Canadian Pacific Kansas City Limited

Good afternoon, my name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific's fourth quarter 2020 conference call. The slides accompanying today's call are available at www.cpr.ca. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to introduce Chris DeBruyne, Managing Director, Investor Relations and Treasury, to begin the conference.

Thank you, Jason. Good afternoon, everyone, and thank you for joining us today. As some of you are aware, Megan is at home with two new beautiful twin baby boys, and I'm happy to report that everyone is doing well. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties, and other factors that could influence actual results are described on slide two in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on slide three. With me here today is our President and Chief Executive Officer, Keith Creel. our Executive Vice President and Chief Financial Officer, Nadeem Villani, and our Executive Vice President and Chief Marketing Officer, John Brooks. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Hey, good afternoon. Thanks, Chris. I appreciate the opening comments. Let me start my comments by thanking our CP family. 12,000 strong team of railroaders that I'm honored to serve and lead and produce with daily. Their grit, their resilience that they've demonstrated and continue to demonstrate through the toughest times in 20 and as we progress through 21 enable these results. Without those collective efforts, none of this would be possible. So certainly a debt of appreciation in particular to the operating employees that their heroic efforts day in and day out to keep the North economy moving And it's time of exceptional need, again, is inspiring. You know, to step out every day, to put your own life at risk, to protect the livelihoods of others, to protect the livelihoods of our fellow employees, the communities we serve, and our customers, again, very inspiring. So I'm super, super proud of the team. I'm super proud of the body of results that we're going to get to discuss today. And speaking of that pride, we talk about pride a lot at CP. We talk about sacrifice a lot at CP. Contribution, certainly not a shortage of opportunities to sacrifice in this industry, nor demand for people's contributions. To recognize that, given it was such an extraordinary year in 2020, to match that extraordinary effort that enabled what I would call extraordinary financial results, we made a decision as a leadership team late in December to recognize all of our union employees, non-management employees with a special one-time recognition bonus that was payable on December the 30th to thank them for their efforts, for their contributions, and their sacrifices, again, that enabled this unique result that we're able to share with our shareholders and with the investment community today. So moving on to the results, I can tell you it was a phenomenal quarter overall. We delivered fourth quarter revenues of $2 billion, which was an all-time quarterly record, operating ratio at a 53.9, and adjusted EPS growth of 6%. An industry-leading performance. For the year, total revenues were down only 1%. We produced an all-time record operating ratio of 57.1. Operating income was up 6% to $3.3 billion, which enabled a record adjusted EPS of 1767, an increase of 7% versus last year. Truly an outstanding achievement across the board. On the operating front, the CP family again finished the year with another strong operating performance. Result in many four-year records being set for several metrics, including train leaks, which improved 9% year-over-year. Train weight, 6%. Locomotive productivity took another step up to 2% improvement over years. So to say that Mark Redd and our operating team continue to demonstrate what PSR is all about would be an understatement. The depth and the breadth of the bench at CP is strong. absolutely what I consider to be the industry best. So my hat is off to each Mark and his team, thanking them for their contributions. And on the safety front, what's even more impressive and inspiring was the strong safety performance the team produced in 2020. Train accidents were down 9% in 2020 to a .96, which is an all-time record for the company. This marks the 15th consecutive year that we've been the safest Class 1 railroad in North America. And at the same time in 2020, we realized that 22% reduction in personal injuries, which, again, was another all-time record for the Canadian Pacific. And I've always said this, and I'll be committed to this, safety is a journey. It's a constant pursuit of improvement. It's an area that we're never going to be satisfied in. It's foundational to a precision-scheduled railroad environment. It's about running the business the right way, earning a financial return so that we can continue to invest in the safe physical plant and creating and maintaining the right culture, which is a culture of accountability and care and concern for each other, and as a result, the safety performance will follow. A couple of positive announcements for the quarter as well, outside of the financial and the operational performance that we're super excited about at CP on the environmental front. In November, we announced that we were renamed to the Dow Jones Sustainability Index North America. This is something that's a milestone for the company we're very proud of to have achieved and recognize that success. That recognition, in December, we were honored also by CDP for our leadership on climate action with an A- rating. Put those two together with the other progress that we're making in this space, it caps a tremendous year of environmental progress and development in the Canadian Pacific. It's an area that we're just beginning to produce and will continue to set the bar high and continue to be leaders in moving this file forward. On the CMQ, another exciting announcement John's going to provide some color to. We were able to announce in the fourth quarter that HAPAC-Lloyd, a great partner of Canadian Pacific, announced that they're going to be calling on the Port of St. John beginning in 2021 as well. And rest assured, as we've talked about in the past, and we'll provide more color too, this is just the beginning as we scale out and grow and partner with St. John to create that world-class port on the east coast of Canada. Moving on to guidance, looking forward, I can tell you the momentum that we created in 20 we carried into 2021. We're targeting high single-digit RTM growth. We're going to have an opportunity to continue to improve margins in 21, well in excess of 100 basis points, reducing double-digit earnings growth. I'll note that 2020 was the third consecutive year that CPs delivered the best volumes in the industry. Realize some naysayers may say that there's less upside at this company, given the compares, but rest assured, this is a team that loves to be challenged. We relish the opportunity. I don't view a track record of success as a negative. Success breeds success. Rest assured, this team knows what it takes to create success for each other, for our customers and our shareholders, and you can expect another successful year in 2021. at Canadian Pacific. I've never been more confident in our team's ability to deliver. So with that said, I'm going to hand it over to John to bring some color on the markets, and then we'll let Nadim wrap up with a bit of color on the numbers.

All right. So thank you, Keith, and good afternoon, everyone. So as Keith said, RTMs accelerated in the quarter and finished positive, up 2%. Total revenues were down 3% to $2 billion. FX and fuel combined to be about a 3% headwind, and pricing gained further momentum, while mixed results were negative. I'm very pleased, though, with how volumes have steadily improved through the quarter. We're up over 9% sequentially. Continuing the trend we saw in Q3, and I frankly believe that we have hit the inflection point through this pandemic and the issues faced in 2020, and we will continue to gain momentum and see positive volumes as we move into 2021. In the year, total revenues were down 1% on an FX adjusted basis to 7.5 billion. We led the industry with the lowest volume decline in this unprecedented year. Our self-help growth initiatives disciplined pricing, combined with our resilient business mix and strong service, enabled us to continue to outperform. So now let's take a look at our fourth quarter results on the next slide, and I'll speak to the results on a currency-adjusted basis. So grain volumes were up 18% on the quarter, where revenues were up 8%. This operating team executed a record fourth quarter order to cap a full-year record grain performance, and we delivered records in 11 of 12 months in 2020. Our franchise is only getting stronger, and the power of our innovative 8,500-foot high-efficiency operating model is driving these results. We currently have 31 origin elevators qualified as 8,500-foot. Twenty-three are running our highly efficient power-on model. and we will add at least 15 more 8,500-foot facilities to our franchise in 2021. The record level of network development combined with our new high-capacity hopper cars will enable the CP team and our customers to continue to raise the bar in 2021. And our U.S. grain franchise continues to see strong demand with RTMs up over 30% year-over-year. demand for corn and soybeans to the PNW export markets remains very robust. With a record harvest in Canada and the strongest demand in the U.S. that I've seen for a number of years, we expect the momentum in grain to continue into 2021. Moving on to the potash front, volumes are up 25% on the quarter to close out an all-time full-year record for revenue and tonnage. Campitex has done very well to diversify its customer base beyond China and India, and they are fully committed through Q1. This is a reflection of solid global market fundamentals supporting the agricultural industry, and we expect potash to continue to be an area of strength for us in 2021. And to round out our bulk business, coal volumes were down 1% as a result of demand pressures from the pandemic and supply chain challenges. I expect coal tonnages to increase in 2021 with RTMs roughly flat. The energy, chemicals, and plastics portfolio saw revenues decrease 25% while volumes declined 27%. Q4 saw very tough comps with crude as last year we moved 36,000 car loads in Q4. And this year we saw unfavorable spreads continuing to weigh on crude by rail. Excluding crude, ECP volumes were up 9% in the quarter with improving export and domestic demand for LPG, gasoline, and diesel. Now looking at 2021, we will face tough crude comps in Q1, but with the continued economic recovery, we anticipate improved performance across our energy portfolio and specifically in our refined products area. For crude by rail, we are seeing increased activity as spreads have become more favorable. Additionally, we are very excited to begin moving later this year DRU crude volumes from our exclusively served facility at Heart of Sea, Alberta. These DRU volumes will provide a safer pipeline competitive option for shippers and will help to stabilize our crude business into the future. Moving on to forest products, Volumes were up 17% and revenues were up 14% as we continued to see strong lumber prices and significant demand for pulp and paper products. We had a record year in 2020, and I expect continued strength in this space given the strong demand environment, further enhanced by our acquisition of the CMQ and the continued execution of our transload strategy. In MMC, volumes declined 3%. largely driven by lower frac sand volumes as a result of downward oil pressure on oil prices and reduced drilling. Excluding frac sand, volumes in this space were positive. In the automotive business, revenues were up an impressive 31% to an all-time quarterly record, while volumes were up 57% on the quarter. This is an excellent demonstration of the power of our unique customer solutions. The Glovis contract ramp up was seamless and is proving to be even more volume than we initially anticipated. Our unique land holdings and our automotive playbook execution has laid the foundation for this key contract win that this franchise will benefit for years to come. I continue to expect to grow automotive revenues at a strong double digit pace. Finally, on the intermodal side of the business, quarterly volumes were down 1%. On the domestic intermodal front, we had a record fourth quarter and our fourth consecutive record year. I fully expect continued growth in 2021 in our domestic book as CP is well positioned to capture sustained consumer demand through e-commerce and inventory restocking as it continues coming out of the pandemic. On the international side, I'm pleased with our contract with Hapag-Lloyd has been extended and Hapag, as Keith mentioned, will begin regularly calling on the Port of St. John. This is an important milestone in our journey to reestablish CP's presence in Atlantic Canada. We also welcomed Marist to the franchise with their first vessel arriving in December. We are looking forward to this new partnership with Marist and the volumes will continue to ramp up effective March 1st. The partnership with Maersk will deliver supply chain solutions that will drive growth not only in our intact international business, but also in our domestic intermodal volumes in 2021. So let me close by saying and echoing some of Keith's comments. You know, looking back at 2020, I'm extremely pleased with how this team of railroaders took control of what we could control and manage through these unprecedented times that we all faced. We demonstrated exceptional resilience, we found unique ways to go after markets, and we generated momentum and volumes despite all the uncertainty. Volume steadily improved through the back half of the year, and I can tell you we finished the year strong and we're carrying momentum into 2021. Now, as I look ahead to 2021, there remains a full pipeline of opportunities that have yet to ramp up and that are under development. Our playbooks continue to bring incremental volumes to CP at a price that reflects the value of our capacity and service. We will continue to drive sustainable, profitable growth through leveraging our unique strengths and deepening our relationships with our key partners. With that, I'll pass it over to Nadim.

Thanks, John, and good afternoon. Keith mentioned these are tremendous results that our team of 12,000 railroaders delivered in a very challenging environment, and I'm honored to present them. We overcame the financial impact of a pandemic and still delivered the low end of the guidance we presented a year ago. This should not go unnoticed. It wasn't easy, but as the only company in our industry to continue to provide guidance throughout 2020, it shows the confidence we have in our business model and our team's ability to execute. This team does not make excuses when faced with headwinds. We focus on controlling what we can control. We have a culture of accountability that starts from the top and we are paid to execute and deliver, and that's what we will continue to do. Now, getting into the results, overall, the operating ratio decreased 310 basis points to an all-time quarterly record of 53.9%, driven by strong operating efficiencies, including record train lengths and waits, improved casualty performance, and lower fuel prices. Taking a closer look at a few items on the expense side, Comp and benefits expense was up 9%, or $37 million versus last year. The primary drivers of the increase were higher stock-based compensation of $15 million, the one-time bonus paid to frontline union employees Keith mentioned, totaling $17 million, and a continued pension headwind from current service costs. Fuel expense decreased $58 million, or 26%, primarily as a result of lower fuel prices. This year, we achieved a full-year record fuel efficiency, helping us to avoid 40,000 tons of CO2 emissions. Materials expense was up 10% for $5 million as a result of higher repair materials for track and operations and increased volumes. Depreciation expense was $197 million, an increase of 11% as a result of higher asset base. Purchase services was $197 million, a decrease of $97 million, or 33%. The main driver of the decrease is the gain related to the true-up of our existing ownership percentage in the Detroit River Tunnel, for a total of $68 million. The remaining decrease was largely driven by lower casualty costs on the quarter. Moving below the line, other components of net periodic benefit recovery were effectively flat, with lower discount rates offsetting higher amortization of actuarial losses. Income tax decreased $37 million, or 16%, primarily as a result of a one-time tax recovery. This has been backed out of adjusted earnings. Rounding out the income statement, adjusted diluted EPS grew 6% to a record $5.06 in the quarter. Moving on to full-year results on the next slide, The fourth quarter performance caps an impressive year for the CP family. Our full year operating ratio was a record 57.1%, a 280 basis point improvement year over year as we continue to demonstrate our ability to improve margins and deliver the best OR in the industry. Adjusted income grew 5%. and a record adjusted diluted EPS increased 7%, and we achieved this all while achieving record safety performance. As we look forward to 2021, our guidance assumes high single-digit RTM growth, capex of $1.55 billion, and double-digit adjusted EPS growth. A few specifics to call out. You should model an increase of approximately $30 million in comp and benefits from pension current service costs largely as a result of a lower discount rate at year end 2020. Similarly, depreciation is expected to be approximately $45 million higher in 2021 as a result of a larger asset base. But as I said earlier, we are paid to overcome headwinds, and we see further opportunity to continue to improve margins in 2021, and I fully expect us to continue to lead the industry on that measure. Moving on to free cash to wrap things up, 2020 cash from ops decreased by 6% to $2.8 billion, and CapEx came in slightly above the guided $1.6 billion as we pulled forward certain capital projects in order to leverage the economic recovery in 2021. We have a disciplined approach to capital investment, and the strong returns we are generating are evidenced by an adjusted ROIC of 16.7%, also an industry best. As we go forward, we expect to bring the capital envelope down in 2021, given the pull forward I mentioned, and anticipate to spend $1.55 billion. Free cash came in at $1.2 billion. As we continue to grow earnings and remain disciplined on capital, you can expect to see CP's free cash conversion continue to improve both in 2021 and beyond. I think another area we differentiated ourselves from our industry peers is that despite the volatility we all endured this year, we continue to reward shareholders. We paused our buyback early in the second quarter given the uncertainty in credit markets, but in June, with confidence in our outlook, combined with the strength of our balance sheet, we resumed our buyback. Ultimately, we completed 90% of our latest share buyback program at an average price of $369 per share, significantly below current prices. In 2020, we returned $2 billion to shareholders through share buybacks and dividends. And just this morning, we announced a new 2.5% buyback program. We also announced a proposed five-to-one share split that will be presented to shareholders at our 2021 AGM. We think this is an appropriate step to enhance liquidity in the stock and provide better access to ownership for a wide range of investors. Our balance sheet remains strong with leverage of 2.5 times adjusted net debt to adjusted EBITDA. So let me wrap up by saying 2020 was a challenging year and CP demonstrated resilience in the face of significant uncertainty. We were able to provide guidance to the investment community throughout the year and will continue to provide transparent and achievable guidance as the uncertainty lingers. This is a team that sets a high bar and has a track record of overachieving. If you look back at the first four years that Keith, John, and I have worked together in these roles, the company has delivered a CAGR of 16% EPS growth. Our ROIC has also improved from 14% to 16.7% during that period. And I can tell you we're not done. We're all excited about the opportunities ahead of us. If we can deliver the lowest operating ratio and best revenue performance in a pandemic, It's extremely exciting to think about the art of the possible as the economy recovers in 2021, and we benefit from operating leverage. It's why I don't worry about headwinds.

So with that, I'll pass it over to Keith to wrap up. Okay, thanks for the color, John and Nadim. You know, exceptional, that's the word I think about. An exceptional year. It's enabled by an exceptional group of railroaders at this company. set us up for an exceptional 2021. We're ready for the year. We've got the momentum. Moving into 21, wins at our back. This team's ready to produce. So with that, let's open it up to questions.

Thank you. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. As previously highlighted, please limit your questions to one. There will be a brief pause while we compile the Q&A roster. Your first question comes from the line of Chris Weatherby from Citi. Your line is open.

Hey, thanks, and good afternoon, guys. Maybe wanted to sort of dig into the RTM growth outlook a little bit deeper. So I think, as you mentioned, there's sort of an inflection that's been going on here. So I guess maybe if you could help us sort of highlight maybe some of the specific biggest opportunities that you see, whether if you're on intermodal or otherwise, as you look at 2021. And then can you also help us a little bit with the cents per RTM, too, if you don't mind? Just there are some FX headwinds I think you will be facing to some degree. So I just want to kind of get a sense of how that might translate relative to total revenues. Thanks.

Yeah, so maybe, Chris, I'll start on the cents per RTM a little bit. You know, I think looking back at Q4, we did see a little bit of mix. We had a really strong bulk quarter, you know, long-haul Vancouver grain, long-haul P&W grain, as I said, record potash. That created a little bit of headwind overall on that front. You know, we're facing that sense for RTM negative VRCPI on the regulated grain, at least through through August of 2021, looking ahead. You know, we did lap some pretty big LDs from last year, Q4, as it relates to our crude by rail business. And we'll face a little bit of that, I would say, at a declining rate as you move through 2021. And as you mentioned, And we'll get to some point where we start lapping the fuel and ultimately FX headwind that we've faced in the sense for RTM. You know, looking at the volume, we're excited. This year is going to be a big year for CP in terms of a lot of the projects that have been under development really the last couple years. A number of them have come to fruition. But we've got quite a number of them that are really just starting to ramp up and hit their full potential. You know, as I mentioned, the automotive space continues and looks to be a really solid tailwind for us, not only in terms of volumes, also since for RTM. The Glovis business, frankly, is looking to be about 30% bigger than we anticipated. We've got our Schiller Park compound that we're just on the verge of starting to get some volume running through that facility. We've taken a dormant facility in Calgary and filled that up with FCA and others. And, of course, we've had a ton of success at our Vancouver auto compound. So I'm quite bullish in the automotive sector. But really, as I go down the list, I expect big things in the bulk franchise. We should continue to sustain what you've seen in grain and in grain products. Our biofuel plants are back running at 97% to 100% capacity across our network. We've got a couple facilities actually in biofuels and also frac sand. that had shut down during the pandemic that are coming up, and I expect to give us a little bit of a tailwind in those areas. You know, the ag nutrient side is, I think, quite exciting for 2021. Campitex has pretty ambitious growth rates for us as we continue to enjoy that business. Our general fertilizer business, particularly with mosaic, looks particularly strong. So I'm bullish across the board, and that's without even getting to the full ramp up of our mares business. And then as Keith mentioned, the opportunities that we're going to see in St. John in 2021.

Okay, that's a great answer. The only clarification just on the sense priority, I'm going back to that. Does that sort of mean flattish, maybe slightly negative on that? Just kind of curious.

You know what? I think to start 2021, maybe slightly negative. And then in inflection, I think, Chris, as you move towards the back half of the year. Perfect.

Thanks for the time.

Your next question comes from the line of Tom Watowitz from UBS. Your line is open.

Yeah, great. Let's see. I don't know if I can ask you to add a touch more color on the kind of the green comment that I guess Chris was hitting on. I don't know if you want to count that as a question or not. But my primary question is on the crude business. It seems like, you know, I guess, you know, the Keystone XL getting canceled again and, you know, the DRU ramping up in second half. I'm wondering if you see, you know, you would expect to see some indications that there might be more interest in additional DRUs or, you know, more optimistic look on crude. I know it's pretty volatile business, but I guess that's kind of the primary question, and I don't know if you mind adding a quick, a little further thought on the grain revenue cap impact in the first half.

Yeah, thanks.

Go ahead, Keith. I'll take the DRU view, and then I'll let Johnny speak to the grain piece. So, Tom, to your point, the answer is yes. We do think that the administration actions, executive order, the pipeline, you know, that votes for more strength and more potential demand for crude. We think it creates more support for scaling up and expansion of the DRU. So we're bullish on that opportunity. And then overall, although we still see the short-term, not long-term, eventually pipeline capacity is going to catch up. We just think there's a longer tail on it now. So we think there's going to be a space for some potential upside in both spaces. And again, the most exciting part about the DRU is that scales up. If that's rateable business, it's going to be part of our book of business on a go-forward. It's protected. It's pipeline competitive. We're talking about 10-year contracts, so it's environmentally safe. positive. So again, across the board, that DRU piece is really, really exciting for us. And given that the facility that's being built now is going to come online mid-year, and we exclusively serve it in Hardesty, and it's scalable, it can go up to twice as large as it's coming out of the gate at. That's pretty exciting. It's really exciting.

And Tom, just to come back to your grain question, so just On the regulated Canadian grain, we've got the headwind on the BRCPI, so we'll manage that like we do every year, our regulated grain rates, and then actually we expect that to inflect and turn positive as we move into the new crop year. Okay. Thanks for the time. All right.

Your next question comes from the line of Ravi Shankar from Morgan Stanley. Your line is open.

Thanks, Kadeen, everyone. Keith, I think you said that on the OR side, you're targeting well over 100 basis points improvement. Maybe you and Nadeem can kind of give us a little bit more of a walk there. Does that mean what's well over 100? Is it 150 or is it 300? Sorry, I know I'm being a little bit greedy here. And maybe kind of how do we think about some puts and takes here? I know you mentioned depreciation, but any other big items, keep in mind.

Ravi, you've got to tell me what the spreads are going to do in cruise. You've got to tell me what the Crop year is going to be next time around. If you could give me those numbers and a few other inputs, I could land on that OR number. But I feel confident and better than 100 points for sure. I don't know if I'm going to commit to three, but it's going to be somewhere in between. Nadim, you want to provide some color?

I don't think there's too much more to add than that. I think, Ravi, you look at some of the opportunities of what we've delivered in the last two years with volumes actually declining. And if you listen to John and what we believe as far as our RTM growth, I think we are very bullish on the volumes, and we've seen the volumes return, and we have a lot of initiatives that John mentioned are ramping up in addition to things we're doing today. So with a volume increase and a low-cost basis, the operating leverage that this team has shown we can deliver on with a cost structure that's entering 2021 so low. We feel very good about what we can do from an operating leverage and an incremental margin point of view.

Yeah, I think I heard it coined last week as a double nickel. We're not going to commit to a double nickel in 2021, but we certainly have our line of sight. It's in our crosshairs would be the best way to say it.

Understood. Thank you.

Your next question comes from the line of Fadi Shamoon from BMO. Your line is open.

Thank you. Good afternoon. Three quick points, just clarifications related to each other. First, what is the effects that you are baking into the EPS guidance? Second, the energy cents per RTM was 5.9 in the fourth quarter, which I thought was a pretty big drop from the trend that we saw in the first, second, and third quarter. If you can talk to that as well and kind of talk to us through how does that look like going into 2021. And overall, I mean, related to that makes sense per RPM, you're saying RPM grows kind of high single digit, let's say up into 8%, if that's kind of what you mean. When you include FX and the mix issues, does that number kind of stay around the same? Does it go up? Is the mix overall for fiscal 2021 will be positive or neutral?

Sure. So, Thaddeus, let me start, and John can jump in. FX, we're looking at around current levels, so around 128 level through the year. So, you know, could there be upside or downside. I'd just point out that FX, you know, it has a translation impact, but the reason that the Canadian dollar is strengthening is supportive to us. So that means that the Canadian economy is recovering in a positive manner, and it means that typically commodity prices and namely crude is improving. So sure, it can be a translation headwind, but net-net, it's an overall positive trend. It helps our balance sheet as far as our leverage metrics and as far as our U.S. dollar-dominated debt. It lowers our capex spend, and like I said, it helps overall our volumes. If you look at, to your point on the crude cents per TM, so as John mentioned, we lapped some liquidated damages in Q4. And so you see the impact of that in the sense for RTM on crude. We talked about that likely will continue through the year, especially if you assume a certain level of crude. We've been very conservative in our view. So I think if... If you get the benefits of spreads widening, if you get some of the longer-term benefits of production ramping up, I think we could have further upside on crude volumes, which, again, will impact our cents per RTM, right? So we'll have less liquidated damages, but we'll be moving more business, which, again, is a positive. Net-net with currency... You know, it is, to Keith's point, going to be somewhat dependent on what fuel prices do from a sense priority point of view. But I think you'd have a modest decline is where we're seeing things as we stand here today. If fuel surcharge ramps up, that can be kind of neutral.

Okay. Thank you. Yeah.

Your next question comes from... Your next question comes from the line of Walter Spracklin from RBC Capital Markets. Your line is open.

Yeah, thanks very much. Good evening, everyone. I guess I want to go into the OR question and with the double nickel target. I know, Keith, when you came over to CP, you had a model that you had executed on before and you were looking forward to executing it at this organization and and certainly have done so. My question now, I guess, is are you in uncharted territory now in terms of new improvements How much of OR improvement now is going to come as a result of technology? I noted, you know, in your appendix, you've got a few slides on technology. You know, I'm sitting at home not being able to go out with the pandemic, and I've been going through your LinkedIn profile, and you've got some pretty interesting videos on some of the technology that you're implementing, both from a safety standpoint and from a from an efficiency standpoint. So is this now new territory? How much is technology going to have to play a role here in getting your OR improvement down further? Just any thoughts on that would be helpful.

Well, I would say that we certainly have not mined all that opportunity, Walter. It is new, given that we're just deployed. You know, the exemptions we got for Transport Canada Using the portal and using the Coldwell technology, that's literally two months old. So we'll continue to grow in that. It's going to be incremental change. It's going to be incremental benefits of protecting our margins, and it's part of the formula allowing us as just a natural outcome of running our business. As long as we bring on sustainable, profitable growth, those are key words. Those aren't just catchphrases. You've got to bring the right business mix. You've got to make a buck doing it. And it's got to fit your network. You can't overstress your network and create some kind of congestion that jeopardizes your ability and destroys your cost structures or drives additional capital expense. There's a fine balance that has to be managed. We've got to commit to our customers. Asset terms matter. Velocity matters. All those things that a PSR formula is truly baked upon, it's foundational. You've got to respect that. But if you lay your own technology on top of that... Whenever you can improve the safety performance, every derailment we prevent, those derailments, every time you have them, number one, it's a challenge. It's our social responsibility. It's a challenge to our social license. It's certainly nothing that we desire to occur. So everyone we can prevent is a positive there. But from a dollars and cents standpoint, you're talking millions of dollars every time you put a mainline trainer. Most times that you put a trainer on the ground, it tracks speed. That's a lot of money. And it's a lot of adverse impact. to the network fluidity given the way we run the business. Because essentially it's like having, you know, you've got a lot of planes flying around Pearson Airport or O'Hare with nowhere to land and they're burning fuel and burning dollars and taking out efficiency and consuming capacity. So these technologies, that's the approach that we're taking. They've got to be practical. They've got to be executable. I'm not going to be bleeding edge. We're going to develop technologies that we can convert, not talk about for four, five, six years, convert with data to make it a safer, more reliable, more efficient, lower cost, better service railroad. That's what we're doing with our co-wheel technology. That's what we're doing with our big data analytics and algorithms that we use to have more predictive analytics to allow us to identify the mechanical defects before they become an issue with the terrain. That's what we're doing with our broken rail detection that we've created ourselves, our home-built solution to that challenge where we don't have CTC that we're deploying. We've got about four subdivisions that we've completed. By the end of this year, we'll have 11, and we're doing a diffraction of the cost. So, again, those are all part of a pursuit of operational excellence. It's just part of consistently getting better at what we do, becoming better railroaders, and leveraging technology, not to hit a home run, but just to consistently hit singles and doubles, and those singles and doubles add up to runs, and you start adding those runs up, and you start winning ballgames.

Pretty exciting stuff. I appreciate the time.

Thank you, Walt.

Your next question comes from the line of Allison Landry from Credit Suisse. Your line is open.

Thanks. Good afternoon. So your main competitor has been talking about scaling up the business and focusing on yield management. I would think this is a clear positive for CP, but maybe if you could speak to your thoughts just on the overall pricing environment and whether you think maybe there's a structural acceleration here that's taking place as a result of not only these actions, but just the fact that rail service for Broadway is getting better. Any thoughts there would be great. Thank you.

Yeah. Oh, thanks, Alison. You know what? I do. I think this feels a lot like the environment we faced back in, I guess it would be 2018, where we saw a, I think, pretty strong year across the board in the rails on pricing. Just the volume growth that I see out there in, literally, as I look down our list of commodities. I think there's pricing opportunities in just about every one of those sectors. I can tell you we've been very creative in how we've approached managing this capacity and working with our customers around surge equipment, but capturing the price for the value of that service. Q4 renewals were quite strong. I would say on the upper end of the targets, we traditionally talk about that. And I'll remind you, my sales team is largely compensated on their ability to deliver price and to have that price discipline. But I would maybe close by saying It's not a flavor of the day at CP. It has been since I've taken this role and under Keith's guidance and working with Nadim, our effort has been around pricing day in, day out for the capacity we have and the service we're bringing to the table. And that's not going to change. I was wildly pleased with how we performed in the face of a pandemic. And now with some tailwinds, I can tell you there's a lot of focus to do the same as we move into 2021. Great.

Thanks, John. Yep. Your next question comes from the line of Ken Hexter from Bank of America. Your line is open.

Hey, great. Good afternoon. Just to clarify, Nadeem, to Ravi's answer there, you're including the gain from the asset sale. You're not normalizing it out. So when you talk about 100 basis points, Keith, you're talking about on the 57-1, right? I just want to clarify that before I ask my main question. But the question I had was – go ahead.

So, yes, Ken. I mean, we reported a 57-1 OR. We would expect to improve off of that. That's where you get to the double nickels that Keith was talking about. We're not saying on any sort of adjusted OR.

Perfect. Thanks. And then given the Maersk and intermodal growth and all, you know, the scale that you're talking about on our RTMs, can you just talk maybe, John, about your thoughts on the capacity out west? Or I don't know, Nadeem, if you think there's need for siding or capital deployment. You talked about keeping CapEx the same, but maybe talk about how that's going to be deployed.

Thanks. Yeah, I mean... Specifically, Ken, you know, looking at port capacity out in Vancouver, I feel we feel quite comfortable with the relationships and the direction that GCT and DP World between Delta Port, between Van Term and Send Term to handle the business. We've got a new train pair and design that we'll, I think we're super excited about how we can compete in the market from Vancouver into certainly day in, day out Toronto in eastern Canada, but as we grow our business into the Minneapolis market with the capacity we've added in our Shoreham Intermodal Terminal and also into Bensonville, that we're going to have quite a product. And you look out east, and Keith mentioned this, we are, you know, the Port of St. John's embarked upon about a $200 million modernization project. And that's going to quickly step their capabilities up to 300,000 TEUs annually. But we've got line of sight in working with the port and the province and then, frankly, all stakeholders out there to get that port up to an 800,000 TEU facility. So I don't see capacity at the terminals being an issue. And PSR railroading and all the things we've talked about, I think we feel quite comfortable around our product to deliver inland from those ports.

Ken, let me add a bit of color on the line capacity. We're not in any location constrained from line capacity. With that said, part of our normal cadence of doing business every year, we're spending what I call capacity capital dollars. surgically investing in strategic sidings. We've got a list based on delays, based on velocity, based on capacity across every corridor where they're prioritized based on their term. And we've continued to invest to create that additional line capacity that if we don't need it from a business level and we have it, we return it through asset terms. We think about 2020 when everybody else is cutting capital. We didn't cut our capital. We spent more capital in 20 than we ever have in the company's history. So rest assured we've got some capacity in our back pocket to execute on these contracts. And these contracts, when it comes to service, we talk about the cost destruction when you overcommit your railway. Talk about the reputational destruction when you overcommit your railway. When we go and negotiate these contracts, I'm at the table with John. So all these contracts, these major contracts that we're committing, I've got a commitment to my customers that exist with us today, and we're putting our word and our reputation online with those new customers. And the commitment I make to each and every one of them is I'm not going to oversell my railway. I know the value that it destroys for the customer as well as for this company, and that is not going to happen on my watch at Canadian Pacific.

And I'll just add, Ken, that from a capital point of view, many of these – deals we ended up doing that requires capital. We partner with our customers to co-invest, so we both have skin in the game. We both have a certain level of return and conviction, and it tends to be a long-term deal. So John knows from me and my team the expectations as far as what the returns need to be, and I think that that's added to what you see the output of Rolex of close to 17% that we put that discipline into the process. We don't need the practice of moving it, as Keith says. It has to have to generate the right return.

Thank you, indeed, John. Appreciate it.

Your next question comes from the line of Steve Hansen from Raymond James. Your line is open.

Yeah, good afternoon, guys. Thanks. A question for John on the grain opportunity. John, you're coming off a record year. That should be congratulated. But, you know, the bar is now higher. Egg fundamentals do look really outstanding right now, which I think plays in your favor for 21. But I think I was most struck by your comments on the number of new elevators that plan to come online for your 8500 model. Could you maybe just elaborate a little bit on where those elevators are all coming for? You referred to network development, but I'm just trying to get a sense for your confidence in those all coming on this year and your ability to push higher in 21 here. Thanks.

Steve, I think what a lot of folks maybe don't sometimes understand in our ag franchise is we've been the leader of developing these big, high-throughput elevators. And What we're doing now is less about adding new dots on the map in terms of elevators, but more working with our grain shippers to now reinvest into their elevators to expand them to our 8,500-foot model. And as I said, we've got 31 of those active today. In the coming year, we're going to add 15. So that's 15... I think the numbers would break out, Steve, three new ones coming online and 12 existing elevators that will be expanding to the 8,500-foot model. So that means, you know, 56 car facilities, 12 facilities expanding up to handle 134-plus cars. That's converting ladder tracks into loop tracks across the prairies. That's adding sidings outside of facilities so trains can get off our main line. It's allowing the ability to keep our power on our trains when they land at origin so they can be quickly loaded and launched. And when I say quickly loaded, that's under 12-hour load times. It's adding that next level of efficiency across all of our elevators. And then when you combine that, Steve, with the investment in the covered hoppers, that becomes a powerful thing. And frankly, that's what gives me the optimism when you spread that across a Canadian franchise that continues to grow in terms of yields and production. And, frankly, quite a bit of headway across our U.S. franchise to develop it also to meet the growing demands that we think is going to have a continued tailwind for exports out to P&W. That's what gives me so much excitement about the ongoing growth of our grain franchise.

That's great, Keller. Thanks.

Your next question comes from the line of John Chappell from Evercore ISI. Your line is open.

Thank you. Good afternoon, everyone. Keith, at the very beginning, I thought it was interesting, your comments on proving the naysayers wrong. You know, as great of the years as you had, everyone thinks that at a certain point you hit a ceiling. So as you think about not just 21, but also beyond that, You know, are there other CMQs out there? Are you chasing big fish like Glovis and Marist contracts, or is it just basically taking this capital envelope that you continue to spend and blocking and tackling with the current network and the current group of customers and just trying to keep taking share from the service that you provide?

Well, I would say this. I'm not aware of any CMQ-like opportunities. I would say that we keep a strong financial relationship position or keep our balance sheet strong and powder in our pockets so that we can be opportunistic if one of those comes up. But in the meantime, it's about building out this network that we have. You know, we've just began to do this great work with the CMQ and all that potential to realize that potential. And I firmly believe, I've said this before, I made a comment that success breeds success. You know, when you're working with some of these big players like Amerisc, You're working with some of these automotive companies. You're working with a globalist. You're working with competitors. They have competitors. And if you're helping become part of their success story that gives them a competitive advantage in their marketplace, then their competitors are going to say, wait a second, I've got to match that. I've got to try to develop some of those same synergies. So, again, that gets to picking your partners and picking your partners wisely. We're never going to be everything to everyone, but rest assured the partners that we partner with, We're going to give them a service and give them an experience that allows them to compete in their space and allows them to take share. And through that, we'll grow with them. So that's the strategy. You know, John's got a list of opportunities still. These things don't happen overnight. You know, these big, what I call pendulum swingers, momentum creators, they take several years in the making. It's not something that's going to happen overnight. You know, we announced just recently, I guess it was last quarter as well, about our intentions to build out our facility, our transloan facility in our terminal in Vancouver. Rest assured, there's already been discussions that that announcement has enabled, and some before, some after, where there are going to be customers that come in there. They're going to create capacity and create commerce for Canada as well as CP at the same time. And that's a two- to three-year timeline before we get to that point and beyond. So again, the one thing we are blessed with, besides the greatest railroaders in the world and a franchise in the lanes we run in that can't be paralleled by our other rail comparator because we run short length of haul, is plenty of land currency to convert and grow in our own footprints without having to get into wars with municipalities or trying to buy land that may not be obtainable. You know, I can grow in Vancouver, I can grow in Calgary, I can grow in Toronto. I can grow in Winnipeg. I can grow in Chicago. I can grow in Montreal. We have land holdings contiguous to every one of those terminals that can create customer solutions, and that's exactly what we're about the business of doing. So you can continue. You'll expect to continue to see that playbook play itself out at this company for the years to come outside of any kind of acquisition we might participate in.

Great. Thank you, Keith.

Your next question comes from the line of Jordan Eliger from Goldman Sachs. Your line is open.

Yeah, hi. Just a couple cost questions. I'm curious, on the purchase services side, I just was wondering, does that sort of snap back to more normalized ranges as a percentage of revenue post this quarter? And then maybe if you could just touch a little bit on sort of your thoughts around cost per employee or wage inflation as we move through next year. Thanks.

Sure. So a couple things to add. Yeah, I would expect purchase services to get more normalized, absolutely. We got the benefit of the Detroit River Tunnel this quarter, which was outsized, absolutely. Cost per employee, so based on our high single-digit RTM growth, you should expect kind of low single-digit employee increase. And on the cost side, I mentioned a $30 million impact from current service costs related to pension. We'll see how we perform. We have comp tied to our performance, and our S-TIP or our annual bonus paid out is going to pay out at a very high level this year, meaning for 2020. So we accrued at a very high level. So, hopefully, it's at the same level. That means we're executing. If not, then that would be a tailwind. Stock-based comp, same thing. We were the best performing rail stock in 2020. We had significant headwind from stock-based comp as a result on the mark-to-market of the stock price. Hopefully, we have the same problem. I'm sure our shareholders won't complain. So that's somewhat dependent on, again, how we perform and how the market performs as far as CP stock. So if we have another strong year, then it will be neutral, and you would expect the cents per RTM to be similar levels. If our stock doesn't have the same level of increase, then you should assume the cost per employee to come down a bit. So those are the elements.

Thank you.

Inflation, I would assume about a 2% type of level as well for our overall inflation.

Thank you. Your next question comes from the line of Brian Ossenbeck from J.P. Morgan. Your line is open.

Hey, good evening. Thanks for taking the question. Maybe one for you, Keith. When you talk about being part of success for the partners and your shippers, service and growth and capacity obviously are part of that, but you have a couple of extra slides on ESG, a few reports and ratings just came out. Is that angle or is that initiative really starting to resonate with some of your customers or partners? Is that more on a short-term basis where you've got their attention or do you feel like you've really started to form some partnerships that maybe are being driven by this factor above and beyond what you normally provide for them.

Yeah, that's an area that obviously is becoming more and more topical every day. Its importance is growing. It's growing stronger. It's not demeaning at all. And it is part of the sell cycle. It's part of the discussions that John and his team are having with our customers because our customers obviously have the same concerns we do about the environment. And when they can see the rail as an opportunity to partner with. And again, that's why it's important in my mind that we take a leadership role in this space. You know, we're proud to talk about, you know, we announced our hydrogen hybrid battery locomotor that we're developing. So I've got a, you know, we're blessed with a team of very intelligent, talented engineers led by Dr. Mulligan that, you know, they've created their own lab. They're developing A hydrogen-fueled locomotive for the rail industry, that's a game changer. You know, there's hydrogen solutions out there in Europe, not for freight, though, more for passenger. So is it robust enough, strong enough? So the challenge is, how do we do that? Well, it's a challenge they've taken on. And when you take that kind of a leadership role, and it's not just, again, semantics or words, it's actions. I've been in the lab. I've seen the hydrogen fuel cells they create. create electricity and power an electrical motor, and I've seen the locomotives in the process of converting. A year from now, we'll have a pilot locomotive, maybe a year and a half at the most, we'll have a pilot locomotive in Calgary that's going to be switching customers using hydrogen. And it's not our objective to get into the locomotive producing business. It's our objective to prove what's possible, to prove out the concept, and then go to the OENs and say, listen, here it is, this is what it looks like, make it better, create a solution for the industry, because this industry needs that. So those are all spaces that our employees get behind it, we get behind it, and it absolutely is becoming part of not only what we do and who we are, but how we sell. The other one thing I'll comment to you that we're super proud of, literally within another four weeks left, we'll finish our completion of our solar farm at Calgary. If you've ever been to our corporate office, it's a converted rail yard. We're blessed with a big footprint, a physical footprint, and we said, hey, how can we innovate here, and why are we burning fossil fuel-created energy? Why don't we create our own? So why don't we build a solar farm? We built the single largest solar farm about to complete, I would suggest, outside of commercial space in Canada. We'll be, I think, the only corporate office that's 100% zero-carbon footprint fed energy. running our power, running our lives, running the business that we do in our corporate office. That's something, again, we're extremely proud of. It's great for the environment, it's great for our employees, and it's great for society.

All right, thank you, Keith.

Your next question comes from the line of Scott Group from Wolf Research.

Your line is open. Hey, thanks. Afternoon, guys. Nadeem, I want to ask on CapEx and free cash flow. So it's below 20% of revenue this year in the guidance. Do you think that's sort of the new normal? And then with CapEx down and earnings up, what's realistic for free cash flow conversion this year and longer term?

Thanks, Scott. So, yes, I mean, our capital spend, you know, when we look through the next three years, it's in that range coming down a bit over in 2022 and into 2023 as we roll off the investment of the hoppers. We'll have less hoppers in 2023 and that'll be our final year. You'll probably get down to about the $1.5 billion CapEx level at that point. Outside of any other major investment, but nothing upcoming that's in our pipeline as we speak. So certainly we do feel that our pre-cash generation is going to, conversion is going to improve rather dramatically as we increase our income and CapEx comes down. I think we're kind of in that three, three and a half percent level right now. Do we think we can get to four and approaching five over that timeframe? Yes.

What's that metric you're referring to, sorry?

Our pre-cash yield.

Okay, perfect.

Our pre-cash conversion approaching 80%.

Super helpful. Thank you, guys.

Thanks, Scott.

Your next question comes from the line of Justin Long from Stevens. Your line is open.

Thanks, and good afternoon. Good afternoon. I just wanted to ask one about the 2021 guidance. Nadeem, could you talk about any gains on sale that are baked into that guidance? And then as we think about the first quarter, anything directionally you can give us to help think through the OR that you're assuming within the guidance as well?

Not to get too much into quarterly OR guidance, but, you know, you should expect a sub 60 OR, and obviously Q1 is a bit more challenging with the weather, with the seasonality on volumes, with some of the stock-based comp payments that occur. So that naturally will improve from there and get, well, if you want to get to the numbers we're talking about, you know, you could probably do the math, I would expect Q1 will be the tougher kind of year-over-year comp. And then as we – sorry, your second question?

Any gains on sale in the 2021 OR guidance you gave?

Yeah, they are – I mean, we didn't give OR guidance, but I would say that we do expect some level of gains on sales. We do have a couple of projects. We'll see if they close or not. But our EPS guidance of double-digit EPS growth does not necessitate any level of gains on sales.

Okay, that's helpful. Congrats on a great year. Thanks. Thank you. Thank you.

Your next question comes from the line of Brandon Oglenski from Barclays. Your line is open.

Hey, good evening, everyone, and thanks for taking my question. I know it's been a long call, but I do always love the enthusiasm that you guys have. It shows through in your results. I guess, Nadim, you know, coming off of Scott's question on cash flow, you know, is this the time to be having a healthy discussion, buyback versus dividend? And, you know, is the thought process changing there at all?

No, I mean, I'd say that we've had a bit of a more balanced return in the last, call it, three years. We've been increasing our dividend, and I think that we have been pretty... transparent in terms of our goal of getting a payout ratio closer to 25-30%. We've been the fastest dividend increaser in the industry for the last five years. I think we will be named to the dividend aristocrat fund S&P Canada starting next week. We'll enter that. So we're making headway. The problem is, you know, first-class problems, I guess, as our EPS is growing, like I said, close to 16% the last four years. So we're mindful that our shareholder base has also changed, and there's an increasing view that they want a bit more dividend, and we're trying to have a balanced approach. We've also been very mindful that our stock's been underpriced. There's other rails that may not execute as well, but they get better premiums. And so it's been an opportunity to continue to buy back our stock cheaper, which I think our shareholders have been very pleased with. I think we've bought back close to $10 billion of stock since 2014 at half of today's price. It's been a good opportunity to have a balanced approach. So we are also price dependent. So bottom line is you can expect us to continue to increase the dividend, probably at a faster pace to get to that 25% to 30% payout ratio. But we will still continue to have share buybacks as our natural opportunity and course of returning cash to shareholders in that around 3% level.

Thanks, Kandil. Your next question comes from the line of Benoit Poirier from Desjardins Capital Markets. Your line is open.

Yeah, good afternoon, gentlemen. Quick question, Nadine. Could you maybe provide some color about the capital envelope for share buyback this year, and maybe also to provide some color on the opportunity to deploy the available 1,000 acres of excess land supply in terms of how many year or maybe more specifically about the CAD in 2021? Thank you.

So our buyback, I mean, we for the most part complete our buybacks. This is the first time we didn't do a complete an NCIB since we've been at CP. So we announced that two and a half percent program. I'm not sure how much it's going to cost. The market's volatile. So, you know, depending on what you think the top price is going to be, Benoit, that's going to drive really the math of it. So we will, you know, we constrain ourselves to not push our leverage more than two and a half times. We want to make sure that we protect our balance sheet, as Keith talked about earlier. If the stock gets too expensive, we will hold back, but we also stagger our buyback decisions and our dividend decisions partly for that reason is to give us a bit more visibility on that decision making and a bit of time to see how the market is reacting. That's how we think about it. I won't tell you what we are expecting to pay because I can't predict the stock price. On the land question, can you clarify? I didn't fully hear the entire piece of the question.

You've been quite good over the years to leverage the available real estate. There are still 1,000 acres of available land that you could leverage down the road in the future. in the years ahead. So I was just curious to have maybe more color about the opportunities you see in 2021 to leverage this excess real estate, Nadim.

Sure. So we do have a number of transloads and investments that we are in the midst of across the properties. So whether that's Vancouver, Southern Ontario, Chicago just completed some transload work in Montreal as well. So that's kind of an ongoing basis. Now, that's a lot of land, the 1,000 acres. So we'll see what comes up, but that's enough land for a long time. But as far as selling land, We have a little bit of opportunities. It's somewhat dependent on the market, somewhat dependent on interest out there. We're not usually actively looking to sell land unless there's an operational aspect to it that we could benefit from or that can use as an opportunity. Right now, I think there's a little bit of land available that we're getting some active interest, and that's why I said, you know, we may have some land sales in 2021, magnitude of which, I mean, in the range of 25 to 50 million type of range is what could occur. But, again, we're not counting on it.

That's a great caller. Thanks for the time.

Thanks very much.

Your next question comes from the line of David Vernon from Bernstein. Your line is open.

Hey, guys. Two questions for you, John, on the end market side. First, whether a closure of the Dakota Access Pipeline would be material for your guys' Crewed by Rail franchise? And the second question is really about St. John's and opening up that intermodal flow. I'm curious to know what type of inland ports The steamship lines you're looking at for that traffic, is it Canada-bound traffic? Is it U.S.-bound traffic? And then how do you think about the margin profile on that project? Because I'd imagine there's going to be some trade imbalances as you start to initially launch that service.

Yeah, no, David. Dakota Access. Yeah, no, we're watching it closely. We do ship Bakken crude out of North Dakota, and obviously if something happened – With that pipeline, we think that would generate an opportunity. Of course, there's been a lot of noise around that pipeline for a number of years. We've been able to generate some pretty, I would call, stable crude by rail business out of North Dakota. But I think certainly there is an opportunity for upside if if they, you know, would move towards shutting it down or putting it on the sideline for a certain amount of time. You know, as it relates to St. John, I can't be more excited about the opportunity, and it's just not the import-export business that we've talked about extensively and that ramping up, but it's also the domestic intermodal opportunity in and out of the Maritimes there. Again, our competitor has enjoyed... that Atlantic Canada market with really without another competitor for quite some time. You know, certainly there's a lot of capacity on existing trains that are running there today. I don't have a lot of concerns relative to the initial margin play. There's a ton of upside to add a number of incremental cars into those train movements from St. John over to Montreal. You know, I think what we see initially is maybe a little bigger mix going down into the U.S. and the Chicago market. But, you know, I would say as it balances out, it'll be Canada, it'll be Montreal, it'll be Toronto. There might even be a little bit of movement into western Canada. But principally Chicago, Montreal, and Toronto is the key markets.

All right. Thanks very much. That was very helpful. Thank you.

Yep.

We are now out of time. I would now turn the call back over to Mr. Keith Creole.

I want to thank everyone for their attention, their questions. Thanks for sticking with us this afternoon and allowing us a chance to share our exciting story. As I said in the beginning, we had a phenomenal, exceptional 2020 set us up for an exceptional 2021. and we certainly expect to overachieve. Stay safe. We look forward to talking to you to share our first quarter results in April or March. April, take care.

This concludes today's conference call. You may now disconnect.