Great. Welcome back to day two of the 39-year Laguna Conference. We have a whole day of airlines and transportation content today. They say a little rain brings good luck. We're hoping for some great updates from all the companies over the course of the day today. Very happy to start this morning with Canadian National Railway Company, our top pick in the North American rail space. Very happy to welcome back to Laguna CEO Tracy Robinson and CFO Ghislain Houle. Thanks so much for being here.
Thanks, Ravi. What a great place to happen to be, and a nice early start on time performance. We were just teasing shoes up here about his running shoes. Maybe we'll have to make him work to justify wearing running shoes here today, I guess. It's the California look.
I like this place so much. I had to beg Tracy to come this year. She was supposed to. I come here every year. I like your conference. I like the place. It's a great turnout, and we're going to have great meetings today. We're looking forward to it.
Great, thanks for that. I think I'll find you by the pool later on.
Inevitably. Just send him back in when you find him. Listen, how about I start off with a couple of topics, Ravi? That'll set the stage for your questions. We'll give you a little bit of the lay of the land. As you know, it's a pretty challenging and interesting macroeconomic environment out there, and on trade flows. We're feeling that, without a doubt. We are about flat on volumes year over year as we come up to today and to the end of the third quarter. It's a really diversified book of business. There's strengths, and then there's areas of relative weakness. Bulk is a considerable strength for us. We've had great grain crops in Canada and the United States. We're about to start moving another one in Canada. It's a little bit late to arrive, but it's going to be a nice crop. That'll be good.
On the Canadian coal front, Quintette Coal Mine is up. We're starting to see those volumes year over year start to improve. It'll be a strong fertilizer year for the remainder of the year, year over year. Bulk is a great story and very strong for us. The intermodal portfolio has been a little bumpy with all of what's gone on from a tariff perspective. We've had a great July-August up at all the Canadian ports. July-August at Prince Rupert, we actually hit that annualized pace of 900,000 to 1 million TEUs a year, which is kind of what we've been targeting. That was great. We've got dwell of less than three days up at Prince Rupert. It's been a great service offering. I think we've all acknowledged that the peak was early this year. That volume is coming off a little bit.
We'll finish the year ahead of last year, without a doubt. Domestic intermodal has been a great story. We're up 26% this quarter so far. That's based on service. We're even making some pretty meaningful gains in that really service-sensitive side of the courier business. We expect that to continue in a strong fashion. The merchandise business is where we're feeling some of the tariff pieces. The forest products business, this is a tough business right now. The housing starts, despite the expectations that it's got to start to move at some point, it hasn't. Lumber prices are low. We've seen capacity come out of the Canadian system. We're seeing it come out of the United States system now as well. Of course, we've got the tariffs on the forest products, on the softwood lumber. That's a pretty tough market.
We're not expecting that to show any inflection in the near term at all. We'll have to see some good, strong foundational building blocks for that to happen. We have tariff situations on steel and lumber both ways, on automotive both ways across the Canada-U.S. border. That has been difficult on those industries. For us, we've been able to mitigate most of that impact so far. The team is out there working pretty hard to find different markets for those products to get into. We've been pretty successful at that as we go. Industrial products, you know, with the sand, we've got a great growth story from a sand perspective. The gas inventories in Western Canada right now are pretty high. There has been a bit of a pause on the sand growth for now, but there's nothing structurally wrong with that business.
If you look at it going forward, we've got some great strengths, some areas of challenge. It's a unique environment. Janet and team are out there pushing very hard. I like the agility and the intensity. They're boots on the ground. They're mitigating where we have challenges. They're leaning into all of those little growth opportunities that are going to get us across the line and solve problems for our customers. In this environment, where it's volatile and it could be softer, we're managing our costs very closely. Our costs, whether they're operating costs or capital costs, just leaning in a little bit harder into the share buyback given the share price. We're going to manage this tightly. It's volatile. It's difficult to know where it's going to go. There are going to be opportunities. There are going to be challenges. We're going to control tightly what we can control. We're leaning into it.
Got it. That's a great update. Thank you for that. Maybe I'll start with a bit of a high-level question, which is you mentioned it's a very volatile environment, obviously. You're prioritizing agility. You are a ginormous company with massive fixed assets. When one thinks of agile, nimble companies, a transcontinental railroad doesn't quite come to mind. How do you make this business agile? What can you do, given the customers you have, the assets you have, to actually make this agile?
Listen, we've been working on that over the last three years, and we've been tested pretty hard. We've got an operating model that, because of circumstances, we've had to demonstrate how it can shut down, start up, respond to anything, and get back on track immediately. Operationally, we're incredibly agile. Some of the work that we're doing on cost, we do it weekly. It's a weekly decision. You don't wait for a quarter or wait for a big, long look back. You do that pretty quickly. From a commercial perspective and customers, it means that our first principle is that we have good service, and we've had really good service. That makes your relationship with your customers very different. It puts you beside them from either a problem-solving or an opportunity generation.
We've got a great network with lots of strategic advantages in energy and in ag and in industrial products like frac sand, a lot of growth potential. We're working very hard with our customers. Some of that moves and is moving now, whether it's later, whether it's to different markets, whether there's new things coming up. The Canadian government is certainly interested in creating new export opportunities. From a commercial perspective, it's about knowing your customers well and being beside them, boots on the ground, looking for and listening closely to where the opportunities are. In some cases, Janet and team are proposing things that our customers haven't thought about in steel and others to get into new markets, and they've been successful in helping. It's not easy when you're a big company like this. First principle, we're lean. We run fast. We're consistent. We're tight.
We just view ourselves as a partner to our customers, and we're there with them and for them.
Got it.
Ravi, just to add on, from an agility standpoint, as you know, our biggest cost is labor. We can furlough people quite quickly. We have about 1,000 people furloughed as we speak. We're starting to call some of them back because of the grain crop. I know you have a question on it. The grain crop is late. If you look at our grain numbers, Canadian grain is lower. I think we're going to get a good crop. I think we're looking at Stats Canada just quoted 75 million metric tons. To put this in perspective, a three-year average is 73 million, and last year, we did 74 million. Some people say that it's going to be even higher than 75 million. We started to call back some of these people. We have about 200 locomotives parked, so we're saving mechanical expenses on those. We have cars.
Lumber is a soft market right now. We purposely, in the past, have leased more of these cars than we own so that we have staggered expiry dates, so that in any given year, we can return a couple of thousand cars to lessors when the market is weak. We structurally have built ourselves, to your point, to be exactly agile because we know that some markets are very cyclical. Grain is not. Grain is steady, eddy. We own most of the grain cars, but we lease a lot of these center beams that I've just talked about.
Got it. Makes sense. Remind me again, from the grain side, when you get the pricing on the crop?
I think the pricing is around 3%, 4%.
3%, 4%. Got it.
It is cost-based, as you know, and there is a bit of a lag. I think it is 3%, 4%. We have had very good pricing on grain in the last couple of years. I think when you look at the three years, it is over 10%.
Got it. Just a few follow-up questions on your opening comments, Tracy. You said that peak season came early this year. Do you feel like there has been significant pull forward of stocking and that kind of impacts the Black Hawk? How do you quantify that?
Yeah, I think that would be the conclusion of the industry, that there's been some pull forward, mostly related, I think, to the tariffs and the timing of the tariffs. That makes sense. It's not clear where that tariff situation is going. Clearly, we've all been watching that. There's been a pull forward of the peak. The questions that remain are how much inventory is out there, what comes behind this pull forward, and how much inventory is out there. Really, as we watch the economy very closely, what that fundamental consumer demand is going to look like as we go forward. There are lots of moving pieces on this. We're going to see it a little bit softer, but we'll be up year over year as the year concludes.
Forest products is an interesting conundrum, if you will, because on the one hand, you have the potential for the housing market to be unlocked and get that huge ramp there. On the other hand, I think tariffs are probably of all your end markets the most significant issue there. What do your economists tell you? What do you think is going to happen? Do home builders pay the tariff and kind of go ahead anyway? What happens?
If you think about it, the Canadian lumber going into the U.S. accounts for about 25% right now of U.S. demand. If you look at the Canadian lumber, we compete with European lumber as imports into the United States. You have to watch the tariff situation in Canada versus the tariff situation in Europe. The lumber tariffs are high. They're not as high as they are in steel right now, but they're high. We don't know where that's going to go. We have seen some capacity come out of the industry. Without a doubt, Canada would participate if there is a lift, and when there is, there has to be at some point. When there is a lift in the housing starts in the U.S., there's kind of a structural deficit there right now.
Imagine it'll wait for interest rates to decline and economic conditions to be a little bit more certain, but it'll come eventually. Canada will participate. I don't think we'll get back to the heydays of where Canada was, given some of the capacity that's come out of the system. The same kinds of things are happening in some places in the U.S. now as well.
Got it. Will you be downsizing the assets in that business or something?
That business is largely Western Canada focused. As outlined, you know we're on it already from a fleet perspective. When we look at track capacity, that happens to be it moves in our biggest growth opportunity area. As we consider capital expansion, you know, and we imagine that the forest products not there, it just adjusts our capital expansion, what we need to do or don't need to do.
Got it.
I would say as well that lumber prices are very low. You said that a little bit. If you remember, post-COVID, lumber prices were $1,600 per thousand board feet. It's around $400 to $450. Producers, especially in British Columbia, are losing money at that rate. That has an impact. I think that eventually, it'll go back up. For the short term, it has an impact.
Got it. Makes sense. You put all that together. When you think of the OR here, last quarter, you pointed to mix becoming a larger headwind in the second half and makes the 200 basis point OR improvement harder to hit. Based on everything you see so far, what's the outlook there?
When we look, when we think about our margins, I mean, there's a lot of tech factors that go into that. As we thought about it earlier in the year, we had a certain volume forecast, and we had certain mix forecasts that's kind of evolving through the macroeconomic and the tariff situation as we go. The mix issue is just that forest products, which is very good business for us, is a little bit lower. In Q2 and Q3, we've had some of the petroleum products, the energy business, off. It's just a transitional issue with some of the refineries taking extended downtime. Those are now all coming back up. That was more of a temporary issue, but that business was down, and it's very good business for us.
It was replaced with the international intermodal business, the OSM, which we love and is an important part of our strategy, but it's not as profitable. If you think about that mix, that's the impact that we've had. As we look forward to the rest of the year, the energy business is going to come back. I don't think the forest products business is coming back. We'll still have a bit of that mix issue. Of course, volumes overall are lower than what we had anticipated. We're not going to hit the 200 basis points year over year. We are chasing margin improvement really hard. We had 20 basis points in Q1, 50 basis points in Q2, and we're chasing hard, managing our costs really tightly, as you just said.
Because it's very difficult in a weaker volume environment to totally offset the weaker volumes with a reduction of cost. As you know, we're a fixed type of business. I think we will get margin improvement. We're quite confident about this. I don't think we'll get as high as 200. If you remember, the 200 was in a world where we had assumptions of mid-single-digit volume growth. Now we said in Q2 that it was going to be low to mid. I think we're probably going to be at the lower end of that range in terms of volume assumptions for the year. That's why the 200 is pretty much off the table. I think we will get some margin improvement when you look at it at year end.
Got it. You said earlier that you're bringing back some headcount that you furloughed. What's the timing on that? What's the quantity of that? What do you think about that as an OR impact for Q3?
It's not big numbers, and it's very pinpointed in various locations that we have more grain. We want to make sure that we provide the service to our customers that the customers deserve. We know we have a big crop ahead of us. We're actually calling them back as we speak. The good news is the calling success is quite good. On full-fledged conductors, the calling success is about 90%. On trainees, it's about 75%. People are coming back, and it's very pinpointed location by location. We're being very careful on how many people we call back. We want to make sure that we move the grain that Canadian farmers deserve for us to be moved.
Got it. Just one more for you, Ghislain. This carbon tax repeal, the $70 million Canadian, is that just like a net wash between revenue and EBIT?
That's right. It is. It's 100%. It's a net wash. Same thing, top line, bottom line. It helps the OR a little bit because it's at 100%, but yes, it's a net wash.
Got it. Maybe last question on this topic, just overall on pricing. Are your customers more amenable to pricing conversations? We had some of the truckers here yesterday saying that, hey, the environment sucks. Everybody knows it's extremely inflationary, so we are able to get through low to mid-single-digit pricing on the trucking side. What are your pricing conversations like and kind of compared to historical, even within this environment? What do you think you can achieve?
Our objective, as you know, is always to bring in more price than we experienced in inflationary on our costs. We're working very hard to keep the inflation down. We've been successful at bringing in price ahead of cost inflation as we go forward. That's the high-level kind of number. The actual reality of this is much more complex as you move between automotive and some of the domestic business, the international business, the chemicals business. They're each separate. I would say that we are having good conversations on price based more on service. Through all of it, the service has been really strong. The partnership with our customers and getting them into new markets is a very collaborative environment right now because we have joint problems we need to solve, opportunities that we think we can step into.
Got it. I asked one of the IMCs this question yesterday about Mexico. Obviously, huge opportunities there with nearshoring and the growth there. At the same time, maybe not as strong an opportunity as we thought maybe a couple of years ago with tariffs and the fact that nearshoring appears to be you have to put a completely automated plant in the U.S. now. How are you thinking about the puts and takes in that dynamic there?
I think there's a big question around Mexico as is around Canada and what moves it back and forth across the borders there as we think about where the tariff situation goes. USMCA will come up next year, and there'll be another conversation. This is a pretty uncertain environment. We've seen our Mexico volumes grow considerably this year. I think we're up 15% year over year to the end of August, and that is partly driven, I mean, it's one of the opportunities out of the tariff environment. That is northbound automotive from Mexico into Canada that's displacing U.S. into Canada. That's pipe that's going from Mexico to Western Canada. In the other direction, it is plastics and it's fertilizers that are going down into Mexico. There's opportunities there, without a doubt.
How it plays out relative to tariffs, it's really a question around what's the long game on the tariffs and the USMCA as that agreement comes up for review.
Got it. Makes sense. Let's shift to the topic du jour, which is the proposed rail merger in the U.S. I would just love your overall thoughts there.
Listen, I wasn't here yesterday, but I did hear that.
Nothing happened.
You had Jim Venna here, who is entertaining, as always, and quite confident, I hear. I also hear he's talking again about the Canadian volume to Canadian ports that are going down in the U.S. That volume, let me just say this first. I'll say it again. That volume is a drop compared to what goes through LA and Long Beach. Most of that volume that comes in through the Canadian ports goes down to Chicago, and it goes down to Memphis. There are bits and pieces that go beyond, but he can compete for that already. He can just show up and compete. He doesn't need a merger to do that. If he's counting on that volume for his merger economics, then he's probably paying too much. I'll just leave it at that.
If you think about kind of reviewing this merger, as you would any merger, you have to think about what are the alternatives. Especially in this industry, we're forced to think about, are there other ways to solve whatever the problem is through more collaborative means? You've seen the industry really lean into this, not in the last two months, but in the last number of years. We're offering a service with CSX into Nashville because we want our customers that are coming in through Prince Rupert and Vancouver to have that ability and not have to piece it together themselves. Others will also offer services into Nashville. We're offering a service with Norfolk Southern from Atlanta, the link service into Canada. You know about the Falcon Premium service.
We've been at this pretty hard, and this is, I think, the way that the industry has contemplated how you solve this problem, which is largely, there are no issues with service right now. It's largely, how do we collectively pick that truck traffic up off the roads and get it onto the railways? The STB in 2001 contemplated, and they concluded that these kind of private sector initiatives could very well provide the same kinds of benefits without the risks that the big rail mergers always bring. This is a big merger. It's very complex. We put these two railroads together, it's going to be 40% of the U.S. system, and there are going to be a lot of interesting questions to answer in this. We haven't seen the application yet. We'll take a look when it comes out. We're kind of running this very proactively.
The STB and, I guess, Union Pacific and Norfolk Southern are going to have to think about how they answer the question of whether you can get these benefits in different ways without contemplating the risk to public harm of putting a big merger together. They are going to have to contemplate the downstream impacts of this, all through the lens of a newer, higher standard of how does it increase competition. Most of the dialogue we've heard sounds a lot more like the old rules, which was really the risk of going two to one loss of competition. That's not the standard anymore. It is going to be interesting. This is going to be very complicated. It is going to be interesting to see how they answer these questions. In the meantime, we're watching it very closely. We are continuing to work all options.
As a railroad, for us, we have, I think, the strongest origination network of any railroad. We originate 85% of the volumes we move. Right now, we also destined 2/3 of the volume. You start on Canadian National Railway Company. You finish on Canadian National Railway Company. Over the past number of years, what we've been looking to do, that 1/3 that moves from our system to another system or vice versa, that's where we've been focusing. That's been an important priority of mine since I've got here. How do we give our customers that seamless type of service? Whether it's a steel wheel service right into Nashville or whether it's Monterrey to Toronto, how do we work together as railroads? Times are different. When I got into this industry way too many years ago, we dealt very differently with each other.
Today, we know as railroads, we can be partners, and we can be competitors at the same time. The industry, I think, is all thinking about this. It will be interesting to see what they put, how they address those questions, and how the STB responds. We are going to do everything we need to do to protect our network and the competitive access for our customers.
Got it. I'm going to ask you about Nashville in a second. You spoke about the downstream impacts. I'd say the most immediate downstream impact would be if this merger goes through, what does it mean for Falcon Premium service? Have you thought about, are there benefits? Does it expand the operation? What do you think happens?
We have to see kind of what they're offering. I think, without a doubt, when you think about through the lens of how do you increase competition, some of the concessions that are going to have to be considered are going to be, I would expect most of the concessions that come forward as part of this are going to be quite considerable, especially, as I said, with the prospect of having to demonstrate that you've increased competition somehow. I think this whole industry has changed over the years. You saw a fundamental change when CPKC got together. All the railroads, the doors opened up, and we started to think differently about how to do this. This is a continuation of that. I think we've demonstrated, and I think we all would say we've demonstrated the ability to do this.
This next one is a partly merger, partly Falcon Premium service question, which is, how is that going? Is that a poster child for how well an interchange handoff network can work that maybe can be evidenced here?
Yeah, this is probably the standard of one of the toughest ones. It goes through three countries, three railroads, crosses a pretty difficult border on the U.S.-Mexico side. The service is consistent, and that's a large part because of the commitments that the three of us have made to each other, which is exactly what I think the STB contemplated and what motivated parties can do if they try to get together. It's a five-day service, and it runs in a very narrow band around that, even with some of the border issues that you can run into in Mexico. It's improved since we watch the volumes very closely. It's improved since last quarter. It's not up as high as we saw a downturn in it when we had the labor issues in Canada last year.
It's not back up to where it was, but it is kind of, I think, one of the standards that are being set.
Got it. Talking about the new CN, CSX service into Nashville that you just announced, how did that come together? Obviously, your peer in Canada also has a partnership with CSX. I mean, honestly, are these conversations awkward?
Not at all.
How do you put these together? How did you pick Nashville? Do you think there are more routes and more cities like that?
Absolutely. We've been working with CSX for the same period of time. We've been working with Norfolk Southern for the same period of time. We've been working with Union Pacific. It goes on and on. This is, as I said, a priority for me that we look at. Here's the benefit of the railway: you open up a rail map of North America. I've been in the pipeline business. Very different. You open up a rail map in North America, you can get from anywhere to anywhere already with the network that we have. What you have to do, and what we have to do, is figure out how to make it easier to navigate between the railroads. We have work underway, as do most other railroads, with every other railroad. This is not about dating exclusively or picking an exclusive partner or doing a merger.
This is about looking at our customers and the markets that we could get them into, providing the service that makes the most sense, getting there, and then putting the kind of operations in place that's going to underpin it. For us, Nashville is one of the biggest growing markets in that part of the United States. We want to give our customers that are coming through the Canadian ports the option to get in their steel wheel with all that kind of consistency. They'll have the option of going through LA and Long Beach if they go through the BNSF-CSX service as well. This is about creating services for your customers so that they can best utilize the fullness of the North American rail network. We're working on that with Norfolk Southern. As you know, we announced the link service not too long ago.
We're working with Union Pacific on it. We announce some of these as they come. Underneath that, we meet regularly. Our teams meet regularly to monitor the progress that we're making on the work that we've already done. Jim and I and Fernando meet on Falcon Premium, as well as where's the next opportunity. What are we hearing from our customers? That evolves. We were working with CSX on the whole EV piece, where the batteries were being built versus where the cars were being built. There's a great opportunity there. It shifted a little bit in this new environment. You have to be nimble as well. As you get to know each other, it's easy to spot these opportunities. There's work going on right now with every single one of them.
Got it. It's also about extending our network reach. As you know, to grow volumes, one of the things you need to do is extend your network reach. Railroads, you can't replicate a railroad. We have 8,000 bridges. That's the key. You go to where you go, and you don't go to where you don't go. We believe that we can extend our network reach. We can help CSX and other railroads extend their network reach and reach markets that they wouldn't be able to reach on their own. We don't need to do this through mergers. We can do this through partnerships if the partnership is well structured and if the information flow between the two railroads is well done so that you work as a one single line railroad to cover North America. That's what we believe. That's what we've been trying to do. That's what we're doing.
I think that the Falcon Premium service will be the role model, hopefully, for how railroads need to work together as a partnership to get long-haul truck traffic. We're not talking about short haul. We're talking about long-haul truck traffic back from the road to the railroad.
If you think about CN, one of the things we bring to bear is that origination network. 85% of our volume is there. We want to get it into markets. We're a great partner, not just for one railroad, for every railroad.
Got it. Makes sense. Maybe kind of switching gears a little bit and doing a little bit of a look back almost. You've been CEO for a little over three years now. You came in with this big reset plan, kind of very bold ambitions. Unfortunately, you haven't really had a chance to show what you can do because it's been a down cycle kind of ever since. At the same time, there's been multiple instances of expectations, recalibrations across the industry, you guys as well. I know I've been wrong with my sentence. What are the takeaways here? What are some of the learnings you can take away into how we use this for forecasting or looking forward?
As you say, Ravi, we've had to kind of reset expectations a number of times. I'm not happy with that. None of us are, as we think about it. Back when I came in, we had two objectives. We wanted to get the railroad running really well. We've got the right operating model. That's fine. We looked to where we saw growth. At the time, the forecast was there for economic growth. We were about to be at the turnaround. We saw our job as figuring out how we leverage our network to the best purposes for our customers. We saw some very specific growth opportunities in that.
As we laid out kind of multi-year guidance, now that economic growth has not materialized and probably won't for the next period of time, we've had kind of two successive years of issues that we didn't anticipate, where the Canadian ports had labor-related shutdowns, which was very damaging, and where we had a Canadian rail labor issue. We haven't generated the growth that we had originally contemplated. We regret that. That's unfortunate. We wanted to do more. It does factor into our thinking as we go forward. Not happy about how that has unfolded. What I am happy about is how the team has responded. Over the last three years, we have this railroad running really well.
As we've pushed through all of that turbulence, we talked about it just a few minutes ago, they have the ability to run this railroad through almost anything, whether it's shutting down and starting up or when it's any of the issues that are out there. If you look at our car velocity, it's averaged over that time each year more than 200 car miles per day, which is actually kind of surprising given you have to bring the full thing to a halt a couple of times a year over the past three years. If you look at our customer service, it continues to be very strong. It's not just that it's strong. It's consistent. Our pricing has come in exactly where we wanted it to.
If you look at some of that sector-specific growth, whether it's the NGLs or whether it's the frac sand or the refined products or the growth we targeted in grain, all of those have grown over that period of time from anywhere from 15% to 50%. It's been offset by some of the macroeconomic. We've managed our costs really well. We had expected and had planned for more volume than we've got. We managed our costs through the turbulence and through the changing macroeconomic pretty well. As I reflect and look at the results, we haven't generated the growth that we promised. We're feeling that. We're feeling that. What we have generated is more growth in that period of time than any other railroad except CPKC, which is a merged entity. We've been in the top two of operating ratio, so of our margins every single one of those years.
As you said, our EPS has kind of been in the pack. It's not what we promised. We are an organization that needs to deliver, do what we say we're going to do. As we think about it going forward, this environment is more volatile than it has been, I think, in the past. I don't see that volatility changing. As we think about what the lessons are and what this looks like going forward, we're doing a lot of thinking about that. I can tell you that it's less certain environments. That'll be factored into how we think about setting expectations going forward.
Got it. You recently pulled your long-term guidance. You had a very useful Investor Day three years ago where you kind of laid out those targets. Are we thinking of another event in 2026? Or do you just need more clarity to get a sense of?
I think we have to assume that this kind of volatility is the new normal. We need to set expectations within this new normal. I think we will be less certain. We will need to be more nimble and ready. I mean, we have done, I think, a pretty good job in responding to what's happened. We're going to have to continue to do that, but plan through all kinds of scenarios. We'll be out next year in some way to give you a sense of how to think about expectations. Whether it's a full Investor Day or not, we probably will. We haven't kind of landed on that.
Understood. Any questions in the audience? If not, keep going. Obviously, you guys have been a big leader in technology investments in this space over the years. I remember your Investor Days back in 2017 and even before that. Can you just talk about some of the latest initiatives that you guys have going on right now, whether it's on the AI side or on the physical hardware side?
Our technology investments are always focused on three things. One is safety. We've seen tremendous impact on safety with some of the wayside technology and the automated inspection of the tracks. If you think about engineering-related incidents, derailments have fallen 90% over the last 10 years. That's a pretty significant impact. That is an investment that we like, not only from a return perspective, but safety is always our key value and key priority. It's also good business. With safety as the first one, it's operational efficiency, which is related. If you're slipping from a safety issue, then you're impacting operational fluidity. The third one is automation as we go forward. The opportunity in this area is significant. As we think about going forward, the three of them can come together. Automation is the next level of opportunity.
Even when you think about the safety environment, the more you can remove the human factor and rely on technology, there's opportunities there. The capabilities of AI, I think we're only starting to scratch. We've got to be careful there because it's easy to go fast on these things and not get any benefits. We want to be thoughtful. The benefits on automation from AI, whether it's in the rail yards, whether it's in the back office, or whether it's in how we are anticipating volume and planning the best routes from a velocity perspective. We're in the midst of kind of systems renewals. We're doing the new SAP for HANA. We're doing some of the basic systems renewal. You've got a cloud program going on that's going to allow us to access and utilize the data.
We're doing the strategies around kind of what the next level investment will be. It's all going to be focused on safety, operational fluidity, and then that automation benefit.
Got it. Just on the topic of investments, maybe a good place to end, Ghislain, would be CapEx and investments going forward. Obviously, there's been some scrutiny of the CapEx spending given growth or expectations shifting. Where do you see that going next year?
Let me take this one, and then I'll give you the tail end of it.
Sure.
We set our capital investment for our network based on the maintenance that we need to keep it running effectively, the capacity expansion that we need to move the volumes, the growth that we're going to have, and then whatever debottlenecking I can. So far, like this year, we're $150 million below where we were last year. We've got a lot of productivity benefits that we're leaning into, and we're getting momentum. The capacity expansion that we're investing in has all been in the Western corridor, and we've done some expansion around the EJ&E. Most of that is Edmonton to Vancouver, where we've seen more than a 20% increase in GTM since our last peak. There's been some volume, and that Edson sub from Edmonton to Jasper is the critical piece for us because every train, whether you go into Prince Rupert or you go into Vancouver, touches that.
We've done a little bit in support of the frac sand where our customers are investing in Northeast BC, and we're twinning a bridge, the Zanardi Bridge in Spence to Prince Rupert. All of that is largely done. By the end of this year, we'll have one double track segment just outside of Vancouver and the finishing of the Zanardi Bridge that will finish off over the next two years. We're going to get the benefit. We've done what we need to do. We're in great shape. Our locomotive fleet, our car fleet is where it needs to be. You're going to see a lot of the opportunity for that to come off.
I also want to make a comment on what Pat Whitehead's team and the engineering guys, we set them a very specific piece of work to drive some discipline and some excellence into how we plan capital and how we execute it, and we're starting to see the benefits of that. If you think about this year to the end of August, we've reduced about $120 million in contractor spend by investing $20 million in labor and equipment ourselves. You're seeing it across every metric. I think our tie installation, we've reduced it by $17 a tie, but we're installing 1.5 million ties. The zone capital is off by $20 million in unit cost, and we've been able to absorb all the inflationary impacts on the OpEx side of engineering.
The momentum that we're getting here is going to really factor into our capital planning as we go forward as well. By the way, they've done that all while reducing the safety incidents, personal injuries by 30%. There's great momentum there. You're going to see ourselves factoring all of that into capital going forward.
Got it.
Did I miss anything?
Nope, you covered it very well. Do you want to say a few words on conclusion as we conclude? I think we're out of time.
Listen, Ravi, thanks for hosting me. We're looking forward to the meetings that we're going to have today. Without a doubt, this is an unusual environment. We were talking about it earlier. It's going to be very volatile. We think the best thing that we can do through this, you run lean. You run great railroads. You run fast. You get good service to your customers that puts them beside you. There are going to be opportunities. There are going to be challenges. We're out there on the ground and on it. We'll get there.
Got it. Let's hope for some settlement in macro conditions. I know you guys have it covered. Tracy, thanks so much for being here.
Thank you.
Thank you for having us.