2.25 range.

Okay. And then what about from a rail pricing standpoint? So the writing is on the wall for coal volume, but are the rails trying to keep the business alive by lowering rates? Or are they trying to steal the business from other rails? Or are they -- it's going to go down, no matter what, but might as well raise our rates as long as we had it. What are you seeing from a rail pricing standpoint?

So I would definitely say that it felt like prior to March, that the rails were definitely saying, "Hey, we're going to try to extract as much value as we can out of our assets if this is going to 0." After March, because of the tremendous downturn, they definitely place value on ratable transport. And we're moving 135 cars to 150 cars at a time. And so we're definitely large on their crew base. And so we have a couple of contracts in negotiation currently. And the rails have been aggressive where they are. And these are noncompetitive lanes. So where they know that, hey, if that power plant goes down, I no longer have jobs for my crew. So they've been aggressive to try to keep us at least at a ratable pace, not necessarily getting us any better or worse than we were before, but definitely not shutting down the volume.

So when you say aggressive, you mean they're lowering rate in order to keep the plan alive?

That's correct. Or at least they're trying to do what they think is the right steps forward.

And again, is that more of an Eastern or Western rail phenomenon?

So we don't have any Eastern rails directly. We have some small intermodals in the Midwest, but I would say these would be the stereotypical Western rails.

Okay. And is there a difference between one versus the other in terms of that aggressiveness?

So yes, it really is. The UP has been more aggressive than I thought they would have been in the past. And really, with their PSR step, it's been a -- there's been some grand experimentation going on with connecting car -- 2 full unit trains together. And then also in their pricing, they've made it clear that they're trying to keep everything moving.

Okay. Chris, back to you, at the Port of LA. Do you have any insight into rail pricing trends? It seems to me that we've seen this longer-term trend of the U.S. West Coast ports losing some share to the Canadian ports or maybe the Gulf ports. Is that something that -- what can the port do to sort of stop that? And then are the rails doing anything in their control to maybe stop the shift away from U.S. ports?

Yes. We've seen that change more recently. Yes, the market share has shifted over the last 20 years. Some of that just is pure. It makes sense. If you're bringing everything you bring it into the country through one port complex, might not be the best safety valve you've ever had. Obviously, the movement of people into Southeast in particular has driven volume in that direction. Cargo has a sneaky way of finding the best routing for whatever it needs to do. But in terms of future competitiveness, recently, before this COVID-19 situation popped up, both railroads were working actively to retain and gain market share. Primarily looking at the direct intermodal where it comes directly off the ship onto a train and make its way, for the most part, inland or vice versa, outbound. And they're really taking -- from what we've seen, they were taking steps that way. In terms of pricing, I don't have any access to it. Generally speaking, it's more expensive to go on a train from L.A. to Chicago than it is to go on a ship from Shanghai to L.A. But that's just because ocean freight rates are particularly low. Ocean freight rates are $1,400, $1,500 a container from Shanghai to L.A., and that's probably being charitable in some cases. So that pricing is really a little bit off-filter compared to what the actual cost situation is. But that being said, both roads have approached us. And I think the change in position has been both railroads on the West that we deal with, have both seen this -- it's not just a railroad issue. It is a -- the different parts of the puzzle, competitive issue. And we've seen a lot of effort being made. Even during this environment right now, we're taking steps together to try to create some ideas or scorecards around how to better position and better show how well rail is handled via the West Coast versus -- just so we can show how competitive we are because there's obviously a lot of press, a lot of markets that are seeing other areas and how well they're doing. But the fact is that in terms of pure volume, we move usually twice as much as anybody else does, and you should put it competitively. We're just not, I think, projecting it in the right way. And I think that's something that we're working with both railroads in particular. And like someone mentioned earlier, Union Pacific isn't very aggressive on this, really, to show that we're -- they're really competitive, not more so competitive than some of the other railroads around the country. Well, we need to find a better way to show that and to show the consistency of service. For a lot of our customers, it's not about necessarily speed, it's about consistency. If it's supposed to arrive on a Tuesday, it should arrive on a Tuesday. If it's supposed to -- normally, it's x number of hours, stay with that schedule. That's what -- it's that consistency day in, day out. So your warehouses are on the same way. So I think we're really heading in that direction with them. So we've been very, very excited to do this. And we actually had a couple of international trips planned with the railroads that were unfortunately squashed by this COVID. But to go out there to the actual shippers and explain to them how this all works. And why we're more competitive than anybody else.

Got you. One for David and Michael. So we heard Lee say earlier that ESG is going to accelerate the shift away from coal and thus the shift from rail. I'm wondering if ESG potentially accelerates the shift to rail from truck in your business to the extent that, that could work. Or is ultimately economics going to be the deciding factor here? So maybe David and then we'll go to Michael.

My opinion on that matter, it's just going to be ultimately economics, that's probably going to decide that. As well as whether or not the service provider or the person that we're shipping it to has the rail at their facility.

Okay. Michael, any different take there?

No, I'd say it's -- I would say the same thing. It's going to be market-driven.

Okay. And then maybe just final question. So maybe longer-term impacts of COVID and changes in supply chain that you expect maybe a bit more, do we see more near-shoring, David, on the chemical side, does -- maybe COVID combined with low oil, does that change some of the petrochemical build-outs that we've been talking about in the U.S. And then any other sort of longer-term implications that you see. So maybe each of you. We're sort of tight on time. So if you can just give a quick answer, and then we're going to have to wrap it up. So maybe we'll start with you, Chris, and just go around.

Sure. I think one thing that COVID exposed is we've seen this constant shift in a lot of our sourcing away from China, to a certain degree, into Southeast Asia, Vietnam, Indonesia, in particular. However, it's all about the componentry. I think -- David, I think you mentioned 400 pounds of BASF chemicals in the car. The same situation and all the stuff that we buy in stores, yes, it might be manufactured in Indonesia, Vietnam, but the componentry is coming out of China. And we noticed that quite a bit. So the volumes will shift forward. The best place to assemble [indiscernible] manufacture. But all the countries involved, they're going to be here. So while there might be some ideas in your store. And the rest of it, you're still looking at componentry coming in from all over the world. So it's not just a quick flip with a switch to change out of one country to another. I think that's one of the big thing that has become really apparent in this to everybody else is that, yes, while your manufacturing might move somewhere else, getting the pieces to make that manufactured part is really going to stay. So -- but supply chain will be changing. I think technology will jump up on it for us more and more visibility, more and more access. But...

Yes. You know what? I apologize, Chris, that's helpful. I got to just be mindful of time.

I'm sorry.

So David or maybe do you have any sort of quick thoughts on longer-term supply chain implications? And specifically, I'm thinking about the petrochem build-out in the Gulf.

Yes, I think when you look at those decisions that they're making, they're making those decisions for those assets to be operating in 30, 40, 50 years in length. So unless this COVID -- post-COVID, there's a significant step change or demand destruction in certain industries. I don't necessarily see any of these build-outs changing major.

Okay. Michael or Lee, any longer-term implications you see?

Nothing on. I don't see anything on our end. I think we're going to continue to see a little bit of -- a little bit more North American production due to the low cost of natural gas. But I'm not seeing anything that would be COVID related that would change anything long term.

I echo that. There may be some slight operational changes but nothing dramatic.

Okay. Fantastic. All right. We're going to wrap there. Thank you, guys, so much. This was great. And we're going to get going in about 1 minute with our public LTL panel with ArcBest and Saia. Thank you, guys. Really appreciate it.

Thank you.

Thank you.

Thank you.