Canadian National Railway Company

Second Quarter 2020 Financial Results Conference Call. I would now like to turn the meeting over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Well, thank you, Patrick. Good afternoon, everyone, and thank you for joining us for CN's Second Quarter 2020 Earnings Call. I would like to remind you about the comments already made regarding forward-looking statements. With me today is J.J. Rouet, our President and Chief Executive Officer, Ghislaine Houlle, our Executive Vice President and Chief Financial Officer, Rob Riley, our Executive Vice President and Chief Operating Officer, Keith Reardon, our Senior Vice President, Consumer Products Supply Chain, and James Cairns, our Senior Vice President, Rail Centric Supply Chain. I do want to remind you to please limit yourself to one question so everyone has the opportunity to participate in the Q&A session. The IR team will be available after the call for any follow-up questions. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr. J.J. Rouet.

Well, thank you, Paul, and good afternoon, everyone, and welcome to our second quarter earning call. In keeping with our commitment to safety and essential services, our people have quickly pivoted to working safely under the new normal of COVID-19. In Q1, we told you about our proven ability to be resilient to any challenges. In Q2, we proved it again, and CN's operation never slowed down for the pandemic. And we will be ready and prepared if there is a second wave. As we look back, this was among the toughest quarter of my career, with heightened pandemic concern of our employees and a sharp drop in volume of 18% in revenue ton miles. But thanks to our people and our leaders, we perform very well. We take pride in delivering essential services to our national economies. Our perennial financial strength is serving us very well in these current times. CN generated $1 billion of free cash flow during a quarter of severe recession. We delivered an adjusted operating ratio of 60.4%, and we continue to aim for a minimum of $2.5 billion of free cash flow this year. CN is built to last. And even in these challenging times, I'm proud that we continue to demonstrate why ESG is a hallmark of CN. Namely, our carbon footprint continues to decrease exponentially, having delivered another record of pure efficiency. Today we will speak to the short term, our costs, and our resiliency to last this pandemic. And today we will also speak to our investment in the long term in our contribution to the economic recovery. Rob will walk you through the strength of our operation in this new normal. He will highlight progress we are continuing to make in cost takeout, in bringing technology to the railroad industry, and in the safety culture at CN. He will also highlight his outstanding performance in fuel efficiency. James and Keith will speak to the expected sequential volume trend for the quarters to head. And we know also, by now you know, our long-term commitment to the grain business and the major investment that we've announced here today. Ghislaine will give you color on our solid balance sheet. and the special non-cash charge that we are using to push PSR further by trimming non-core parts of our network. So in summary, a good quarter in the middle of a recession. We quickly learned how to operate under the new normal of COVID-19 for quarters to come. We proved again our cost resiliency that will help us deliver in the near term. And we reaffirm our confidence in the future by maintaining our dividend policy reaffirming our $2.9 billion capex in 2020 and announcing a new $150 million investment for 2021 targeting the long-term grain export business. On that note, I will pass it on to Rob. Rob?

All right. Thank you, JJ. Our results in the second quarter are showing you the strength of our CN team and of our operating model. In these extraordinary times, the team reacted quickly and aggressively. We adjusted resources to declining volumes, increased productivity and efficiency, and served our customers. All of that while improving our overall safety record with less injuries and less accidents on a year-to-date basis. Finally, we will see some lasting structural changes following COVID-19, and I'll provide you with some of those examples. I'm very proud of the CN team that proved again our culture of operational resiliency as we are leading the industry on many fronts. Now let me walk you through some of the details. During the quarter, the team responded accordingly to the significant volume drops in right-sizing our resources by idling four locomotive shops as well as four additional switching yards. We laid up one out of every three locomotives. Over 20,000 rail cars were stored, while our active online car inventory was down 20% and approximately 4,000 employees. were furloughed this year. From a productivity standpoint for the second quarter, the team set an all time best ever fuel efficiency record, while avoiding an additional 29,000 tons of CO2 emissions and saving an additional $7 million in fuel expense directly from our fuel efficiency initiatives and execution. Sequentially, fuel efficiency improved 8% from last quarter. That means we moved 8% more tonnage the same distance with the same amount of fuel. We continue to be the North American class one railroad leader in fuel efficiency using a little more than eight tenths of a gallon of fuel per 1000 gross ton miles. Train weight and train lengths reached all time historic levels as we were able to move more freight on every train start. Crew starts were reduced 21%, while RTMs were down 18%. Crew productivity exceeded all-time record levels, and train speed was up 5% year over year. As I noted last quarter, we also took advantage of the additional time on our tracks with fewer trains operating to strengthen our infrastructure. As a result, we've seen our rail and tie-gain productivity improve up to 25% year over year. Also, as I've mentioned previously, from a mechanical standpoint, we reacted with a plan and a purpose by laying up our least reliable locomotives first and laying them up in good order status that allows us to get them back into service quicker when needed. During the quarter, we've seen locomotive reliability and availability percentages improve year over year while locomotive dwell was reduced, fully utilizing our assets while doing it with fewer shops and less headcount. You can see that we once again demonstrated our culture of operational resiliency, even during a tough quarter, and we continue to look ahead to further improve our efficiency through challenging times. Now, let me highlight some of the initiatives we're building on and that will provide lasting structural changes. The Eival locomotive shops and switching yards will remain closed. We will continue to improve train size year over year. Fuel efficiency initiatives will continue to produce record outcomes. More of our training will be performed virtually, and we continue to advance the capability of our handheld mobile devices that all train crews have now. Through this digitization process, we have and are eliminating some 30 million printed pages of paper annually at CN. removing hundreds of shared printers and kiosk terminals while reducing the COVID related exposures associated with them. Further on a technology forefront, our automated track inspection program and automated inspection portals continue to provide benefits with our train accident ratio reduced 22% year over year. Finally, our operations team is tied very closely with James and Keith's teams, matching resources to projected sequential volume return, and we are ready and prepared for additional waves of COVID. That, I'll turn it over to James.

Thank you, Rob. Like all Class I railways, we saw a significant decrease in demand related to the pandemic. At the same time, thanks to our unique geographic reach, we set all-time records in the quarter for Canadian coal, Canadian grain, West Coast propane, and wood pellets. Prince Rupert gives us a structural advantage that cannot be replicated and create supply chain resiliency that helps our customers win in their end markets in good times and bad. We set new records for grain for the last four consecutive months. Our customers have invested heavily in new country elevators on CN and new export capacity in Vancouver. In order to support these investments, we will be acquiring 1,500 additional high-capacity hopper cars for 2021. that would create capacity for us to continue to set new records for Western Canadian grain through next year. These new high-capacity cars allow us to ship up to 20% more wheat and 40% more canola using the same train resources, creating an overweighted benefit for CN, giving the commodity mix of our business. Wood pellets in particular was a good news story in Q2. Our year-over-year volume growth of about 15%, has come from expansion projects across British Columbia and Alberta, with more production coming online through the end of 2020. We set an all-time record for West Coast export propane volume in the second quarter and reached a new sustainable run rate of 70 cars per day, working with our partners AltaGas and Ridley Terminals. The CN Prince Rupert supply chain offers propane producers access to the best netback markets in Asia, and we expect to see continued growth in West Coast propane exports via Prince Rupert through the balance of this year and next, as AlterGas continues to set new records and Paminat starts up their new facility early in 2021. Coal unloads at Ridley terminals of 3.2 million tons for the quarter was an all-time record as well. West Coast coal volume was up over 22% in Q2 compared to the previous year. There is a slow sequential recovery in our manifest franchise, and we expect that May was the low watermark for our Carlow business. Our lumber franchise in particular started to recover late in Q2 with commodity pricing improving by around 40% from April to June. We expect to see sequential growth for the balance of the year and now seeing demand at pre-COVID levels. The crude oil price war and demand destruction caused by the pandemic severely impacted our crude, frac sand and fuels business much more than our general manifest and bulk business. We are seeing demand come back for diesel, ethanol and frac sand with sequential growth from Q2 into Q3. We continue to invest in lockstep with our customers to facilitate carload growth. This is made possible by our continued ability to price ahead of railway cost inflation across all business units at CN. I'll now turn it over to Keith.

Thanks, James. The reach and scale of our network and the variety of products and services that we offer have allowed for our consumer businesses to be resilient in the face of volatile demand. The acquisitions of H&R and Tranzex have amplified our industry-leading refrigerated services. This allowed us to grow in the consumer and grocery freight waves that we saw in Q2. CN's wholesale partners were also able to drive growth in these segments. Our Q2 overseas business fared well in the face of lowered consumer demand and significant trans-Pacific blank sailings by the ocean shipping industry. We see significant volumes for July and August on the West Coast, and Prince Rupert could see a record in July as carriers reinstitute vessel calls previously scheduled for blanking in Q3. We also see additional vessels being scheduled for ad hoc service as containers sitting on the docks in Asia require more capacity. Strong customer relationships and our extensive network reach has helped CN to win a large portion of these reinstituted, and ad hoc vessel calls for Q3. Grain records were not only set in James' carload segment. In June, we moved 60% more containerized grain versus Q2 of last year. The success of the grain container terminal in Regina has been a great addition to the network. Our CSX steel wheel interchanges from the ports of New York, New Jersey, and Philadelphia sequentially grew in Q2. In automotive, we are now seeing a welcomed rebound in volumes, with the majority of the plants we service continuing to produce during what would otherwise be the traditional summer shutdown. As JJ said, we are focusing on the long term, even as we deliver results during challenging times. We are focusing on cost, right-sizing resources and assets in our multimodal operations. Initiatives are underway in intermodal terminals, our auto ports, as well as our subsidiary operations. Our supply chain partners continue to invest in the long-term future of our ecosystems. For example, in Vancouver, DP World Centerm is bringing on more rail capacity as we speak. And in Halifax, the SuperPost Panamax crane was delivered to PSA a few weeks ago. CN's reach and network scale, the diversity of service offerings, and the structural and capacity improvements that we and our supply chain partners are implementing will produce mid- to long-term growth from the consumer businesses, I'll now pass on to Jez Lamb for the financial perspective.

Yeah, thanks, Keith. Overall, the point I'd like to make is that our strong balance sheet and disciplined cost management allowed us to manage well during a challenging time while continuing to invest for the future. Starting on page 12 of the presentation, I will summarize the key financial highlights of our second quarter performance as we continue to provide essential services to move the North American economy. Revenues for the quarter were down 19% versus last year at just over $3.2 billion. As part of our continued efforts on PSR and asset rationalization, we recorded a non-cash charge of $486 million in the quarter, resulting from the decision to market for sale certain non-core lines for ongoing rail operations. Our adjusted operating ratio is 60.4%, up 290 basis points versus last year. Adjusted net income was $908 million, or $342 million lower than last year, with adjusted diluted EPS of $1.28, down 26% versus last year. The impact of foreign currency was favorable by $13 million on net income in the quarter, or two cents of EPS. Turning to page 13, let me highlight a few of our key expense categories on a constant currency basis. Labor and fringe benefit expense was 18% lower than last year. Overall headcount at the end of the second quarter was down 5,100, a 19% decrease year over year. Purchase services and material expense was 11% lower than last year. This was mostly the result of lower outsource services, trucking and transload, and material expenses. Fuel expense was 49% lower than last year, driven by a 39% decrease in price, 20% lower workload, and an all-time record fuel efficiency. Now moving to cash on page 14. Despite a very challenging demand environment, I'm extremely pleased that we generated over a billion dollars of free cash flow in the quarter and close to $1.6 billion through the end of June, nearly double the amount generated for the same period last year. We are the best railroad to go through this unprecedented pandemic with the highest investment-grade credit rating in the industry, and in late June, Moody's reaffirmed CN's credit rating of A2 with stable outlook. In fact, our leverage in terms of adjusted debt to adjusted EBITDA at the end of June was lower versus what we reported at the end of Q1. We have plenty of liquidity, and we continue to issue commercial paper at rates that are lower than LIBOR. We opportunistically priced on April 29th a $600 million 30-year bond at a coupon of 2.45%, the lowest rate achieved by a Class I railroad, and the second lowest ever by any corporate in the U.S. debt capital markets. The company will continue to posit share repurchases in these economic circumstances and will reassess on an ongoing basis. Let me finish by saying that, as you know, we withdrew our guidance for the year on our last earnings call. We are still not providing guidance at this time, which is consistent with most companies in North America. Our scenario analysis for free cash flow that we provided in Q1 still holds. So to sum up, during this quarter, from a financial perspective, we have clearly demonstrated the resiliency of our franchise, delivering value to our long-term shareholders. On this note, back to you, JJ.

Thank you, Jim, and thank you, Blake.

Let me wrap this up before the Q&A. So as we speak here, operations are fluid, volume is sequentially slowly improving, and we are carefully recalling some train crews and about to resume some training for the 2021 demand. As we look ahead, we remain bullish, and we also have a culture of resiliency. This quarter should give you no doubt that we are ready for anything, whether or not the world goes back to normal in six months, or we have a prolonged pandemic. We have to team to get this done. With that, Patrick will now take it over to get questions. Thank you.

Thank you. Please press star 1 at this time if you have a question. The first question is from Sadi Shamoun from BMO. Please go ahead.

Good afternoon, Sadi. Good afternoon. Thanks for taking my question here. Just a Quickly, if you can give us some insights into the yield and the petroleum and the materials segment were up 23%. What's kind of behind this? And if you can maybe help us identify whether there were liquidated damages on the crude by rail business and kind of how should we think about the – rollout of these liquidated damages as we go into 2021.

Yes, I think James will put that in more detail, but broadly speaking, I'm not sure exactly what data you're referring, but we are collecting liquidated damage and it's going for our revenue. So, James?

Yes, if I recall, when we got back into the crude by rail segment in 2018, we secured long-term contracts with associated liquidated damages that pay out over the life of the contract. So these payments come in kind of every month, every quarter until these contracts run out, or hopefully the customers start shipping at their prescribed contract levels. On the yield mix question, Fadi, what were you driving at there? Provide more detail on that question.

I'm just looking at the freight revenue per RTM that you've reported for the petroleum and minerals that were up there. pretty significantly on a year-over-year basis. What's kind of behind those increases that you had?

Well, we had a significant change of mix on the frax and crude oil side. These tend to be very long-haul moves, very heavy RTM moves that just are not with us at this time of time, primarily because of the crude oil price crash associated with the demand destruction and COVID-19.

Yeah, so we're not doing as much crude. We're not doing as much as long-haul crude, not doing as much fax-in, and we're still collecting the take-home-pay portion of some of the contract commitment customers made with us. Hopefully this helps you with your questions, Hadi.

Yes, thank you.

Thank you.

Thank you. The next question is from Ravi Shankar from Morgan Stanley. Please go ahead.

Good afternoon, Ravi. Thanks. Good evening, everyone. JJ, International Intermodal has really been a growth engine for the company for the last several years. Can you help us understand how you're thinking of nearshoring as a potential, maybe even a risk to the growth of International Intermodal over time? How does CN and your port partners continue to add value? And maybe if you can share what kind of discussions you're having with your shipper customers on potentially moving their supply chains to North America.

Okay, so let me start. So we are very bullish on the strength of the consumer in North America, even more so on the consumer living in the U.S. in the big city, because we have a three-course network and we can access some highly populated area. And the consumer disposable income is very key to CN's future. And the product that's most suited to exploit the consumer spending and disposable income is Antimodal. And the business coming by the port is definitely one of our mid- and long-term strategies to increase our business in that space in two ways. One is to try to earn market share It is a North American market. The border does not exist when it comes to supply chain, and therefore we're looking to outperform the economy, which would be outperform the part of the GDP that's related to the consumer, and play a bigger role in the U.S. market, and competing hard with the East Coast and West Coast Railroad and East Coast and West Coast Port. I don't know if you want to add some colors to some feedback you're getting from specific customers, Keith?

Sure. You know, those that supply their needs, whether it's retail or manufacturing in North America, they've been not only looking to China over the years, but they've also been sourcing products from Southeast Asia. And that is still growing. Those plants are still being built. And what we're seeing is the farther south you go, the more economically feasible it is to maybe go through the Suez Canal and then going to the East Coast. So that is one of our strategies, as you know, is the three-coast access that we have at CN, which is unique to any other railroad that does not have that. And that is why we have the strategies in place of Halifax, Quebec City. That's why we see all of these infrastructure projects on the East Coast for us as opportunities. risk mitigation, I guess, and as an aggressive standpoint to go attract that business to North America through the gateways that we service on our three coasts.

So, meaning to wrap this up, Ravi, to answer your question directly, I suppose, regarding nearshoring, I think the reality is there will be in-country sourcing for all the stuff that's deemed to be essential to a country, medical device, eventually vaccine and anything related that's bought by our government who are going to be waiting to pay more for those goods that are essential to the current time. But when it comes to consumer product, it's still going to be quality price. And the consumer is going to look at the price tag, number one, the quality, number two, and the country of origin maybe sometime and maybe most of the time probably not. So I think near-shoring of day-to-day consumer goods, especially the lower-value one, that's not going to happen. But if it's a very high-value good, you know, something electronic or a computer chip, yeah, the labor costs, you could do that. Remember, the U.S. dollar is very strong, and that's a bit of a challenge to bring in manufacturing back in North America. Thank you for the question. Very helpful. Thank you. Thank you.

Thank you. The next question is from Sherilyn Radborn from TD Securities. Please go ahead.

Good afternoon, Sherilyn.

Thanks very much. Good afternoon. So on your Q1 conference call, we talked about how at that time you were recalibrating resources weekly and in some cases even twice a week. So I was just curious whether that's still the case or whether at this stage shippers are able to give you a bit more visibility than that.

Rob is on top of that. Rob?

Yeah, we continue to be very tight with James and Keith's teams in terms of the expectations out there, and that's been part of our success here in the second quarter and how we've been able to quickly right-size our resources. We are doing it weekly, biweekly, in terms of keeping our employees cut in that are on furlough. And, you know, as far as our locomotives – We did that with a purpose as we laid up locomotives. We laid up the least reliable and we laid them up in places where we could get to them quickly. So, yeah, we remain very tactical throughout this, Sherwin, and we're ready for whichever way it may go here.

Nathan, I add to what Rob said. In June, we pulled car out of storage for the automotive sector when we recalled some crews in Michigan. And as we speak in July, the lumber business has picked up and we're calling back crews in the lumber geographic market and putting cars in service. And the business out of Rupert right now is very strong. That's another area where we have been recalling some crews selectively. Be very mindful of the cost, but at the same time, we are an enabler of the economy. We're an enabler of the recovery. And when some of these segments start to come back, we need to be there for them. And we are.

Great. Thank you for your time.

Thank you.

Thank you. The next question is from Ken Hexter from Bank of America. Please go ahead.

Hi, Ken.

Hey, Greg. Good afternoon.

JJ, maybe digging into that, your thoughts on employees, you know, you're down 5,100 year over year. Maybe just talk about your thoughts on increasing that sequentially and then, you know, cost per employee was flat year over year. Your thoughts on were there lots of one-time costs that you've you held back on in the quarter that we should see going forward? Maybe just talk about the pace of return of costs. Thanks.

Rob? Yeah, so we have, since our low, we saw the trough in terms of volumes in late May. And that's really where we spiked or saw our most employees on furlough. You know, as we got into the summer season with vacations and also an increase in volume, we selectively called back employees. But it's not on a one-to-one basis. as volumes come back in. And we're very methodical about bringing them back, especially as we go into the third quarter. And just as Jizon talked about, we're still trying to figure out what the future volume is going to be. So, you know, we're very, very careful with all of our assets, not just employee resources, but also our locomotives and cars as well.

Yeah, and some of these differential are – Some of them are furloughed. That is that we hope that we will have enough business at some point to call them back. And some are not furloughed, meaning they're permanent. So, you know, we don't have over 5,000 people in furlough. It's more like 3,000. And your thoughts on the cost per?

Could you say that again? Oh, the cost per. Also, the back half of it was just your thoughts on the cost per employee, which was flat. I just want to know if there were one-timers. you know, that you pulled out during the quarter that are going to come back as we move through the rest of the year.

Do you have a color on that?

Well, there's a bit of incentive compensation that created a benefit in the quarter, Ken, and maybe that's because when you look at employee and when you look at inflation, it's still running around 2% wage inflation. So, but there is some benefit related to incentive compensation that has provided some benefits in the quarter. Thank you. Thank you.

Thank you. The next question is from Chris Weatherby from Citi. Please go ahead.

Hi, Chris. Hi. Hi. I'm just pretty curious if you could give a little bit more color on the line sales you announced, and then maybe as you think forward, if they're non-core, maybe what that might mean from a cost savings perspective. Would this be accretive from an OR standpoint as we go into the back half of the year?

So they are non-core. I was just saying you want to pick that up.

You work on that project pretty much. Yeah, so hi, Chris. So, yeah, they are non-core. As you remember many years ago, we did rationalize our network in Canada. and we've never really done it in the U.S., and these non-core lines came when we bought the WC. They're really non-core lines in Wisconsin. There were non-core lines in Michigan and non-core lines in Ontario. Again, you know, with the cost structure of a smaller operator, not a Class 1 railroad like us, and the ability that sometimes they have to get some funding from the governments, I think they will be better suited to run these lines than we are. And as you know, these lines will continue to feed in into our main line and will continue to benefit from the long haul. So in terms of OR benefits and so on and so forth, I would say, Chris, stay tuned. I think that this is a good step. And as you know, this is part of PSR. Part of PSR is you rationalize some of your network and you have better operators in terms of their cost structure, operate some of the non-core lines than we are, but then still keeping the line haul and business coming to your main line. So we're quite excited about this, and it just shows you and the market that we're pushing on PSR in every fund that we can.

Yeah, it's on the fundamental of making sure we have a network that has a capital call where it's needed. And in some cases, a short-line operator could actually get capital from state, province, or government. which we don't have access. So it's about a model for those non-core line that we're selling. Okay. Thanks, Chris. Thank you very much. Thank you.

Thank you. The next question is from Benoit Poirier from Desjardins Capital. Please go ahead.

Yes, thank you. Good afternoon. Could you maybe provide some color on the latest question with respect to the potential proceeds for the assets and whether you would use the amount to buy back some shares or any thoughts about the proceeds you might use?

Yeah, I mean, listen, we're going to try to get as much as we can for these lines. Obviously, we're hiring bankers to help us market them and so on. And And so I'm not going to lay out what we expect because, again, we're going to shoot ourselves in the foot when we auction these lines out and what we get for it. But hopefully we get a good amount. We get what they're worth. And then, you know, we'll see what we do with the cash. Again, our use of cash policy doesn't change at CNBenoise, you know. First use of cash is worth the business. And then we look at shareholder distribution, first and foremost, dividend. And I'm quite proud. of our 7% dividend growth this year. I'm quite proud of the consistency of our dividend, which is 16% CAGR since we privatized. And as you know, we've used share buyback to get to a targeted leverage level because this is the flexible tool. So, you know, the cash will come, and when it does, then we'll figure out what we do, but our use of cash strategy remains the same.

That's right. It's investing in a business, dividend, and share buyback. Thank you for the question, Benoit. That's great.

Thank you.

Thank you.

Thank you. The next question is from Scott Group from Wolf Research. Please go ahead.

Hey, thanks. Afternoon, guys. So you had a slide with some structural cost changes. Any way to quantify how much that is and then On the yield side, yields overall were down. Any way to think about some of the moving pieces for the third quarter on either REF per car or REF per RTM?

So maybe Rod can give some color into where we think there's some permanent takedown in our costs. And regarding the RTM question, I think we'll send it to RTM. Maybe you're just linking that to that. Well, let's start with Rob.

Yeah, thanks for the question, Scott. So, I mentioned some of that in my opening comments in terms of some of the shops and some of the yards that will remain closed. We don't anticipate those being opened back up. In terms of locomotive fuel efficiency, of course, I quantified that in there in terms of what we got on the quarter, and we'll continue to see record fuel efficiency here with some of the measures we have in place. So, We'll continue to see that going forward. The train design in terms of what we're doing with train length and train weight, that'll continue. We'll continue to see those improvements year over year into the quarter. So those are some of the structural changes we're looking at, and we see that continuing here for the near future.

Yeah, I think, Scott, in terms of Central RTM, we're not going to provide guidance on Central RTM on a quarterly basis, but all I can tell you, We don't necessarily manage the business on central RTM. The mix that we have is the mix that we deal with. I think what we manage is price, and we're quite good, and Keith and James and their teams have done quite a good job, actually, to manage price. I mean, the price that we're getting is still above rail inflation. It's solid pricing. We continue that way, and that's so you can expect that to continue in the third quarter and the fourth quarter and going forward.

That's right. So some of the takeout will be permanent. And definitely, especially in the month of June, our mix changed because the ultimate of business, as you know, Scott, which is very lightweight and high revenue, that business was almost disappeared. So that big impact in the second quarter, you know, makes what's happening in the ultimate of business, namely as an example. Thank you.

JJ, is your point that... Okay.

Thank you. Go ahead.

Okay. Is your point on the auto piece that the yield should start to get... better as auto is coming back?

No, the point is more is that, I mean, I think in May we were down 90% in automotive. So if you look at the impact on the CN total book of business, it had an impact on the distortion, for example, between gross ton mile and revenue ton mile and what it does to our so-called mix of business. But what's important for us is for each car load to make money, and we merger that to revenue to cost ratio, the RCR, which is a reverse of an operating ratio. And when it comes to pricing, we don't look, as you know, on send per RTM, because when you look at send per RTM, you're looking at noise, what is exchange, mix, length of haul, you name it. I provide the car, the customer provides the car. What's really important when it comes to price is same store price, which is the same thing as the retailer does. This sale is here. Compared to the same sales last year, what's my strength? And anything that is not a same-store sales doesn't go in the calculation of same-store price because now it's a different sales. You don't have a comparable. And a lot of these different sales have a huge impact on what you call the cent per RTM. So that's why we're not focused on cent per RTM. We're focused on same-store sales, and we're focused on revenue-to-cost ratio, which is a reverse of operating ratios. but per unit per customer. Thank you.

Thank you. The next question is from Cormac Gupta from Social Bank. Please go ahead.

Hello, Cormac. Thanks. Good afternoon. My question is just going back to your previous target for operating ratio that you discussed with me yesterday before. How do you think about the operating leverage and capital intensity heading into 2021 as volumes recover further and you bring back more employees and pull out some feet from the storage?

Well, right now, maybe I can start and Rob can add in. Right now, we do have capacity in our network, capacity that we built the last two years. capacity that we could have used this year. The economy and the pandemic did not hit us. So, obviously, we have capacity to grow. We also have qualified people, whether to maintain equipment, fix locomotive, or run train, and these people are in furlough. And I feel for them, and, you know, we hope the business comes back to a point where we can recall many of them, eventually, hopefully, most of them by 2021. As we get much more efficient, and Rob talked about train length and train weight, You know, the number of people per ton mile, if you wish, goes down. That's a significant savings. The overall philosophy on operating ratio is not to be the lowest, not to be the worst. We want to have an operating ratio which is very competitive, but at the same time allows us to be able to grow organically with our customers as customers of business to offer to us. I know, Rob, you want to maybe share your philosophy on operating ratio?

Yeah, so... You know, in terms of operating leverage going forward here into the third quarter, you know, I mentioned some of the things we're doing and will continue to do. We are not bringing back resources on a one-to-one basis, and that will continue to provide benefits for us. You know, when you go through a quarter like we did, we're able to test and really press the edges in terms of what we're capable of, and we found some of these opportunities through that process. Again, I talked about fuel efficiency, train length. These are things that... And when you talk about setting records at CN, that's saying something, right? This is a storied, long-storied history of operational excellence. And when you start to set records, and we set a number of them here in the second quarter, that really speaks to the team, that speaks to the operating model, and we've really done a nice job, and we continue to leverage that here going into the third quarter.

So competitive operating ratio? but also focus on business growth and focus also on inorganic growth, things beyond just rail, but things that would be accredited to rail. That's why we have made some acquisition and joint venture. Thank you. Thank you.

Thank you. The next question is from Brian Offenbach from J.P. Morgan. Please go ahead.

Hi, Brian. Hi. Hey, good evening. Thank you. A question for Rob on the technology on the operating side. Can you give us an update on the inspection cars? It looks like you're moving to Phase 2 under the FRA next month with some reductions on visual inspections. You've got Transport Canada on board. It looks like we're rolling out through some subdivisions. So maybe you could just give us an update on how this is progressing relative to expectations, and at what point do you think you'll be able to quantify some of the benefits, either from an accident reduction perspective, workforce perspective, or even capacity emissions in the future.

Where do you find the question, Rob?

Yeah, I'd love to take that one. Thank you for the question. So we continue to make progress just as you talked about. In the U.S., of course, we have a pilot program going on with the FRA. We are transitioning to Phase 2 as you speak, as we speak here as we go into August. What that will mean is 50% less manual inspections. And what that means for us is that – You know, all around our autonomous track inspection program, it's really about, you know, having a safer, more reliable network. It does reduce costs, and it unlocks capacity on our network by embedding these in revenue service trains versus a human being on the track. So in terms of quantifying it, we've seen our train accident ratio down 22% year over year, and certainly some of that can be traced back to that. We've tested the line in the U.S., 17 times more than traditional testing right now. So in terms of strengthening the line, in terms of turning our employees into fixers versus binders, all of that is coming true. And then in Canada, we're starting to see the results of our work with Transport Canada. So we do have an exemption there to begin testing that, and we'll continue to follow the same pattern that we had in the U.S. Again, ultimately, this makes us safer more reliable network. We do see costs fall out just from the safety aspects of it, and it does unlock capacity as we go on.

So here's the question. And you're going to hear from us in the months to come that we're adding resource. We want to help out Rob with top-tier talent as to how we implement and roll out the technology for the rail operations. So more to come on that. Thank you, Brian. Okay. Thanks for the update.

Thank you. The next question is from Walter Sprachman from RBC Capital and Markets. Please go ahead.

Hello, Walter. Hey, good afternoon, everyone. So just on incremental costs here, you guys did a pretty good job of keeping costs contained in the quarter. So the OR degradation was less than 300 basis points. Just curious, obviously your cost efforts didn't, It obviously probably improved through the course of the quarter, and so as you exited the quarter, would it be safe to say that your ability to limit OR impact from continued volume declines here in the third quarter, potentially the fourth, will be moderated such that we don't see a degradation in the operating ratio, or are they coming out in a way that it's still likely to see some degree of all our degradation as we go through the quarter here, excluding fourth quarter with the strike last year, just focusing here on the third.

You want to look at your crystal ball?

Yeah, I can look at my crystal ball, Walter. First of all, I mean, at the end of the day, what we do on cost and what the team did, to your point, on the second quarter is quite remarkable. And we've got to remember that we have some headwinds that are quite fixed that we have to deal with, and I've mentioned that at the beginning of the year. we have about $130 million of depreciation that we have to deal with. And we have another, used to be $70 million on pension. Now with betterment in pensionable payroll, it's down to 50, but it's still 50. So we have $180 million of headwind. And if you slice that every quarter, this is a cost that we have to deal with. So I think that, you know, the proof will be in the pudding in Q3. I mean, as you know, And JJ made the point, we've never been enamored with the OR at CM. I think that we'd rather be a $20 billion, 60% OR, than a $15 billion at 59. Just do the math. So I think that at the end of the day, we will continue to manage costs, and we manage both the short term and the long term. So we do make decisions to make sure that we know that our report card is coming out every three months, And the report card will come out in October. And you guys will look at the OR and all of the metrics. But we're making decisions as well to make sure that we're well prepared for the winter coming at us. And whether we like it or not, we have a winter in Canada and for 2021. So, yes, we – so stay tuned. I didn't really answer your question on how the OR will look like because I'm not. But at the end of the day, we are very pleased with our OR in Q2, and I'm telling you to stay tuned for Q3.

Maybe just on the headwind from depreciation. It's a headwind short term because of the capital program we did the last two years. But at the same time, it says that we're ready to handle much more business. So that headwind eventually becomes how we're going to be able to grow the economy when the economy grows or as we create product that can gain market share. So that's the whole card for 2021. And Jane's has this program that we announced today on the grain. So these rail cars will be built between now, most of them between now and Christmas, and delivered to CN the first 15 days of January. So they'll be very helpful to contribute to the revenue of the next winter. Thank you, Walter. Thank you.

Thank you. The next question is from Brandon Oglenski from Barclays. Please go ahead.

Hello, Brandon. Hey, good afternoon, everyone. Thank you for taking my question. Pete, you sounded, I should phrase it, relatively bullish about intermodal prospects looking into, I guess, quote, unquote, peak season. Can you talk about some of the opportunities you mentioned in your prepared remarks to think about, you know, carriers adding back rotations and that you're winning some of that incremental business?

Sure. Pete? And as I said earlier, we believe in the strength of the consumer in North America, and we're The market where that shows the most, number one, is entomology. You see that a bit in lumber and automotive, but where there's something to really exploit, where the product is really tailor-made to drive the consumer economy, that's entomology. Pete?

Sure. You know, it wasn't fun going through the beginning of the second quarter and hearing about blank sailings and also the – the challenges that our customers were having and the fact that they thought that was going to be going into the third quarter as well. So it's great that we've seen a lot of the blanks that they had for Q3. They've reinstituted those calls. And right now, you know, on the West Coast, we have much less noise around the blank ceilings than we did during Q2. In fact, They're adding 11 extra loaders in Q3 on the west coast, nine on the west coast, and two on the east coast. Those types of things and the discussions that we have with our customers and the fact that our boots on the ground folks in Asia are telling us the strength of what's going on with orders from North America, those give us the confidence that I can sit and talk to Rob and ask him, you know, have that discussion about being prepared. As I said, Rupert's probably going to have a record in July. And we see the same thing for August as far as the volume solid on the West Coast.

Just saying, maybe you want to add something about transects and a year after the acquisition. Yeah, sure. Should be able to accomplish the transects.

That's another, sure, JJ, that's another piece of business that we're quite bullish on. and I'm happy to report that after a year, and I think Keith and the team is doing and did an outstanding job integrating TransX with our overall CN family. As you know, Brendan, big projects or investments, we typically have a general auditor going in and auditing the business case and auditing the return and reporting directly to the board. So they're not all done yet, but but close, and I'm happy to report that the return of the investments, both in TransX and H&R, will deliver higher than our typical ROI threshold that we use at CN of 12%. So this is a good accretive acquisition, and we're quite pleased. And as I said before, Keith and the team is doing a hell of a job managing this. And frankly, their OR, as we speak, is now the best in class for these types of companies. Like if you look at J.B. Hunt or some of the others that are best in class, TransX is right there with them.

Yeah, the mandate for TransX is to compete with the best of best, like J.B. Hunt and Lavoisier. They're not a trucking firm. They're an equitable firm, and they've been increasing the amount of rail they do since last year. Thank you, Brendan. Yeah, thank you, Jesse.

Thank you. The next question is from David Vernon from Bernstein. Please go ahead.

Hey, good afternoon, everybody. Rob, I wanted to focus in on the train length and train weight gains that you had in the second quarter. Could you talk to whether, you know, some changes in mix or maybe just lower volume on the network allows you to kind of extend that? And then what the outlook should be kind of from here? Should we be expecting in this 9,500 feet length range range for the rest of the year, even through the winter months? Or should we be expecting this to kind of come off as volume comes back?

Rob? Yeah, winter all bets are off. You know, we'll see what winter brings, and then we can have that discussion at that point. As far as the changes we've made, we do view those as structural. And mix or no mix, what we've done is really take what has been delivered to us and make the best out of it. So We're looking at a significant volume drop that we saw this quarter, and we took action. Part of that was increasing train size and reducing crew starts. And a lot of things come with that when you do that. Bigger trains lead to greater train fuel efficiency, leads to better utilization of your locomotives. We saw train velocity improve all during this period as well, 5% year over year. So we plan on keeping trains big. and looking for more opportunities that are out there. Thanks for the question.

No physical constraints that may come back into the network as volume kind of recovers?

You know, we continue to invest in capacity investments, particularly in Western Canada. I think you'll see us continue to do that. That will allow us to continue to maximize our train size. So right now our plans are to continue to keep trains big.

That's right. We have construction activities as we speak here around the Port of Vancouver, Port of Rupert, as well as the North Line to Rupert where we're adding siding during the summer. Thank you for your question. Thank you.

Thank you. The next question is from Sheldon Clark from Deutsche Bank. Please go ahead.

Hi, Sheldon. Hey, thanks for the question. As it relates to the 1,500 grain hoppers that you plan on purchasing in 2021, is there any way to put some numbers around that opportunity next year as it relates to either volumes or productivity and how that differs from some of the previous long-term guidance you've given around grain? And does this maintain CapEx in your more normalized range for 2021, or how should we think about it from that perspective?

So maybe I'll take the first part and just think and talk about the – capex for 2021 without getting too deep in the details. So definitely these rare cars are more productive. Therefore, you can move, as you know, the Canadian grain cap, you get paid by the fund mile. So the more you can put in a car, you get more revenue per car. So obviously the yield of a car which has a higher payload or the profit yield of a train has a higher payload because each car is heavier and each car is shorter. you make the business more profitable. That's why the business case is compelling to really invest long-term in the grain business. So it is profitable. It has a good return. And the new formula of the grain cap says there is a compelling case to renew your fleet. But as long as that fleet has a higher payload, higher payload per train, higher payload per car. CN is a little more north than my competitor in terms of where we are in the Canadian prairies. And a little more north means a little more canola. Canola is a lighter crop, and the impact on the revenue per car of a lighter crop of these different car is actually beneficial to us. We even have a better return than if we were moving a lot of wheat, for example. In terms of revenue impact, without getting too deep into detail, you look at our book of business on Canadian grain, how we do usually, and obviously we'd like to do more of that. And I think, James, there was a decision issued by the Canadian government on the grain cap, and it's sort of favorable to the CN as it did here in terms of the MRE.

Yeah, I think we had an outweighed benefit on the MRE, you know, compared to, you know, the other railway in Canada by about 5%. So we're very happy with the outcome of the MRE for next crop.

Yeah, as of August 1st, the MRE is revised, and it turned out that CN has a 5% favorable spread on that. Jusne, regarding the CapEx for next year?

Yeah, CapEx for next year. Listen, I think Selden, as I said in my opening remarks, I mean, we're not providing guidance still. I think we're going to look to see how the recovery and how the recovery sticks. It's still – I think we see signs of it, but at this point it's a little bit choppy. So I would say, you know, stay tuned on that one. I mean, we'll see in Q3 and then early Q4. We'll go through all of our bottom-up, top-down exercise, and obviously we need to go to our board and make sure that they approve our capital envelope. But what I'm going to say to you is the big two years of our CapEx investments of 25% of revenue is behind us, and I think that going forward, It'll be lower than that. And as you know, our historical rate has always been in the 20% range. But we'll see. I mean, if we don't need to invest, we won't. And to JJ's point, right now with volumes that we have and the two years of significant investments we've made, we've got plenty of capacity. And we're still now putting some this year on very targeted areas in Rupert and very targeted areas in Vancouver. And we're very pleased to have the help of the government or the Port of Vancouver to Same thing in Rupert with the government. And those are dealing with specific pinch points that we have. And, again, we think of the long term. And those pinch points have been with us for a long time. We're happy that now we've got attention of people to help us fund for some of these things. And that will create value to us for the next 5, 10, 15 years.

Yeah. We love to find projects like this project at a very good return. And we love to find projects where the capital, this is capital for 2021, that slice of $150 million is already approved by the board so we can place the order in the coming weeks. And what's important is the asset will come to us at the time we need it, first week of January. So it will be accredited to the next winter movement of grain, which is typically peak time. And it will also be accredited to the fall of 2021 which is also a peak time. So it's capital that will go to work right in the first two weeks of the year.

JJ, I might just add there, you know, from an operational efficiency standpoint, we'll be able to move 8% more cars on the same length train that we do now with these new cars and move an additional 20% to 30% more grain, depending on the commodity, per train. So we get immediate benefits from it.

It creates corridor capacity right away. Thank you for your question, Selden.

Thank you. The next question is from John Chappelle from Evercore ISI. Please go ahead.

Good afternoon. Thank you. Good afternoon. JJ, you've faced three pretty unique challenges in the last three quarters with the strike, the blockade, and the really steep recession, and you've managed it incredibly well. As you look to headwinds maybe finally becoming tailwinds for the first time in a year, how do you feel about the capacity, service, customer positioning, and winds? to return to growth and really to grow the bottom line at a greater pace than even the top line when the car loads and flies. Yeah.

Well, Tiffany, it has been a special time between our labor disruption in November, the rail blockade where we felt we weren't getting a whole lot of support, even though we had injunction everywhere, and then right away having the pandemic. I think what it shows is CN resiliency is very strong. I mean, the management team that we have, but down to people who are on trains, people who run trains during the pandemic, people who are, a lot of people have the opportunity to stay home because of, you know, we're safer at home. We have to work very hard to make the working conditions such that everybody would keep coming to work. And by the way, even though our headquarter is somewhat empty, a lot of us kept coming in. On average, I think we had 200 people report in this building here every day from day one, and they still report to work every day since the beginning of this pandemic. So what it does, it creates confidence. I think it creates confidence that we can do whatever comes at us, whether we have a second wave of pandemic, which is possible, and we're ready and prepared for that, or we have a strong recovery, which we're ready and prepared for and hoping for. That would be a good thing. But we don't plan for the best. We plan for the worst, but then are ready to be exploiting whatever might come at us. CM is focus on growth. So we are always... taking in that line. So as much as we work on our costs, because being a cost leader is quite important, we're also working on a pipeline of inorganic growth. And you heard that we have a new chief strategy officer at CN. And Maureen, one of our board members, is heading a new board committee on long-term strategy. And these two things are really to address some of the fundamental challenges there is in the railroad. Yes, from time to time, we'll have disruption, pandemic, rail strike or blockade, but the real fundamental issue is how do we grow long-term as an industry beyond coal, beyond the cyclicality of crude, and some of that has to come from inorganic growth, has to come from initiatives that we need to initiate as opposed to wait for customers to do business to us. So I think putting all that in is kind of where we're at right now is that we have our eyes on the short-term, but we also have a lot of specific effort on long-term, and I did mention earlier that that Rob should get help over the next few months here in terms of other talent joining CN that will help us really beef up the technology side. Thank you. Great. Thank you.

Thank you. The next question is from Jason Seidel from Cohen.

Please go ahead. Thank you, Operator. I think you guys before talked about some of the shops and locations that you've idled due to the slowdown from COVID-19. Can you talk about the outlook on when you think you're going to be reopening them as business comes back and how we should think about those costs as they layer through the quarters?

So Rob has had merchandise yard shops. Rob, you want to take that? Yeah, sure will.

I think I mentioned it there in the beginning that that's part of our structural changes. So, you know, we don't anticipate opening those up again. It certainly won't be anytime soon. It'll take something more than what's going on right now. Some yards, right? Absolutely, yeah. We've shipped four yards and four or five shops down. So what we've seen with the rationalization of our locomotive footprint, it actually gets locomotives in the right place to begin with. Gets it to where our materials and online inventory is, actually reduces materials in the long run by having it there. And we're seeing it in terms of reliability and availability, in terms of getting the locomotives in the right shop with the right people to work on them and get them back in service. So we see it as structural. Appreciate your question, Jason.

Yeah, so these were – so, okay, so those were closed because I think you used the words closed and idled, and I didn't know if they were – some could be reopened. So these are closed permanently then?

Yeah, that's part of it. And along those lines, you could see the same logic as to why we are doing putting for sale some short line. That's also a structural change along the line of – you know, idling or closing some merchandise yard and or shop, is when we look at a U.S. network, we decided that some part of the network is better in the hand of others, and that's also part of looking out for long-term for PSR. You know, that's part of the decision why we did that at this time back in this quarter. Do you think those sales will close this year?

Well, I think we – just maybe you want to – Well, I mean, we'll do our best. Well, we're hoping, obviously. But as I said, we've hired bankers to help us package this thing. And, you know, we will be very disciplined and go out and auction out and so on. And we'll see how it's going to go. So if we can close this year, you know, trust me, we will. But we want to be disciplined and we want to have the best value for them. because, again, remember that this business will continue to be fed on our main line. So we need to have the best operator to come in because they will continue to manage these non-core lines, and that business will come to us on our main line. So I think we're quite pleased about this, and we'll see.

Yes, I think realistically six months might be a little short time. Six to 12 months, these things should come together.

But the key is to be disciplined, and the key is to have a good auction process, and the key is to maximize the value and get the right operator. That's the key. All right.

Appreciate your time, gentlemen. Stay safe. Thank you.

Thank you. The next question is from Allison Laundrie from Cordia, Switzerland. Please go ahead.

Thanks for squeezing me in. Hello. Hi. So the 12 numbers have deteriorated pretty meaningfully year over year and also versus 2018 in the last several weeks. And, you know, velocity, cars a lot are going the wrong direction. Presumably this is at least partly driven by the uptick in volume. But is there something from a mix standpoint or your focus on train length and weight for the selective yard closures that are that are driving this deterioration, and how do we reconcile these weekly public metrics with the structural improvements that you made in the quarter, and if you could just, you know, sort of speak to where you are from a network fluidity standpoint. Thank you.

So Rob will pick it up, but what we did on DeWALT was a conscious decision as it relates to how we optimize costs. Rob?

Yeah, thanks for the question, Allison. I'd love to answer that one. And really, from my perspective, it's not a concern. In fact, it was part of our planned response to the significant volume drops we saw here in the quarter. When you look at the increase in dwell, we have on a very low base to begin with, so you've got to take that into consideration. We're talking about adding an hour or so to the car cycle that's measured in days and sometimes weeks when it goes offline to other railroads. And then you look at what we were able to do with train length and train weight, all time records. Bigger trains drive greater fuel efficiency and utilization of our locomotives. And as a result, we were able to reduce crew starts 21% greater than volume reduction. Our active online inventory was reduced as much as 20% in the quarter. So increased well did not drive additional cars online. Train velocity improved 5% to big part of a car cycle. So we made up time there. And, you know, then you look at our employee productivity, eclipsed all-time highs from a service standpoint, three straight months of delivering all-time grain to the ports. And then our domestic intermodal service really has never run better. So we made the right calls in the quarter, and we'll continue to focus in on what's important. Thanks for the question. Thank you.

Thank you.

Thank you. The next question is from Tom Waterwitz from UBS. UBS, please go ahead.

Hello, Tom. Hello, Tom. Yeah, hi. Thanks for the question. You talked about, I think, some optimism on intermodal improving, international intermodal, and some constructive commentary on the sailings that you see happening in third quarter. Obviously, you have quite a few longer-term drivers. I was just wondering if you could give some broad comments on, you know, how you would think about volumes in third quarter or fourth quarter. Can you, you know, should we think about volumes down mid-single and third? And, you know, is there any chance you could – a path you could get to volume growth in fourth quarter? You know, obviously I recognize there's not a lot of visibility, but just wanted to see if you could offer some broader thoughts on how volumes might play out in second half.

Yeah, maybe I can start in – Keith can chime in. So, import is strong. Export is not as strong. A comment made earlier by Keith that we have more loaders. Loaders is basically the reverse of a blank. When shipping lines add loaders, that means they're actually adding vessels in their schedule because of the strong import. But the export is not as strong right now from North America. Do you want to look out in time to the next few months what things look like, Keith?

Yeah, you know, as JJ said, the addition of these extra loaders is kind of the reverse of the blanks. And that's a positive thing for us. And in talking to several of our customers, whether they're North American based or overseas, you know, they've done a really good job managing their capacity. And they've done a really good job of creating a market where they've been able to keep the rates in good stead. So there is pent-up demand right now. We are kind of in a peak season, I would say, right now. And if the discretionary income of the people that are doing all this buying, whether it's at the home – the DIY folks that are putting in the decks or painting, you know, if that keeps up and if the strong – business that we've been handling, like the refrigerated goods that are happening now, whether we're in a pandemic or not, I think that's going to continue to grow with what we've brought on with TransX and H&R and our other wholesale partners that are keeping that business strong. I don't think that we're going to see, unless there's another wave of the pandemic, I think that the contacts that I talk to They're seeing it stay strong into at least the beginning of the fourth quarter. We'll see how it goes, but that's kind of what we're planning for right now with them as they give us a heads up over the next two to three months.

There is a surge from the retailer, which is reflecting back in shipping line and back into the port activities, into a different consumption, which is I would call it the stay-at-home consumption. People are building a deck. They're renovating their house. They're painting. There's plenty of money in their backyard. They're putting a pool where, I mean, these are the things that there's a high amount of disposable income that goes into it. So some supply chain are out of whack. Some supply chain and warehouse is full because people don't want to buy those stuff. And some other warehouse that relates to what I just said, you know, sort of the stay-at-home expense around the house and around the backyard. I mean, these supply chain are empty. And you try to get a barbecue. you may not quite get the kind that you're looking for. You're just going to have to buy whatever is left at Home Depot. So we see some of that, too, where some container needs to move fast because of consumers spending their money differently this summer. Thank you for the question.

Okay.

Thank you. Thank you. I would like to turn the meeting back over to Mr. Roulet.

Thank you, Operator. Thank you for joining us today. Maybe I can just use some closing comments. We're very proud of our end of quarter result here. The team has been able to do the best of what came at us very quickly. We kept everybody safe. We unfortunately had to do quite a few layoffs. Good news is we started to recall some people back to work. We also started to get some assets back in the In the business, you see from our Carlos and RTM every week that there is some sequential growth. We would love to see more of it, but we'll track the economy. In the meantime, Rob is working very hard on his costs, and we're very much staying focused on the long-term business. I mentioned the work that we do in strategy and the work that we're doing with things related to organic growth, which have nothing to do with most of what we talked about here today. So, Stay tuned. CN is ready for anything, whether we have a slow recovery or second wave of pandemic or a better business outlook sometime in October, November. So we'll see. Thank you for joining us today. This is the end of the call. Thank you, Patrick.

You're welcome. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.