Good morning, everyone. We're gonna start the day again with a safety briefing. Before we do that, I trust everyone enjoyed their dinner last night. I'd like to thank Paul and Mika for organizing that. Very nice dinner. In terms of our safety briefing, again, the building has an audible alarm system, and so if we do hear something, it is an evacuation. There will be directions over the intercom, but the exits are directly behind you, different than how you came in. In terms of medical emergencies, Jose and Jan are over here to take care of any medical emergencies, dial 911 and get the professionals here. So with that, I am going to turn it back over to Paul. Thank you.
Thank you, Mitch. [Foreign language] . Good morning, everybody, and welcome to beautiful Montréal, CN's hometown. Thank you for joining us today for the 2017 CN Investor Day. Thanks for those in attendance today in the room and also for those listening on the webcast. It's really a pleasure to have you all here today. Luc will provide you with some info on the speakers for today, but I wanted to let you know that after the presentation or after each of the presentations, there will be some time for question and answers. Also, after the lunch or at around 1:00 P.M., we will have a one-hour question and answer session as well, with all the speakers available as well.
I would ask that you limit yourself to one question. I'm sounding like I'm doing my quarterly call here, but so that we can get as many people asking questions during this period. So right now, I'm just gonna go do my forward-looking statement. The executive presentations today may contain forward-looking statements with the meaning of applicable securities law in both Canada and the U.S.. There are, of course, a number of risks and uncertainties that could cause actual results to differ materially, and those are detailed in the first slide of each presentation, as well as in our management discussion and analysis that is regularly filed with the SEC and applicable securities regulator. We have an exciting lineup today, and our first speaker is Luc Jobin, CN's President and Chief Executive Officer. Luc?
All right. Good morning, everybody, and welcome to CN's 2017 Investor Update. I would like to welcome everybody that's here in Montreal. We've got a glorious summer day in Montreal. We couldn't hope for anything better. For those of you joining us on the webcast, thank you for joining us as well. I'd like to start the day by sharing a few comments I heard from some of the analysts. "Now that you're focused on growing the top line, you may actually lose out on your margins. The supply chain approach sounds basic. Will it translate into sustainable revenue growth? The operating ratio is already best in the industry. Is there anything left? Will the growth require capital investments with subpar returns? And last but not least, you've said goodbye to a CEO who's added tremendous value.
How will you continue to do the same with new leadership?" So any guess in terms of who said this? Who was it? Should we turn the lights on so I can actually have a good view, and we can point them out? Seriously, you probably think that these were comments I heard last night, either during cocktail or at dinner. But in actual fact, these were statements made back in 2010 at our Investor Day in Chicago, some seven years ago. I was still new with CN at the time. I joined CN as CFO in June 2009. Our business then had been performing very well for years, and Claude had just taken over from Hunter, who was going into retirement for the first time. The rest, of course, is history.
The questions I heard back then are the ones that have been definitively answered during these last seven years. We have delivered value to our customers by becoming supply chain enablers, and we have grown faster than the competition, as well as the base markets, while doing so at low incremental cost. Let's take a look at CN's track record during this time frame. Our revenues grew from CAD 8 billion to CAD 12 billion, a 6% compound annual growth rate. Over the same time frame, our operating ratio went from 63.6%, and we ended last year at 55.9%. That's an improvement of 770 basis points or 12%. Now, if you, even if you do exclude the impact of lower oil prices, this represents well over 500 basis points of operating ratio improvement.
Meanwhile, our adjusted EPS over the same time frame grew at a compound annual rate of 14%. We reinvested in the business $15 billion in support of safety, efficiency, and growth. We repurchased over $10 billion worth of shares, and we increased the dividend by a compound annual growth rate of 19%. Our market cap was $30 billion back then. Today, it stands at approximately $80 billion. All the while, we kept a very solid balance sheet, and so we've delivered to our shareholders consistent, high quality returns. And you have to admit, that's pretty impressive performance, and at CN, we're very proud of it. All right, let me turn to our agenda for today. We're going to talk about CN's strategic agenda.
On the surface, when you look at it, you may think that it's remained essentially the same since 2010. In fact, it has. But don't let that fact fool you into thinking that it might be getting stale. You have to get below the surface, and when you do, we'll find out. We keep working at it, we keep deepening it. We keep calibrating each component to be in sync with the evolving market reality, raising our game in every aspect and remaining nimble while maintaining balance. Today, we're here to tell you that at CN, the journey continues. This brings me to the overall idea we want to leave with you during this investor update, starting from yesterday's innovation trade show through the end of our time together later today.
When you invest in CN, you're buying a leading North American transportation and logistics company. Now, what do I mean by that? CN has a proven track record as the most efficient railway, providing customers with transportation and logistics services beyond rail. CN has a solid growth momentum, deploying its customer-centric supply chain approach, and CN is a dynamic organization, deepening its competitive advantage in a changing world through continuous improvement and innovation. We are delivering superior value, and we're not just focused on the next quarter. We're building our business in a methodical and sustainable way for the long term. Customers are at the very heart of our agenda, and operating excellence is in our blood. This formula delivers returns for our investors year in, year out, and we intend to continue doing so in the future.
That's what's meaningful to our long-term investors, many of whom are here today. All right. So in my remarks, I'll first look at those foundational pieces that support our success and upon which we're building the future as we speak. Then, I'll give you some perspective on the opportunities we're pursuing, given how the world around us is evolving. Finally, I will explain how we remain focused on delivering results to drive CN forward. So let's take a look at our building blocks. They are the foundation of our success at CN, both today and for the tomorrows. At CN, our strategic agenda and our track record are built on these three foundational building blocks. Let me tell you about each, what defines them, and more importantly, how it translates into tangible results. First, let's take a look at our great franchise. And it is a big moat.
CN is the only transcontinental railway in North America. Our 20,000 route mi of track spans Canada and Mid-America, connecting 3 coasts and 10 ports. We offer integrated rail transportation and logistics services, including intermodal trucking, marine shipping, transloading, warehousing, freight forwarding, and customs brokerage. We originate 85% of the traffic on our network, and through our extended reach, we actually access approximately 75% of North American consumers. This broad geographic scope provides us with a diverse portfolio in terms of revenues across industrial markets, bulk, and consumer-driven sectors. As far as infrastructure goes, our network is unrivaled. More importantly, we put it to use in creating service offerings and achieving efficiency gains that are very difficult to match. One such example is our EJ&E property. This is a key competitive advantage around Chicago, especially for time and reliability-sensitive business segments.
The second building block is our industry-leading operating model. Now, what's so special about our operating model? It is built on both operating and service excellence. Let's start with operational excellence. Here, the important thing is, first, our core values of delivering safely and responsibly. As you heard from Mitch yesterday, our constant efforts are devoted to improving our safety performance as we've set our sight on becoming the safest railway in North America. In that sense, we're embedding trust, pride, teamwork, and innovation in our safety culture. Meanwhile, running a sustainable business not only means moving goods safely, but being environmentally responsible, building stronger ties with communities, and adhering to the highest ethical standards. From there, we apply, you know, those railroad operating concepts you've heard us talk about for, well, the last decade.
Disciplined execution in all aspects of running the railroad, from operating more efficient trains, reducing dwell times, and improving overall network efficiency. We obviously continue to push forward here with our relentless mindset, improving mindset. In today's reality, we must also be nimble because supply chains are very long and inventories are kept very low. At CN, we monitor market changes, and we adapt quickly, as we've demonstrated, for example, over the last few years in dealing with the volatility of demand in the energy business. Another key aspect is our consistent approach to investing behind opportunities to gain efficiency, including such things as sidings, fuel optimization, DP locomotives, air cars, yard technology, just to name a few. The good news here is that we always have a good pipeline of such opportunities to pursue. Now, let's turn to service excellence. Here again, it starts with a key principle.
If you want to create value for your customers, you must focus on their needs and the metrics that matter the most to them. Here, we rely on insights gathered from close customer relationships and defining customer service as they see it. Then we embed those needs in our service design with a view to reducing customer costs and disruptions. It is a commitment to being their choice for transportation. It's also about ensuring that every player in the supply chain provides transparency and meets some pre-established KPIs to give customers the end-to-end service that they're looking for. Here again, it's also about investing, this time in opportunities to grow our business with existing and new customers, with such things as equipment, network capacity, enhanced communication, and visibility. Bottom line, this is how we create value for customers.
It's how we help them grow and how we help them win in their markets. Now, why is our approach so different? It's all in the balancing of these two dimensions: operational and service excellence. Most companies can do one of these pretty well, but doing both very well, that's the tough part, given the nature and the scale of our business. Furthermore, any improvement in one dimension must not come at the expense of the other. In other words, you're maximizing individual components and the sum of the parts. You also have to be prepared to invest wisely and consistently in the franchise to make the model industry-leading. But this construct is powerful, and it stimulates both innovation and real results. Let me give you a few examples of what I mean. One of our customers closed its potash mine in Eastern Canada last year.
Their challenge to us was how to design a rail service from Saskatchewan to help them remain competitive in selling to foreign markets served from Canada's East Coast. Well, we had to get creative, and we came up with a solution. A unit train service, with each train running 4 DP locomotives, 200 cars, 10,000 ft long, weighing in just a little over 30,000 gross tons. Never been done before, but we made it work, and we made it safe. Another example is our Canadian grain service. It was totally redesigned in time for the latest crop season, as you've heard from our team yesterday. The challenge here was how we could improve on service and efficiency in helping bring a big crop to market.
So working with customers, we designed a new approach, a new innovative approach, to managing car supply and creating more alignment and shared interests. This resulted in added flexibility to the supply chain. It resulted in advanced planning being better. It mitigated risk on both sides by incorporating volume commitment from our customers in exchange for guaranteed car supply from us. The result, in 2016/2017, over 70% of CN's car supply for Western Canadian grain is covered under commercial contracts. In fact, you heard it from one of our customers. It is redefining grain service in Canada. Nothing less. It also means more volume and market share gains for CN. So I think you're getting the picture here. This is why we have grown, and we continue to develop our business at low incremental costs. It's why we win business.
It's why customers actually choose us, and as a result, we grow faster than the competition, we grow faster than base markets. Furthermore, while our competition may use the buzzwords, let me tell you, after seven years on this journey, we're still learning, and we're still improving. So this is by no means easy to replicate, and certainly, it can't be done overnight. Achieving this level of performance also implies that it's very much a team sport. You need to stay connected. We cannot simply act as a collage of functional silos. Which brings me to my third, and probably most important building block, our team. We have a group of people at CN whose commitment and talent are the envy of the industry. They move this leading organization forward, and they do this because of our collaborative culture, both internally and externally.
Leadership at CN is expected through the ranks. It's not a one-person show. In that sense, we continue to take decision-making and accountability to the front lines. The team is engaged. They get the opportunity to put their own stamp on our plans. An added benefit is gaining an ability to adapt to changing realities in our business, because our people are willing to question the status quo at all levels, and they look for innovative ways to solve everyday challenges. These qualities, they translate to results. You see those results in our smooth leadership transition and organizational renewal. You see those results in our continued ability to attract and to develop leaders who are ready to step up and make a difference. The most recent changes provide a good example.
Seasoned members of the CN executive team, new in their role, include Mike Cory, our Chief Operating Officer, Ghislain Houle, our Chief Financial Officer, Serge Leduc, Senior Vice President, Chief Information and Technology Officer, Mike Barker, Senior Vice President, Network Operations and Planning, and many more, which actually you see in the pictures - in the picture right behind me on the screen. But we're also reaching outside the organization to supplement our talent pool with outstanding individuals that bring complementary experience and expertise.
Here again, it's about striking a balance. You met some of these exceptional folks yesterday. Scott Daniels, our Senior Vice President of Strategy and Innovation, Mitch Beekman, our Vice President of Safety and Environment, Paul Deegan, our Vice President of Public and Government Affairs, and Nayan Bharadwa , Senior Director, Operational Technology. So these three building blocks, our franchise, our operating model, and our team, underpin our strategic agenda.
They are the foundation of our success, and we continue to build upon them. They also give us the confidence that we can continue to deliver consistent, high quality results for you, our investors. Allow me to now discuss how we're creating new opportunities for CN in a changing world. Make no mistake about it, the world CN operates in is definitely evolving. The challenges facing our company are not unique to us or to our industry. They're instead broader trends we all hear about on a daily basis. As executives, our role is to be aware of these changes and to be ready to evolve with them, while neither overreacting nor pretending they don't exist. Our focus is on creating opportunities for CN. The first trend relates to how technology is transforming business, and we see this as an opportunity to significantly improve our performance at CN.
So we're seeing technology being applied to many businesses, including other transportation modes, in ways that will redefine their value proposition over time. We've all seen them, such examples as platooning, driverless trucks, Uber, and the list goes on. Some technology applications are simple but effective, while others are emerging and very complex. No one can predict with certainty how fast and how far these things will evolve, but the next decade will certainly not look like the previous one, and that's for sure. In most cases, these technology-enabled developments are helping solve business challenges and opportunities that have been around for a long time but remain largely unaddressed. At CN, we're keyed up to tackle the improvement opportunity this presents, and we will achieve this through a combination of business process innovation, automation, and optimization of our key activities.
We'll support that by layering in technology and information systems to deliver better safety, better efficiency, and better service. This will bring improvement in key functions, including supply management, mechanical, engineering, safety, transportation, just to name a few. It means evolving some basic applications to reduce manual and clerical work, still in our operations today, to more multifaceted enhancements, such as taking our supply chain performance to the next level, with digitalization to increase efficiency, reliability, and visibility. Let me give you a few examples. A growing business in North America and for CN is the coal supply chain. Up until recently, this was a challenging area for operations, given the perishable nature of the cargo and the reliance on cooling equipment performance. Any problem often resulted in claims from product damage.
Today, the combined use of sensor technology on CN's fleet of over 600 reefers, along with our supply chain approach, allows us to monitor remotely the cooling equipment and intervene on alerts, thus giving our customers the reliability and the visibility they need, and we need to win in this growing market. Yesterday, in one of our innovation booths, Kevin Day featured technologies being applied by our engineering team to enhance inspection, maintenance, and capital planning. This will eventually lead to extensive efficiencies in track inspection and better outcomes in terms of safety. We're also seeing the opportunity to use big data. As Scott Daniels explained, we're harnessing the extensive information we collect on our network to improve our performance and our safety. This is already translating into better prioritization of work and capital deployment as we speak.
Soon, predictive modeling, using not only engineering, but wayside detectors and mechanical data, will give us an ability to identify issues and intervene even before events do occur. Our safety agenda also stands to benefit. Mitch, explain how we're looking at taking our safety management system to the next level with best practices from inside and outside the rail industry to improve our leadership, our culture, and our training. Chantal Paul demonstrated how working with our employees and union leadership, we're leveraging the science behind fatigue management and using tools like the Readiband to help safety practices and scheduling of our crews. Finally, PTC is taking us into a world where technology is omnipresent in our daily operating reality. The flawless implementation of PTC is job one for us over the next couple of years.
Although intended primarily for safety, we do see PTC with the adjunct of additional technology, operating technologies and otherwise, as a platform to advance rail operations, paving the way for CN to become the connected railroad of the future. Some of these exciting possibilities were previewed by Serge and Nayan as part of our advanced railroad operations booth yesterday. We believe this provides a great opportunity to improve our long-term performance. As you see, we're deploying process innovation systems, technology, and data analytics to capitalize on the opportunities our era has to offer. The way we see it at CN, the future for improvement is very bright, and frankly, in so many ways. The second trend we're seeing relates to changing customer expectations. This reaffirms CN's supply chain and customer-centric orientation and presents more opportunities going forward as we evolve with customers.
So how is it changing? Customers are spending actually increasingly on demand, online, and on time. Spending on e-commerce sites is tied to same-day shipping and the ability to track packages and orders. In turn, the companies that make and ship goods to consumers are increasing their demands. Some manufacturers even are leaping over retailers to go direct to customers. Even pure B2B companies cannot escape the ripple effect of this trend on their supply chain. To this fact, you add on top of that the notion that supply chains are complex from the standpoint of distance, integration of globally sourced components, variability of demand, and tight inventory position. So the result of any supply chain failure translates into manufacturing plan disruption, higher costs, often leading to stockouts and lost sales. So what are the implications for transportation companies, including CN?
The result is that customers are demanding more from every provider in the supply chain. From the transportation side, they're looking for greater reliability of service, for more visibility, and for partners with whom it's easy to do business with. They're also acutely aware that rail is only one link in their supply chain. They're buying the best and most reliable supply chain, one that offers the best value, not necessarily the lowest price for getting to market. This is not only influenced by the rise of Amazon and third party logistics providers, it's becoming a differentiator for participants in the supply chain. Those that can offer higher level of service and integrated supply chain solutions. We hear it from our customers, the providers that will be able to meet these demands will win going forward. Now, CN is well positioned, but more opportunities exist.
We're pleased to see this trend and the fact that it supports our supply chain focus, which has been a key advantage in attracting and retaining business. We also recognize that the demands are only going to grow as this trend continues, and we're getting ready for it. As you heard from Keith Reardon and Alex Wissel, our supply chain approach to the intermodal and auto, automotive business is helping us make strides in this journey. We work with our customers and supply chain partners to expedite and track their sensitive shipments, their time-sensitive shipments from origin to destination. But still to date, a vast majority of containers are impossible to tell apart. Our efforts over the next five years will be increasingly to digitalize the multimodal supply chain to achieve a better performance in terms of reliability, cost, and visibility.
So when we look at this trend in the context of our business, we see many opportunities for CN to extend its competitive advantage. The third and last area we look at relates to potential shifts in macro trends. These trends, while not without risk, are for the most part, supportive for CN. Economic trends. The important point here is that the North American economic growth is moderate but resilient, while global prospects are still in transition, but positive. Now, we don't have a crystal ball, but we expect this will remain such over the midterm. In this context, CN will continue to extend its reach, and we expect to experience growth in several lines of business while we continue to explore and develop more opportunities in Canada and the U.S. JJ will expand on this shortly. Infrastructure. Infrastructure investments and transportation are clearly needed across North America.
This will help support the economy and will be favorable to rail and CN. In addition, given the magnitude of these investments, they are more likely to be, at least in part, privately funded, which should shift some of the costs to a pay-for-use model, raising transportation costs for subsidized modes such as trucking. Trade deals. While there are clearly rising protectionist tendencies, many trading blocs are so integrated that unwinding is not only impractical, it's often detrimental to the parties involved. And this is why we're likely to see some modest updating of the trade agreement as opposed to wholesale change or cancellation. Meanwhile, this will also encourage some countries like Canada to hedge their position by entering into new multi- or bilateral trade agreements, and this could be very constructive.
The recent request from the US administration to renegotiate some aspects of NAFTA will capture considerable media attention, but we do not anticipate it will have a significant impact on the flow of goods between Canada and the U.S. that would fundamentally affect our network. Let's take a look at a couple of facts. The US-Canada bilateral trade deficit is the lowest of any major U.S. trading partner. For CN, approximately 35% of our business is cross-border with the USA. Of that, 23% is actually southbound. In 15 CN served states alone, US-Canada trade creates nearly 2.7 million jobs. In addition, 11 out of the 15 CN served states have a trade surplus with Canada. A few comments on the environment. Companies are responding to customers and shareholders in terms of their demands for more sustainable practices and reduction in emissions.
Many large companies operate in states, provinces, and countries that are implementing climate rules, and thus face a reality that goes well beyond the U.S. federal government. This is favorable to rail as the most efficient means of ground transportation, generating some 75% lower emissions than trucks. And it is favorable to CN, since we have a 15% advantage in fuel efficiencies versus the rail industry average. In this environmentally sensitive world, the potential for CanaPux could not come at a better time. As James Auld and James Cairns , or two James, explained yesterday, our innovative solution to move bitumen in solid form to Asian markets from the Canadian West Coast, could provide an opportunity for Canadian producers to diversify their customer base. We will have a better sense of how far we can take this forward once our pilot takes place later this year.
Another trend to watch for is the evolution of regulation in both Canada and the U.S. Safety will likely continue to dominate the agenda for both regulators and not only for rail, but for every means of transportation. At CN, we are committed to working with regulators in ensuring that a fact-based approach underpins policy, evolution, and administration. Here in Canada, Bill C-49 has been tabled, and we expect that it will actually be passed later in 2017. While the bill does call for more regulation, it has some positive aspects. It recommends, it recommends the introduction of locomotive video and voice recorders, which should help raise safety practices and facilitate incident investigation. It also proposes to modernize regulations around Canadian grain for export.
On the issue of long-haul interswitching, the remedy being introduced, we do not believe that the regulator's intent is to undermine the industry's ability to support investments and efficiency while encouraging competitive rates. We will, nonetheless, monitor its implementation and adjust and adapt as required. While on the subject of regulation, let me remind you that one of the best example of growing our business and applying our supply chain commercial framework is in the Canadian regulated grain business. This breakthrough was achieved without any regulatory intervention, and this proves that for shippers who want to grow their business, regulations are a last resort backstop, not the Holy Grail. In summary, you can see that we're constantly looking for the opportunity to leverage change and innovation and to position CN for the future as we stay abreast of emerging trends.
All right, so let me turn to our third and final topic that I would like to discuss today. That is how we remain focused on delivering results to drive CN forward. Now, sadly for all of us here, if anybody is not in line with that, please let me know. I'd like to talk to you later. Sadly for all of us here, we can't predict the future, whether you're running a railway company or buying stock in one. I think I saw somebody raise their hand that they actually can. But you can build confidence in both if you're looking for a strong foundation, a proven ability to deliver, to adapt, and to innovate. That's what we've been doing, and it's what we intend to continue to do for years ahead.
A key to our achievement is balancing continuity and change. We remain focused on delivering results today while setting in motion what needs to be done to build tomorrow's success. We look to long-term, sustainable results, and while obviously this does not give us relief from producing high-quality yearly earnings, short-term profit maximization is just not our modus operandi. One reason I'm energized about our future is also the confidence I have in our executive team. JJ, Mike, and Ghislain, each brings deep knowledge and alignment to our work. Let me tell you what you'll hear from each of them. First, JJ will immerse you deep into our DNA structure to help you appreciate how our approach has driven results over the last five years and why we're confident about our ability to grow and in our future growth momentum.
Mike, in turn, will bring you way back in the kitchen to help you better understand how we're building on our foundation of operational excellence while concurrently building more service reliability. Ghis will, in turn, give you all the numbers you've ever been hoping for. Oh, I'm sorry, not quite. Let's be serious here. He certainly will help you gain a perspective in terms of how we continue to invest in our franchise in ways that reflect the changing environment, while at the same time, maintaining that discipline that has guided us successfully in the past decade. We're highly focused on the results that matter to you, our shareholders: EPS, cash flow, dividends, dividend growth. Ghis will review where we're at, and it'll give you a broad perspective on the way forward. Now, I should warn you, you should expect continuity here, right?
Okay, so in conclusion, let me kind of sum it all up. CN has had great success over the years, but far from making us confident, it gives us motivation and the drive to continue to build on our success in years to come. For those of you who have already invested with us, we thank you for your confidence and the trust. For those considering doing so, we hope these two days will demonstrate to you why, indeed, you should. When you invest in CN, you're buying a leading North American transportation and logistics company. My closing words are rather simple: A true industry leader sets tomorrow's vision in motion today. And with that, let me open up the floor for probably we have time for one or two quick questions, and then over to JJ. Be happy to take a few questions from the floor.
Hi, Luc. This is Fadi from BMO.
Where are you, Fadi?
Over here.
Oh, okay. Okay, all right. Thank you.
So between yesterday and a lot of highlights in your comment, the focus on technology, whether it's on the safety side or the customer interfacing side, or I wonder, how do you think about this in the context of the regulatory constraints that you might have to invest in technology? Sort of in the I'm thinking about the safety side, when you have to invest a lot of money in these kind of technology. Can you have visibility into what kind of regulatory environment you will need in the future to leverage these kind of investments or these issues?
Well, I think as an industry, the implementation of PTC, you know, demonstrate what happens when we're not closely connected with the regulators in terms of understanding the preoccupations for safety and what actually is out there in terms of technology to help solve these things. So the implementation of PTC, just to use the example for us, is over a billion, a $1.2 billion investment. And frankly, you know, it'll take quite some time before we can get a return on that investment. Now, the safety component is great, and, and that's valuable. So there should be no question about that. We always are motivated to invest into infrastructure that gives us better safety.
But the complexity and the cost associated with rolling out, you know, brand-new, unproven, and unstable technology is, it puts a lot of pressure on any railway, and we'll see that through 2018, 2019, and 2020. So one approach that we're using, certainly in relating to the Canadian regulator, is to help them understand, you know, what are we trying to achieve? Because we have the same, we have the same objective in the long term, is ensuring that we have safe operations. And helping them understand the reality of what, you know, as an example, what PTC is and what it isn't. How mature is it? What's the best way to achieve the results that they would like to do and we would like to do?
So at the same time, what we're doing is, you know, thinking about the future and thinking about how we might be able to leverage the technology infrastructure in a way that actually brings not just the safety component, in fact, more safety than probably was the intended purpose for PTC in the first place, but leverage it in terms of getting some real returns from efficiency, from a better service standpoint. I think that's really our vision. So what we're trying to do is to engage, frankly, openly with the regulators, the extent to which we can, to shape this. And so far, I would have to say, they are interested.
They have an appetite for knowledge and understanding because this is, again, this is complex, this is new, and while if you listen to technology firms, with all due respect, they would certainly have you believe that it's all, you know, smooth sailing, it's all there. And the reality we all know, it isn't. It's very complex, and the implementation is gonna be more challenging than anybody really thinks. So the reality is, if you don't take a proactive stance in working with the regulators to shape the future, then you're more susceptible to a knee-jerk reaction to some event, in which case then you're being imposed something that actually may not be best in reaching several objectives, even including safety.
So the answer is, let's be proactive, let's engage, let's make sure everybody understands where technology is at, and there are a number of avenues where we can enhance safety. I mean, you know, crossings, getting rid of crossings, you know, those are things that are not complex, and they can be done. So there needs to be a more thoughtful approach to enhancing safety in the rail business, working with the regulators. And we're confident that, you know, people, once you lay out the facts and you start to have a good, productive dialogue, respond actually very well. But there's never any guarantees, as you know. Okay? Yep, Tom?
Hi. Yeah. Hi, Tom Wadewitz from UBS. So how do you think about your labor contracts and relationships as it affects the opportunity to use technology to change over time? Is it a constraint that you need to, you know, or are there constraints you need to deal with? Are there things you say, well, there are opportunities to be innovative, and we're focused on-
Yeah.
changing some of the elements
Yeah.
within our contracts? Thank you.
Good question, Tom. Yeah, it's very much something that, you know, we pay attention to. Even when we have to deal with the variability of demand. I mean, the first thing we try to do is keep as many of our folks involved in the business, and we will displace people, we'll bring them to different roles and have them, you know, continue to have a productive contribution to the organization. Now, we do have the benefit of the demographics and attrition. So there's a natural attrition process, which will help us, over time, cope with some of the changes as automation and more technology gets deployed. Plus, you also need to retain a certain level of business knowledge and understanding, right? So there is room for some displacement.
There is room, through attrition, to deal with some of the issues that this may present. And, you know, we feel actually pretty good that we can work with union leadership and our employees to go through that in a very constructive way. So I think it's. You know, we all know you can't stand in the way of the future. So the best thing to do, again, is to be proactive, is to actually start to and we're investing a lot on training, and we'll continue to do so. So there are opportunities to take certain people in certain functions, to retrain them and to redeploy them in the organization. So I, you know, we feel pretty good. We feel that we can cope with this, and it shouldn't lead to any major discontinuity.
Again, I mean, it's a gradual approach. If you try to go big bang, and you were to implement that overnight, and you kinda go like, you know, this is it, then, of course, it becomes disruptive. So our job, as we're doing many of the projects that are underway, is to actually manage. The change management aspect of what we're doing is important, and we take it seriously. So it's very much top of mind, and we do expect, you know, pretty good continuity through. Yeah.
Thanks, Ravi Shanker from Morgan Stanley. From what we saw yesterday, it was very clear that CN is using technology to try and stay ahead of disruption and, and use that as a positive catalyst. But some of your key end markets may, may not be in a position to do that. Obviously, coal is small for you, energy, maybe even autos. How do you think about that in terms of the conversations that you have with your customers? And, and are you happy with your end market exposure at this point? Maybe you need to make some adjustments and move towards other growth markets.
Yeah, good question. You know, when you look at your book of business, most of the customers have different needs, different realities. Our job, our challenge, is to actually continue to advance our supply chain customer-centric agenda. That works, and that's something that we've done, as we've said, over the last seven years. We have to calibrate the level of investment versus the return. Because if customers are ultimately not willing to pay you, and you're gonna engineer more costs in the business, it's not a good equation, right? We look at every book of business, and we try to rationalize that through. What does it mean? What does it take to get the business? Not today, but as we look into the future.
So it doesn't prevent us from looking at the same principles, but the extent to which we're gonna layer cost or complexity on one supply chain versus the next is a different equation. And that gets a little bit counterintuitive, right? 'Cause you say, well, you're running trains, it's one network, and so on and so forth. But increasingly, the level of investment and the way to capture the business is going to be different, looking at whether you're in the intermodal or automotive space versus in some of the bulk commodities. Coal, we still have, you know, great success with our supply chain approach. I mean, it doesn't have to get overly complex, but we monitor the piles at the mine. We know when the ships are coming in, we know what the piles are at the terminals at tidewater, and we have a very effective program.
So that works. So there is no need there to actually, you know, kind of engineer a whole lot more, 'cause at the end of the day, if we have the service level and we can meet the expectations, they might be growing, but the expectations of the customers, that's it. So it's not a one-size-fits-all. Now, there are gains. Some of the investment we're gonna be doing on the network will improve our reliability, and that's great because every part of the book of business is gonna benefit from that. But otherwise, you know, this is. Again, the danger is going gung-ho and way over the top. We don't want you to have that impression.
What we're doing is calculated, with a view to get returns, and that happens either through efficiency, gaining more business, market share, more loyalty, more discretionary dollars from the transportation of our customers, new customers, and not just from rail competition, from trucking, from barges, whoever is in the competitive field. All right, one more, and then we'll go.
Justin Long with Stephens. I was wondering if you could comment a little bit more about e-commerce. That's something you, you brought up in your comments. Clearly, there's a, a secular trend of, of growth on that front. Do you see e-commerce as an opportunity or a risk for your business? And just strategically, what are some of the changes that you're implementing to address that growth?
Yeah, it's to be fair, it's both a risk and an opportunity, right? It's a risk if you kind of pretend it's not gonna happen or it's happening, but it's not in your space, which may be right, because today, you know, most of these changes are really affecting, you know, that last mile . And we're seeing some of the changes taking place in those supply chains. But as I mentioned earlier, the ripple effect over time will affect all of the business, not just, you know, the last mile , and not just what's actually being done through e-commerce. So for us, what we're doing is we're monitoring this. We're working, and we're connecting to some of these customers, even though, you know, we may not be in the short term, we may not be within their sight.
But you look at folks like Amazon, you look at Alibaba, you look at, you know, those types of people are actually starting to create their own supply chains. So that's why JJ and his team are connecting with them, right? Because we wanna actually be there. We wanna be helpful, we wanna understand what their needs are gonna be as they evolve, and how we can best position ourselves in their supply chain. Remember, we're just one component of supply chains. So if we're at the table, and we're making a helpful contribution, and we're understanding, you know, how we might need to adapt our product down the road, how we might fit best in their supply chain, that's constructive. So short term, you know, there's no groundbreaking change for most railways, but down the road, this will be a significant element.
And I think we're just kind of, you know, figuring out how these things are evolving over time. So again, stay tuned. There's gonna be more on that in certainly in years to come. But right now, there's nothing, you know, specific or concrete that we would point to. All right. Thank you. So now I'd like to turn it over to the best Chief Marketing Officer in the business, bar none, JJ Ruest.
Well, good morning, and, I think it was great to start the morning with, the vision from Luc, so you get a sense of where this all fits in. My role into this is to give you a sense, really, of the commercial side and how we gonna get in this journey of growing and growing at a very good pace. There you go. So we maybe I just wanna go back. Go back one. Yeah. So I wanna take the next 45 minutes to have a conversation with you, and then we'll have some short Q&A after that, about what is the CN commercial game plan? What does our brand stand for in the marketplace? How do we become a supply chain partners with our customers, such that they want to do a lot more business when we are involved in the supply chain?
How do we earn business? The growth of CN has been earned. To that point, just wanna use that first slide. You know, the person in the picture with me is Stephen Edwards . He's the CEO of GCT Global Container Terminals in Vancouver. They also have a big terminal in New Jersey. He's a big key supply chain partner of CN. Last one in New York, the International Maritime Association recognized CN and myself in their Maritime Hall of Fame. So you gotta ask yourself, why would a land guy, a land rail guy, be recognized by people who are in the ocean business, the maritime business? It's really because CN, at CN, we have really made a lot of effort and been recognized for those efforts and really getting very deep in the in-working of the supply chain.
The in-working supply chain of the ocean container business, which is mostly the people in these association, the people who pay the freight, the people who make contract decisions, as well as the ocean container operator, the people that we partner with, and really partner with to create a product that makes sense for the importers, the exporters, and the shipping line. So that was kind of cool to get that recognition because I think it signifies that when we talk about supply chain, we're, we're up to something good, something good for CN. So helping our customers win is on our DNA. So the Maritime Association, that was an example in the ocean container side, but we do that for all major segments.
Just like Luc mentioned, if the segment is big enough in terms of revenue, existing revenue, or if the segment is big enough in term of potential revenue growth, we make a lot of effort to study, listen, and be student in the marketplace of those markets, and spend enough time with customers to understand what is it that will make them win in their market. And that's how we intend to continue to outperform the economy and outperform our peers, is but to be more relevant to the people that we sell our services to, because we are a service company before we are a railroad. So it's in the DNA of people like Mike Cory and his team to help our customers win.
It's in the DNA of our four VPs of marketing that you met yesterday, Fiona, Keith, James, and Doug, as to how we study and help our customers win in their market. It's in the DNA of our CFO, Ghislain, who we have to convince every once in a while to how we can create capital investment that will work for our customers and work for us and our shareholders. In the next 45 minutes, I would like to fairly quickly, you know, we only have so much time, to really cover three chapters of our commercial playbook. First and foremost, how do we define success at CN? So how do we define success? How do we know that we've actually achieved our goal so that everybody's on the same page when we, when, when we get to some cross point or hesitation point?
Number two, how do we help our customers win in their market? So how do we actually do that? So in order to help you understand that, I'm gonna do one deep dive into the world of the ocean container business, and we will get you into a, say, a customer's meeting somewhere in Asia, where we talk about the deep, specific secret sauce that we created for the ocean container market. And then number three, how we will grow our overall book of business in the years ahead. So we will not be providing you with guidance, specifically to revenue growth for the next five years, but I will get you into very specific and very quantified examples in some segments of where a business opportunity lies and how big they are. So how, let's start with the first chapter. How do we define success at CN?
So success at CN right now, where we're at, you know, evolution from good to great, and keeping going on, on the transportation and this logistics vision, is volume growth. Volume growth that will outpace the economy. As Luc said, we can't quite predict what the economy will be, but when the tide rise, all the boat rise. We wanna outpace that tide. We wanna outpace the economy. We also wanna outpace our peer, defined as the rail industry average. So whether RTM, car loads, we would like to outpace our own industry. We also want volume growth that is diversified, diversified and broad-based, so that we can mitigate our risk and also have a better chance of achieving our first two goal, which is outpace the economy and the industry average. So with that volume growth, you overlay what?
You overlay same-store price above inflation, above rail inflation, and to do that on a sustained business, sustained basis in the years to come. To achieve this ambition of volume over performance, we are blessed at CN with chief operating officers like Mike Cory, and before him, Jim Vena, who can actually do one thing which is not done very often in the rail industry, which is move a lot of freight and control the operating ratio. Move a lot of freight and control the operating ratio. As a chief marketing officer, it's very key for me to have partners who can actually do these two things, 'cause now we can really leverage the value of the franchise, and those skills are quite unique.
So when we talk about how we define success, we just wanna bring you back in the last since 2010, and Luc referenced to that earlier, as to what we did in terms of earning, earning and retaining, and growing. And it's really to, in our view, a testament to what the team has done, as much the operating team and the commercial team, and from time to time, as I mentioned, from support with chief financial, the CFO, who's helping us with some investment. So as you could see from these logos, new contract that we've earned, contract that we've earned and renewed and retained, and we will keep that story. And also very diversified growth.
So just, you know, for example, if you look at 2012, Canpotex, we weren't doing any business in the bulk business of potash up to 2012. 2012, we have an entry position. 2013, MOL, a Japanese shipping line with who we weren't doing any business, we earned their contract. And I think the word earn is the key here. 2014, FCA, Fiat Chrysler, we became their major supplier, so now we're in the world of automotive finished vehicle, the world of the consumer spending. 2016, G3, a new entrant in the Canadian grain business, investing in terminal in the country and terminal on the waterfront, gave all their business to CN for the years, for the years to come.
In 2017, more recently, Lowe's, the Canadian Lowe's, which bought RONA, big, big retail container, big box, retailer, does all their business with CN. And Maple Leaf, and the reason I mentioned Maple Leaf is obviously they're in the reefer business, the business of moving frozen protein within the continent, but also export. But all of you typically are more in the numbers side, you know, I was just referencing a logo here. So if you look from the numbers side, what does that mean? So if we look our KPI on how we perform versus the industry, versus the rail industry average, since 2010, the revenue ton mile of CN are up 2%. Since 2010, the revenue ton mile of the industry is down 1%, outperform the industry on volume.
Another KPI is how did we do in some segments, in the segment of ocean trade, ocean container trade, 'cause that's the one I'm gonna be doing the deep dive today. That trade, which is the, basically the statistics of containers, loaded containers, arriving in North, in Canada, United States combined, was up 3% on a CAGR basis since 2010. And CN, using the same definition, was up 9%. So yes, we have a model that works, has worked up to today, and we intend to make it work in the years to come as well. Our book of business this year will likely hit CAD 13 billion. So now let's dive, go into the next chapter, in the second chapter, second section of my, of, our discussion here.
The one about how, what is it that, why do customers wanna do with CN? What does that mean to have a supply chain that attract more business than others? And how do we do that? How do we win business, and how do we do that by major segment? And as I said earlier, any major segment of revenue of CN that we have today, or one that may have significant potential, we apply that mindset. So I'll do one deep dive in what I would call my secret sauce, the sauce that Mike and I share together, and Mike later will get you into his kitchen as to how he runs his, the back of the house and how you make these things move smoothly.
But how do we have a secret sauce that works very well in the ocean container business, which is now a $2 billion business for CN in 2017? So in order to do that, I will try to, you know, get you into the mindset of where we at. So for the next 10, 15 minutes, I'd like you to think that you're in the headquarters of an ocean shipping line somewhere in Asia. So pick your city, we're maybe in Hong Kong or Singapore or Shanghai, and we're in 2-hour meeting, we're gonna talk about what is that CN has in terms of value offering. And the people in the room with us in the meeting are gonna be people who are in procurement.
People who are operational logistics people of that shipping line, and people who will be commercial people of that line, whose job is, we call them trade manager, whose job is to load those ships and make sure those ships has a good profit and loss basis. When we, when we apply our recipe to the ocean container line, we have created basically five major ingredients, five major elements that create the basis of our value proposition. In each major ingredient, I will walk you through some examples of the tactical way we do that. In some example, some ingredient, we have two or three tactics to achieve the goal. Sometimes we have five or six or seven tactics. I don't have the time to cover all of them, but we will go through some examples.
So the first element of the secret sauce for the ocean container business is how do we help our customers? How do we help a shipping line, the one we're visiting today in Hong Kong, to have the best total transit time to market? And the best total transit time to market is not your rail mi from Chicago, from Vancouver to Chicago. The best total transit time is actually time, not miage, from Shanghai to, let's say, Chicago or Shanghai to Toronto. That's really what they sell. That's really what matters to them. So how do we create the best possible transit time from Shanghai to Chicago using the CN network or the CN supply chain approach? First and foremost, how much time are we gonna be on the ocean? So CN is really leveraging Rupert and Vancouver, especially when we are the first port of call.
When you come from north, from China, from Shanghai, North Asia, all the way to Japan, the shortest sailing time, the first port you will hit on the American side is Rupert, Vancouver, and then Seattle, and, and, and go on, and go on, and go on. So if you come and do the first port of call on our, on the port that we save, that we serve, you will save 36 hours in the ocean if you come to Rupert, and you will probably save 24 hours on the ocean if you come to Vancouver. So this is precious time that we've gained, and we don't, don't wanna be wasting that later in the supply chain. Number two is the time spent at the port. So this is where I go back to my partners, DP World in Rupert or Steven Edwards in Vancouver GCT Global Container Terminals.
How long will it take to offload the container, put it in the ground, put it, take it from the ground, put it in the trains to train departure? These hours and these days matter. The KPIs, when you have your terminal operator, is that we will not be at the port more than three days. In fact, in the case of Rupert, since 2010, we are on the port on average, two days. So you save 36 hours on the ocean. You're at the port for two days, which is maybe a day or two better than other options. So now you've further, furthest, I'm getting some more time. And then, you know, you're leaving in a railroad, right? So train speed matters to us at CN because it matters to our costs.
But train speed to a customer does not matter, because what really matter for him is, is my container on your train. Is my container on your train? Has my container departed from the port? So KPI, the port, is actually probably more relevant in the total supply chain than the speed of your train. But now we're on the train, and we want to be sure that train doesn't get stuck somewhere. And because CN own the EJ&E, when the CN train gets to Chicago on its way to Memphis, which is south, on its way to Detroit, which is east, it has a green light. It has a CN EJ&E green light. It doesn't get stuck in Chicago. We don't wait there. We don't have. We are in full control of our own destiny. So we go faster on the ocean. We don't waste time at the port.
We do that very effectively with our agreement with the terminal operator. And when we're on the railroad, when we get to Chicago, we have the green light. We're in full control of our own destiny. So that was the example on creating the best supply chain time from Shanghai to Chicago or Detroit. The other thing, the shipping lines really work on, and you could relate to that in any industrial business, is cost. So you can talk about cost, or you can talk about price, or you can talk about both. The CN pitch, the CN value creation, is about providing the lowest round-trip costs, not necessarily the lowest price. So ocean container, just like train, had to go back where they came from. Ships leaves Asia, stop at three ports on the West Coast, goes back to Asia.
Who pays for the return of the, of the Asia? Same thing for the train. Train leaves Vancouver, go to Chicago. Eventually, trains need to go back to Vancouver. Who's gonna pay for the return? So we talk about total round-trip costs, not just the price. And the tool that we have in the second ingredient to work on the total round-trip cost, and I think some of you who were at the Rupert booth yesterday with, with Keith and Alex, have, have seen some of that, is to use different tactics to mitigate some of those costs or reduce the size of those costs, or have those costs being picked up by another payer freight than just a shipping line. The most one that we have, probably quite very relevant, is the DRP, the domestic repositioning. So you go to like.
You leave Shanghai, you're on your way to Indianapolis. You use the port of Vancouver, you get on CN Railroad, you go to Chicago, you get the green light. The train goes right to Indianapolis. You offload the container. That's the import journey. There's a cost to that, but now the container is empty somewhere around Indianapolis, needs to go back. So how, how do we make that a cost-effective way for that shipping line to go back? So we talk to them about the domestic repo program. Can we find a customers of CN on the retail side who manufacture a retail product? Could be Procter & Gamble, could be a beer producer, could be something consumers.
That's made in Indiana, in the state of Indiana, and that is consumed somewhere in Manitoba, in Winnipeg, or consumed in Alberta, like in Edmonton or Calgary, or consumed in British Columbia, like in Vancouver. So that we can lend, we can use the container, the 40-ft container, to move that domestic product in the direction of the port and offload the container in a city where that container product is consumed. And in that case, obviously, we do not charge that service to the ocean container line, we charge that service to the domestic customers. So now the ocean line has this container in Calgary instead of being in Indianapolis. From Calgary, now we get into the matchmaking.
The matchmaking of having some of our industrial accounts of CN, people who make pulp, people who make lumber, people who make polyethylene plastics, people who produce and grow pulse and lentil, and we help our shipping line to meet these people. We actually organize meeting, face-to-face. We've given a sense of their business. We want these two group of CN, both of them do a lot of business with us, to meet and find a way to use that empty container, which is now in Calgary, looking for an export. And if at all possible, and they can find an export from Calgary, then that will help mitigate even more of the cost back to Asia.
If we can't find an export in Calgary, then we'll move the container empty to Vancouver at a fee, and then we try to help find an ocean shipping line to find an export from Vancouver. How do we help our customers win from the higher margin market? So in that meeting, you also have some trade people, marketing people, people like me, whose job is to find a way that the ships have to be fully loaded or loaded enough to have a high utilization factor, and the ship needs to be loaded with freight. Ideally, some of it pays better than others because it's high-margin freight. Then obviously, the round trip return, which we just went through. So who are some of these higher-paying customers, customers of shipping line, who pay a price that gives them a higher profit margin?
One of the markets is the reefer business. Today's people expect to have fresh fruit, fresh vegetable, wine from Chile, different range of product that we would like to have year-round. So for the ocean shipping industry, just for like us within North America, moving business in temperature-controlled containers is a growing segment. It's a segment that requires more attention, requires more technology, but it's also a segment where the profit margin per unit is better. So how do we at CN do something that if you, as a shipping line, do business with us, I will help you get you more of that higher-paying freight by the quality of the supply chain that we produce?
So we have invested in technologies with software company, to be able to monitor containers in a way that makes MOL and OOCL and CMA pleased in terms of when they get questions from their customers. We have bought gensets, which is the equipment we put on our train when we connect 16 to 18 containers, newer generation gensets, equipment, which has very high level of reliability in the marketplace. We have also hired, over the last few years, a number of subject matter experts, people who came from other industries with no rail background, but they have background about the reefer business, about moving blueberries from California, about moving frozen goods to export, and people who have created this nucleus of expertise within our sales and marketing and operation team.
So technology, investment, subject matter expert to understand the business, and us spending the time to understand what would it require for an account of ours, based in Hong Kong, when they make the pitch to get more of this higher freight-paying business. As one example, that's just one of the tactics that we use to try to cater to the needs of, of the marketing team of our shipping line. Another context, another ingredient of our secret sauce, is to be reliable. So everybody talks about speed, but you could be fast most of the time and very slow some of the time, and that will kill your supply chain.
So try to explain to a supply chain manager that works at GM or Chrysler, how they like to buy from a shipping line, who is fast most of the time and really, really slow some of the time, and how much havoc it creates in their assembly plant when the slow, when the really, really slow once in a while really happen. This is where you really create, destroy any value they have created with speed. So reliability is really, really key. And reliability from a railroad perspective is probably one of the toughest things to achieve because you have to use a large number of tactics to be able to do that. But credit to, Keith and his team, that's mostly where we are able to work on that, being a reliable product.
So reliable product is, yes, we have faster transit time on the ocean. We hope to have good trans, transit time to the container terminal, and then we need decent, steady transit time on the rail side. So one example is winter service. We need to be a good railroad 12 months of the year, not 9, not 10, 12. In order to do that, we have more DP power locomotives. We do a 3PX exercise to really know the workload we'll have the coming winter and have enough labor resources to be able to cover that. We also are investing capital in boxcars that we call air distribution cars.
So you take an old boxcars, you put an air compressor into it, you put that into a merchandise train or an intermodal train, and now you have this resolve, partly this issue of air. And that's. When the temperature gets very cold, is resolved. So winter service and having ways to deal with winter conditions, the better at it we get, the more the value of the speed we create is relevant for the shipping line and the people who import the product. Another example is: How do we help each other with our supply chain partners on the waterfront? So we don't invest $500 million to expand Rupert or $500 million to invest global container. We have partners who do that, but we help each other to gain the same business from the same shipping line.
So when they have challenge, and through like 2016, there was a lot of challenge on the waterfront in Vancouver. When they have challenge that will impact negatively the dwell time of the port, we help each other. And when we have challenge on the railroad that will impact how quickly we can evacuate the port, they help us come out of that, because we are really together, tied up at the hip, competing with who? Not mostly CP. We're competing with L.A. Long Beach, we're competing with Seattle, we're competing with Tacoma, and that's really what the game is. The game is in the U.S. Midwest and who's going to control and grow in the U.S. Midwest.
So last year, we have moved, in conjunction with terminal operator partners in Vancouver, 50,000 containers by truck from the container terminal to our intermodal yard, so we can help them supplement and evacuate more, more containers per week. There was a shortage of rail loading capacity per week. We use our domestic yard to increase the number of trains departing Vancouver, and we did that all year, and there's a cost sharing. And other times, you know, they might be doing for us if we have challenge. So what that creates is a reputation out there, back in Asia, with the ocean shipping line, with the exporters, as to what CN creates with its partners. The fifth ingredient is something that's emerging and now is really reality, is big ship, big alliance. So the ships are bigger and the alliance are bigger.
So three years ago, we may have one of our customers coming to Vancouver with a 5,000 TEU ship. He would discharge in three ports, Vancouver first, Seattle into another port, go back to Asia. Today, it's no longer 5,000 units on that ship. You may have 9,000 units on that ship, but it will still only unload into three ports. So each port will actually see a bigger discharge. So we need to keep the dwell time again within two, three days, even though the discharge is bigger. But also we need to give them, to give that trade manager, whose job is to make fill that ship, we need to give him more destination.
Now that a ship coming at us might be twice as big as it used to, I can't just try to force him to only sell that in Toronto and Chicago, Minneapolis. I need to give him access to more cities, because if I force him to do a fourth port discharge for him to fully unload the 9,000 TEU, his economy of scale on the ocean no longer work. So we need to give them bigger terminal, and we are investing in expanding in our US terminal. We've expanded-- We're expanding Detroit, we expanded, Joliet, we expanded, Memphis, and we also need to give them more destination, new destination, more places where they can go with that single port discharge.
In the case of things we've done more recently is Indianapolis, Duluth, and over time, our objective is to add ideally one new destination every year, probably always in the U.S. Midwest. And then you have the CN advantage, which we really need to exploit. We do go to three coasts. So when you deal with big alliances who have big ships, we can offer them a package of the three coasts. We can negotiate contracts where we offer them service from the east, service from the Gulf, service from the West, and make that one big package deal and do the trade-off required for them to achieve and for us to, for us to achieve what we want to do. So you've seen, so you've seen the five ingredients of our current secret sauce, but things are not forever, right?
So this is how we've been successful so far. We need to add more tactics to achieve these five ingredients, but in order to be sure that we stay ahead, we're adding a sixth ingredient. And the 6th ingredient is what Luc talked about, is the digital transformation of our supply chain. And this is, this is what's headed by the group of Alex. Alex has a team right now of 140 people, 90 of them on CN staff, 40 are consultants. And what they're working on is to rebuild our data architecture within CN. The data architecture that we have that runs the train, the one that runs the terminal operation and containers, the one that runs the CNTL trucking firm, to eventually have that into one way, to be able to really be transparent on where the product is at all times, from.
So we can better manage our costs, but also that we can better manage experience to the customers, and also that we can better give them visibility where their freight is at all time. And within that, we would like the system to be open at both ends. We would like to be able to provide supply chain that creates, that we give visibility to the product before it, before it's on CN. So as the product is on the ocean, the ocean shipping line are willing and to give us transmission of what's on the ship and where is it on the ship after the last port of call, so that we know the workload coming at us, so we can get fully prepared to arrange for the Detroit train that will start in five days from now.
And same thing with the terminal operator, our partners, back to DP World and and GCT, they're willing to give us at all time, how many containers they have in our yard for CN, what's the container number, where is it going, which city, and how many hours it's been sitting on the dock. So when we have to the point where we have that at all time, right now, we get like, daily transmissions, more like spreadsheet coming at us, we will have a supply chain that will be able to help us to control costs, to create, to prepare capacity-wise for workload coming at us, and also we'll be able to give much better visibility to our customers and create value for them. So let me summarize.
So let's say we're at the end of this 2-hour meeting, which I did very, very quickly here in 20 minutes. And I skip a number of my specific tactic that we go. We start with creating for the shipping line something that works for them. So we talk about supply chain and speed of service from Shanghai to Chicago, the Midwest, and making sure the time saved on the ocean, we have even more time saved at the terminal. And then when we get to Chicago with the EJ&E, we make sure we don't waste any time getting to Detroit or getting to Memphis. Then you have the issue of the cost, right? So procurement group of that shipping line wants to talk about a price. We want to talk to them about price and cost.
This is where we get the whole round-trip discussion, is how do we create a round-trip experience using CN as one of their supply chain members, so that we can find other people to pay for some of that cost? And domestic customers who pay for some of their journey in the direction of the port, and export customers who will maybe get the container loaded inland, as opposed to only at the port. And if we can't find anything as domestic repo or inland exporter from that, from Calgary, then we will help them out finding an export container right in Rupert.
Because in Rupert, as you have heard yesterday from Doug MacDonald, we also have we are testing and testing other supply chain members to set up shop in our—in where we are, for them to be able to generate some export. Speed is great, consistency is even better. Very, very. I mean, if you're 25% of the business that is discharged in Rupert in 2016 was automotive related, related to somebody who runs a supply chain very tight. So speed's great. Consistency and speed, that's very powerful. Round-trip cost, that's mostly for the shipping line, helping them to win some of the higher paying customers, mostly on the reefer business, but also in what we call zero dwell time, city-specific, unit train. Bigger ship, let's get ready to move those ships. Three coast, three coasts.
We'll do a package deal with using the three coasts. There's just one coast, and the next step is the digital transformation of the CN supply chain. Just before I get to the third chapter, I'll take a little some water. So the third piece of what I wanted to have a dialogue with you is how do we now apply that in other segments? So these are examples of other segment, which are large enough or have enough potential that we already do these deep dive into this segment. As I said, I won't be providing, you know, we won't be going through all the business units with a forecast of all of them, but I wanted to give you some very specific example of very qualified, of areas of opportunity there might be in the years to come.
Without, in that case, going to how we do that from a tactical supply chain point of view, just giving you a sense of timing and, and revenue. Let's start with the container business, ocean container business, which is the international operation. First and foremost, I think as you all know, DP World is expanding the terminal, and they will be ready sometime in August. So when the terminal capacity is done, this will be an opportunity for CN in the range of roughly up to $300 million of incremental capacity for us to go in place, and the value to CN would be $300 million. The capacity, rail capacity at Rupert being installed is 500,000 TEU of rail loading capacity.
Because CN is the only railroad in Prince Rupert, obviously all that capacity is available to us, and us only. Our objective, in conjunction with DP World, is to place 80% of the capacity within the first two years of startup. So 30%, 80% from August of this summer. And if we do that, that will be in the range of $300 million of new business. And you can think that the U.S. Midwest will probably be a key area for us to focus. The second one is Global Container. So Global Container in Vancouver is also expanding their rail operation. Some of it is available right now, but most of the equipment ready to be available only sometime early fall.
They are expanding the capacity, that the opportunity for CN is in the range of roughly CAD 250 million, more or less. They're expanding rail capacity by 600,000 TEU. Historically, CN had about 70% of the rail capacity in, at Deltaport , by the mix of our customers versus the other railroad. So if we sell 80% of our 70% over the next two years, that gets you in the range of CAD 250 million. And then when you look ahead, you know, 2021, 2022, because we wanted to give you a sense of maybe where, what the next five years is up to at CN. Within the next five years, eventually, the transformation, digitalization of CN on the supply chain will come into place.
30 months from now, 36 months from now, we will have the tool to be able to offer a product which is more than just an asset-based product, but an asset-based and database product, which we also think will help us create some overperformance on the growth. We don't have the numbers for you for that, just like in the case of the two terminal, but we're convinced that there's something there for us that will help us in our quest for overperformance. Another very exciting market is the domestic side of the container business, the intermodal. Here we believe there's an opportunity in the range of $250 million minimum, but maybe close to $375-$400 million in that period of 5 years.
That would be based on a CAGR volume of 4%-6%, where between the economy, new product, new destination city, and, you know, some effort on market share, which is truck and other railroad, that we can see some volume growth of 4%-6%. So how will we do that on the domestic side? Is really by, you know, gaining we're very strong on the working with retail company, meaning the, like, the big box retailer or the Amazon or the e-commerce company. Now, when you're in e-commerce, you still have a distribution center. So we may not be shipping to the distribution center of a company like Sears or the Bay. We'll be shipping to a distribution center that may be Amazon or maybe a, a supplier, a partner of Amazon.
But you still go, as long as you buy the product, and as long as this product is made overseas, there is a DC for us, and all we need is to follow the business to that new DC, that new way of freight. So we have with CNTL, which is a very strong product, door-to-door, where we can control the transportation from the door pickup, get on the CN train, deliver it to a city, and then do the last dray at the receiving door with the CNTL. Obviously, it's key for us to have very strong partners on the wholesale side. You can see, recognize some of the names, Maritime-Ontario , J.B. Hunt, TransForce, H&R. We have a very strong focus on the reefer business. The reefer business, and we've made some capital investments. Nick referred to that.
Where now our fleet is in the range of roughly 620 units, and we will be adding to that fleet in the years to come, probably every year, some numbers. And that business is much more technically demanding. It also pays better, and also is maybe a little more sticky. And then potentially add some new destinations during that period of time. Canadian Grain. So you heard from the 3D, like, you know, yesterday, Doug, Doug, and David in the grain section, our 3D group. And definitely on the grain side, we want and intend to push the envelope as to how much CN can be relevant in the Canadian grain-based market. So there's probably in the range of $100 million-$150 million of business that is out there for CN to grow.
We want to the Canadian grain market should be a growing market. Most observers would say that the size of Canadian crop, because of technology, will continue to grow at a range of 2, 2.5, maybe 3%. Not every year, because you have, you know, there's years where, you know, the conditions are better than others. But on average, when you, when you put that to an average of 3-5 years, the size of Canadian crop size should continue to grow. And because there's only 30-something million people living in Canada, when the crop gets bigger, whatever is the new crop, excess crop, get export. It goes export. We can't eat more grain here. We'd have to ship it to Asia.
So increased size of the pie, the pie gets bigger, and CN's portion of the pie, we aim to make that, our, our piece of the pie bigger. So where are we right now from a market share? The slide says 52. We'll, we'll see where we at by the time the crop season ends in August. But I could tell you, as you remember from the quality call, in the fourth quarter of last year, we moved 54% the Canadian crop. In the first quarter of this year, we moved 55% of what moved to the port. This quarter, we're moving pretty well. My competitor have stopped putting his stats on his, website, so I don't have all his detail, but our aim over time is to exceed 55% + of the Canadian crop.
We would like to get out of the historical 48-52, good year 52, bad year 48. We would like to push that to 55+. How much high? I don't know, but I think we definitely think 55 is an achievable number. When you look at that map on the side, which basically shows one of the ways we do that. So to grow, we need more customers to build elevators on CN. In the last 22 years, two and a half years, we've done very well with that. You know, Doug has done very well, Doug MacDonald, and before him, Andy Gonta. So even though it may be a surprise, I think it was a bit of a surprise to some of you, that we have 16 of the next 20 elevators being built on CN.
It's something we've been working on very hard. So we got 16 out of 20. Another railroad has one, another railroad has three. It will help us to get that 55. Another thing that we're doing that really will help us to get that 55, which we did in the first quarter of this year, is the operating plan, the one that Doug and Doug and David talked about yesterday. So I'm not going to repeat what they said, but you see the power of partnering with Viterra, like Kyle in the video, the CEO of Viterra. He’s out there selling grain two months out, six weeks out, three months out. And when he sell that grain, he's taking a risk, the risk that his rail partner may or may not be there for him.
He doesn't want to sell that grain and end up paying vessel demurrage, or he doesn't want to sell that grain and end up having egg on his face because he can't quite deliver. So when we do this commercial contract, it gives them, and especially with a strong track record of this year, it gives them the sense that, yes, he can sell grain, he can make commitment, he can make forward commitment. He will not have huge demurrage-based bill on his export vessel, and also he will be able to have his service through his account that maybe allow him to do, sell even more grain. So when we do that, then there's more reason to work with CN than not. Petrochemicals.
CN's franchise on petrochemical is Lower Louisiana, Geismar, Sarnia, and the Edmonton area, and probably the biggest area, which has the biggest opportunity for growth. I'm not saying there's no growth potential in Sarnia and Geismar. There is. But the biggest areas of growth is an industrial land, industrial section called the Heartland. So if you're familiar with Edmonton, the Edmonton Heartland is an industrial park north of Edmonton. And in that Heartland, Edmonton, there's a lot of capital investment that's coming in on the CN Railroad. So in the range of, say, $20 million of incremental revenue, 3 new plants are being built. Pembina, which is a fractionator, separate the liquids from the, from the natural gas. North West Redwater, which is basically a refinery, which will start up fairly soon.
and a company who will also extract sulfur from the sour gas. Three new plants, all three are located in CN. And why emphasize located in CN? Because when you sell a service, if you're able to control that service, 'cause you are the physical carrier of that refinery or the physical carrier who go to send them and vent them in Vancouver on the container side, you will be in much better position to be a good supply chain partners. So even in a world of interswitching or in the world of long-haul interswitching, or in the world of extended interswitching, who is the physical carrier who can control the service in and out facility is very much relevant in the customer's choice. We also have three facility who are expanding.
They're existing today, but expanding: Shell, AltaGas, and Keyera. And then when you go to the coast to Prince Rupert, because Western Canada has an increased amount of drilling for gas, mostly wet gas, there's too much propane and butane in Alberta for what it can consume and sell. So two projects have been announced, one by Pembina, one by AltaGas, to build a propane or butane. Basically, they could build, ship one as an export terminal. So shipping rail cars, a product to Rupert, in some cases, unit train. We may able to do unit train business from Edmonton, some cargo business from Northern BC, going to Rupert, aggregate enough for a ship, and their market is the landlocked market of Japan, Korea, and Taiwan. Just for the sake of time here, I'm gonna move on.
Frac sand, another opportunity for CN, one that Fiona works very, very hard. Fiona and Doug Ryhorchuk , both are familiar with this map, which is British Columbia and BC. What you see on this map, which are the, the blue dot, is where people are drilling today, and all each of these drilling rig has consumed a lot of sand. Now, one, one drilling activities could consume as much as a full unit train of sand. But the, the yellow dot on that map shows the area where they already have the permit for drilling, so it's not current demand, but it's demand that's ready to be, to be served. So as you could see also from that map, is this whole drilling area, whether they're drilling today or where they'll be drilling in the future, what's in yellow, is overlay the CN network.
So in frac sand, in Western Canada, we don't really compete with CP. They're too south. We compete with locally produced sand from Edmonton, and that's why the customers that we partner with, people like Badger, Source Energy, and Schlumberger, have invested capital in Alberta and in BC to be able to receive unit train. And you could see six stations now where you could see the ability to receive unit train as opposed to carload, because they are competing with locally produced sand. And also, that's why we give them better pricing. I give them better pricing because they provide the fleet. They made a capital investment locally in BC and Alberta to receive unit train, so I can now have lower costs. In exchange of that, I give them a better price.
By the way, a better cent per RTM price, for those of you who track cent per RTM. That was a question from, I think, last question from the first quarter. Canadian coal. So we have coal franchise in U.S. and Canada. Just want to emphasize maybe the coal franchise on the Canadian side. So we this could be from $0- $300 million in Canadian coal, both thermal coal and steel coal. It will depend on, basically, on the selling price in the Asian basin. Canadian coal competes with coal mostly from Australia, Indonesia. So the price point that matters to our customers when they talk to us, they don't talk to us about the API, they talk to us about the Newcastle price.
Newcastle price for thermal coal, if it's above $150 a ton, companies like Conuma can actually reopen the mine that Walter Energy closed, and then they can be successful in the marketplace. They reopened two mines of the three, one in October last year, one in February of this year, and they're looking at restarting Willow Creek later this year because the price is. And also, they bought the company for whatever the bankruptcy court sold it. So now you have a business that can really strive in current marketplace. Another example is thermal coal. In that case, it comes from Alberta, Grande Cache Coal, and the new owner has intention to increase the capacity in 2018.
Those intentions, again, are based on a new capital price in the case of thermal coal of $60. Then there's another major project in Alberta by a U.S. company, who is also looking at this high BTU coal, and at $60, they think they can make it a go and open a mine by 2019. So when you add those up, if the price of coal, depending where the range is, that opportunity exists of up to $300 million. But if the price of coal comes back down in 3-5 years, and the price goes below this sort of target range, then that business might disappear. It's like crude by rail, you know? It comes in, you want to ride it very hard, and if at some point the opportunity disappears, then you ride something else.
So there may be, there is currently a very good opportunity in Canadian coal. There's also opportunity on the Canadian petcoke. Petcoke is a byproduct of upgrader, is not at Fort McMurray. It's exported by our Prince Rupert. It's basically unit train business or big block business. And if the price of, of thermal coal out of the U.S. Gulf, I'm sorry, if the price of petcoke out of the U.S. Gulf is above $45, the producers in northern Alberta can actually thrive in that marketplace. Just, just very quickly, potash in Saint John, people have been caught talking quite a bit about K+S and their mine, which is about to start in Saskatchewan. K+S has a nameplate capacity, stated capacity of 2 million tons, and this year, they say they're going to produce 500,000 tons.
So 500,000 tons, 100 tons per car, that's 5,000 cars, $2,700 per car, that's $13.5 million. But as much as we don't have at CN, and if you multiply that by four to get to 2 million tons, this might be a $55 million account. But as much as CN, we don't have a new mine opening on us, we have a supply chain mindset. And Canpotex has two terminals, one in Portland, Oregon, which has all of its costs in U.S. dollars, and the rail rate to go to Portland, Oregon, is also all in U.S. dollars. And they also have a terminal in Vancouver, which is in Canadian dollars and a railway to Vancouver in Canadian dollars. And their customers are all over the world.
So when they look at their book of business, they don't look at what's my cost from the mine to the West Coast. They look at what's my cost from Saskatchewan to China, Saskatchewan to North Africa, Saskatchewan to Brazil. And whereby we keep working with them on, you know, what next thing might be we be able to do to be relevant to them is how do we supply Brazil? And now we're supplying Brazil from Saint John, New Brunswick. So even though there's a contract on the West Coast, the supply chain costs to supply Brazil from places like Vancouver and Portland is not as good as it was. Fluctuation in exchange. There's a brand new terminal in Saint John, which has became idle.
We create a state-of-the-art unit train, 10,000 ft, 30,000 ton metric ton, going to the east. And now there could be as much as $50 million of business, potash business, diverted from the West Coast to the East Coast, almost the size of K+S. Lumber could be in a purchasing range of $4 million. This is based on our view that U.S. housing starts are there to stay and run very well. We are expanding our centerbeam fleet, crude by rail. Capacity in the pipeline, if you believe the forecast of the Canadian crude industry, capacity in the pipeline to evacuate from Alberta might become a little tight this year or early next year. There might be a two-year window before Kinder Morgan starts up to Vancouver.
When Kinder Morgan is coming in operation in Vancouver, the crude by rail would become irrelevant. But before crude by rail can, before Kinder Morgan is in operation, there might be a 2017, 2018 and 2019 opportunity for crude by rail to be quite significant from Western Canada to wherever they want to ship their crude. Okay, let's get closer to the wrap up here. So in summary, you saw this is our scorecard last seven years, and we're very proud of that scorecard, and I think it shows that the model works. We are overperforming the industry. We are overperforming the economy, and as you can see from these logos, the growth is very diversified, from retail to shipping line to automotive to forest products to bulk to grain.
It's diverse, and it could have added the logo of Conuma on the coast side. But when we look ahead, you know, in the years to come, this is kind of a sketch of how the future might look like in the last 5, next 5 years. So big expansion in Prince Rupert for the container. Big expansion in Vancouver for container. Conuma Coal Mine is still in ramp up and expect we'd like to start up a third mine. Source Energy has invested in Wisconsin and expanded their frac sand. Between Source Energy and Schlumberger this year, we will have 2 million tons, 2 million tons more capacity of sand to ship to the Eastern U.S., or to ship to the Gulf, or to ship to Western Canada. Canadian Grain, you heard the story from Doug and Dave.
Petrochemicals in Alberta, that will take a little more time because the expansion takes time, but James will really make sure that we get our a good product for them to not only now decide to locate it on us, but also to give us most of their business. The CETA agreement with Europe, which will probably impact positively our container business in Montreal and Halifax. Ex-US housing starts, and as you could see, as you go later in the years, the projects of Pembina, AltaGas and G3, the grain side on the West Coast, and other projects like Nova Chemicals and Sarnia and some other plastics plants in Alberta. So helping customers win is in our DNA. And so it's with confidence and excitement that we look at the next two to five years.
We really believe that the way we define service and the way we connect deeply with our customers in segment, which are large enough for CN to really put the time and effort to do that, has really been working well for us, and in the future will continue to do well. The more we help our customers win, let's say I'm a frac sand producer, and I'm helping him to create these loop track in BC, so I'm helping him to gain some of that business against the producer in Edmonton. The more we help our customers win, the more freight they give us, and that's the reward of the investment. It's not about the train speed. It's about how we do things that works for them, that reduce their costs, that help them gain business, and help them sustain business.
So we earn business, we earn and retain. We don't lose that much, contrary to, you know, people's hope and aspiration, and in the future, we'll continue to earn and retain. So on that note, thank you very much, and we will do some. We have some time for questions. Microphone?
JJ, this is Benoit. You detailed very, provide a lot of good details around the intermodal opportunity, $500 million revenues for Rupert and Vancouver, but there's also major, also other expansion in Montreal, Halifax, Alabama. So could you quantify what is the opportunity with the other big ports? And also, when you look at the regions, the new destination, you talk about the Midwest, but is it the focus number one right now? And whether Mexico is something that could be, could benefit CN in the longer term and whether it's part of this strategy.
Well, thank you. So there is opportunity on other terminals. There is opportunity in Halifax. Halifax, the last 18 months, I think roughly on the revenue side, we've grown about 15%. So Halifax has some very nice growth, and it's not because we're moving product from Halifax to Nova Scotia, you know, it's because we're moving inland. So again, the focus is quite a bit away from the coast. Let's go to the Midwest, maybe Toronto, Detroit, Chicago, even better. Montreal, the same thing, Mobile and New Orleans also. The point is, my objective today was not to really give you the next 5 years, business by business, what a CAGR and what that is. Was to give you a sense of how we do that and where are maybe the biggest potential revenue makers.
So on the container side, ocean side, because of the start-up of these two container investment in the West, you know, obviously, it's a big focus of ours, but we also have great ambition in Mobile, in Halifax, in Montreal, in New Orleans. I was at a Saint John Port days last week, so we are working all angle, not just the big nugget. And typically, whichever, whichever coast we're coming from, we want to end up in the middle of the continent, so Midwest, Central Canada. I don't know if that helps.
JJ?
Yes, Jason Seidl here from Cowen. I want to switch to grain a little bit. You said 55%+ up from 52% market share, estimated currently. But it looks like you have the majority of the new grain elevators coming on your line. So it, at least from an outsider standpoint, it looks like that 55% on terms of market share would be a slam dunk unless you lose existing market share. So my question is, do you expect to see more pressure in some of those other areas from your competition?
The answer is no. So I don't want to say exactly where we're at today, whether we're at 52 or 55. We'll count our chickens at the end of August. I like. My father taught me, never sell bear skin before you shot the bear, right? So we'll count after the fact, so not before the fact. So wherever we end up this year, 52 or 55 or 53, our objective is to push the envelope eventually to 55. We think we can get there, and then eventually from there, we will be able to test really it in the marketplace, how relevant we are and what we need to do next. In terms of can we gain and lose, those statistics are all in.
Whether it goes export, whether it goes domestic, whether the seed is crushed, and then, and then you, you move unit train of of vegetable oil, which I export to California, and, and it goes to animal feed, it, it's all in. So, so the good news of Canadian grain, definitely the size of the crop over the years will grow. There'll be more tonnage to go long distance. That's rail business, so that's great news for all rail involved. And number two, CN is very focused on increasing, challenging the wisdom of the past, which was on a bad year, you get 48%, and a good year, you get 52. We'd like to really push that to higher numbers, and we explained roughly how we do that between commercial products and incentive customers to invest on CN.
Hey, JJ, it's Scott Group from Wolfe. So wanted to ask about pricing. Historically, you guys have reported in that 3%-4% range, more recently, 2%-3%. How are you thinking about pricing over this kind of 3-4-year timeline that you're laying out for us?
So again, it's inflation plus pricing. Inflation plus pricing as rail inflation, and netting out the fuel. But I think assuming inflation is in the range of today, I think 2-3 is still the range. With today's inflation, I, I can't, I can't really see that we get to 4-5. And I think that, I think for the rail industry in total, it will not be. I mean, it's a marathon. We're at CN, as you know, we're in the business of CAGR.
If for 10 years in a row, 15 years in a row, we're able to beat inflation by some, as opposed to kind of, we shoot up following the price of export coal, and then when the export coal price collapse, then we come down, that's not a very good way to create CAGR. So we want to create a CAGR that protects us from inflation and still give us a bit of an edge above inflation, so we can put that to the bottom line. So I think with today's inflation, it's going working today, I don't know what it'll be three years from now, but at today's rate, I mean, 2-3 is the range.
Hi, JJ, it's Cherilyn over here.
Yes.
Wanted to ask about some of the supply chain interactions that you have today, which clearly have created a lot of value, but involve human interaction in a lot of cases to identify hot boxes or match back exports, monitor coal piles, and so on. Can you paint a picture for us as to, you know, when in time we might be able to digitize some of those processes and really take them to the next level?
Yes. So the work that Alex and his team and Sales and his team are engaging right now is. It's kind of a three-step. First step, we want to automate and digitize the containers activities. So any customers who do business with us, and they're giving us a container as the mode of transport, that's the first one. If we're successful at doing that very well, then we'll get into the car, like the box car or the tank cars, and the last one would be the unit train. And why in that order? So the payback and the complexity is high on the container, but also the payback is bigger than on the two other modes.
So hopefully in, you know, as I said, 30 months, 36 months later, no more, that we will be able to provide the customers a data set that starts before CN and finish after CN as the experience of that container, whether it's moving on us or moving on our trucking firm, or it's still at the port, or it's in the hand of the partners of ours who are now delivering it to Mexico, because we don't want it to Mexico, but we do ship to Mexico. So that's the first step, and that will give them visibility. And this is where you get an exception. So when I buy a product on Amazon, just like you, I get these email, but I don't look at it. I look at it if I'm concerned.
The fact I have the email makes me comfortable that Amazon has its act together. So the fact that we will be able to provide that, or at least provide this comfort, that we know what your freight is, and we know there is an incident, I mean, we will know it, so therefore, hopefully, we'll take an action as opposed to, I wanna I don't wanna tell you what's happening because it's random in the back, in the back. You know, I may not even know the disruption, therefore, I may not be able to do anything about it. So this, it's, it's not overwhelming the customers with data, but giving them data in the way they like it. And by the way, many of our customers define an order as not a container.
When we did project for Suncor and Fort McMurray, and they were shipping the plant almost like a kit from Korea, to them, an order was, like, 25 containers. I need these 25 to be on the site before I bring my construction crew, because all these pieces. So in that case, they would have loved to have one order number, which covered 25 containers. If you're in the world of less than truckload, and we deal, say, with, TFI Transport, in that container, he may have 15 customers. So he would like for, probably, at some point, to give us a, an order that links to one container, but that one container may have 45 orders into it, because that's what he's trying to track, right?
So again, just the whole mindset that for ease of operation, we just define a rail car as an order is not how the world works. Sometimes, more than one unit is an order; sometimes there's many orders in that same unit. So eventually, we need to talk in the language of our trade, of our customers, and that's what we'll be able to do with Project Enable. I think we may have time for two.
JJ, Ravi Shanker from Morgan Stanley. Two questions. Just going back to your initial supply chain example from Asia, roughly what percentage of your customer base thinks holistically about the kind of six-step value proposition that you provide versus focusing primarily on price? And second, what's your, your peer or competitor's response to that? Is it to try and replicate that similar value proposition, or do they try and cut price as much as possible to kind of entice the, the shipper to kind of go for that price?
So most of our shipping line customers are on that page of these six elements too, you know, some more than others. Some are already into this, this effort of getting digitized themselves, and some are actually quite a bit ahead of CN, and some are early stage. But all of them, it's a question of getting to the right audience. So when you in that meeting in Copenhagen or in Hong Kong, if you have in this audience, that meeting, people's job is to procurement. People's job is once the procurement is done, they gotta live with it. You know, they're, they're the supply chain people. They gotta make the supply chain work. And then the trade people, whose job is to make this ship profitable, you know, they're stuck with the return.
When they have the wrong partners for the reefer business, they have a tough time for the next two years. They lose business. So I think all of them are on that page. The reason why I say that with confidence, because we. Those ingredients came as a result of the time we spent with our customers. It was not invented by CN, it was invented by them. It's basically spending enough time to listen, to listen to their pain points, to listen to their, where they, they have value, where things we do. That really is how we came about these ingredients. Same thing in a coal business.
When they say, "I sold 50,000 tons to Japanese Steel, you know, JFE, and I need this vessel be loaded in Rupert by May 28th." That's the start of how mines work. May 28th, I need so much coal at the pile two days before the vessel shows up. If I do that, fantastic. It doesn't matter whether my train speed is super fast or super slow, just have the 50,000 tons two days before the ETA. So it depends on how you define success, but so the way I'm confident, that the way we define it is right, because we spend time and time and time and time in our customer's office, listening to their business. And their business is evolving as well.
You know, like the world of e-commerce and brick-and-mortars, the world of shipping line, and the world, frankly, of frac sand, is also fast evolving. You know, we talk a lot of the container business, but some other business like frac sand, they're extremely dynamic. You know, they went way up. They had a real tough time last year. Some of them went close to bankruptcy. Now they're back. It's an industry with less players, stronger players, and they're competing also more and more with local sand. So these, these dynamics, we have to stay on top of them, on top of them.
To your question of price, you know, we- the, the market gives you the price, and, and the price and marketplace combination of supply and demand, whether there's too much capacity, not enough capacity and transportation mode, all modes, and how this spreads, some players get at some, at times. And that's- I think that's true of any market. There's no difference in the rail industry. Last one, Tom, or who has the microphone? And then we'll do a break after that.
Yeah, great. Thank you. So if I think about analyst meetings, this is probably going back a ways, but there was a point in time or a period of time where you talked about, you know, your shipper, carload shippers do X amount by rail, X amount by truck, and we think we can, by better service, get more of that share. You haven't really talked a lot about truck today. It's it seems more about, you know, businesses that are unit train, that I think are, you know, a bit less truck competitive. Can you talk about the carload opportunity versus truck? Is there still a lot to go, or did you already harvest a lot of that opportunity of kind of, you know, carload share that you have versus truck?
So there is a lot to go. You see that in domestic business. You see that the reefer business, the reefer business, most of it comes at the expense of the product on the highway. You see that also in the frac sand business, because frac sand business is basically now unit train competing with truck coming from Edmonton. I mean, it's now into a maybe more sophisticated game, the game of sourcing, and your customer is, he's far away from the market, so he's gonna use rail. We're gonna make that rail as cost-effective as possible. We make it unit train, and he's competing with a locally produced product who will come in with a B train, you know, a truck which has two units. So that's another way of competing with road.
I'd like to get to the point where. I'll give you an example of the lumber industry. Today, more or less, when the lumber producer placed an order with CN, he placed an order with the CN cargo group of the center beam. He's not really giving me a lumber order, he's giving me a center beam order.
He's already made the choice that this order will be fulfilled with a car, as opposed to, we'd like to get to the point, especially with Enable, where you give me a lumber order, and on the same phone call or the same site, we can talk about before you, before you hang up and before you leave my e-commerce site, if I can't execute with a center beam, I'd like to have a shot at executing it with a truck or with a container, right? That we don't have this sort of segment where you've already predefined that this business is rail and this one is not.
We would like to get to the point where you're not giving me a car order, you want it, you're giving me a lumber order, and then we have this suite of products before you hang up the phone or before you leave the site, so that you don't have to go into another site. We can execute with a center beam, maybe a boxcar, maybe more likely a container, so that I can do the real long haul with the center beam and the shorter haul, maybe I can do that with a container. Before you.
So that we don't have this preconceived idea as to, from the supply chain of our customers, 'cause historical reason as to what business is business that we can do and business we've already assumed that, you know, they won't, they may not be able to execute that, so I'm just gonna keep that call the, the truckers for that. So we would like to become more of the, the one who has these different products and have the discussion or have the e-commerce relationship, so we can help them out peg destination with the mode that we have, either because of the best mode or because I do have, do not have any more center beam this week, so I'd like to see if I can do some of your Vancouver product, which is short haul with a container.
I think at this point, we should do break. Do you want us to be back at 10:15 or you wanna do a. Where's Paul? Yeah, you wanna do that?
All right. Thank you. Thanks, JJ. So I guess we're just trying to get, stay a bit on time here. So what I would ask is, it's now, roughly 10:05 A.M. Why don't we make our way back here at about, 10:25 A.M.? The refreshments are in the, back of the, seating area here, just outside the doors. As well, the washrooms, as you walk out, you turn right, go to the end of the corridor, turn right again, and they're right there. So, let's be back here at, 10:25 A.M. Thank you.
Working double time on this production line. She was one of a kind. She's just a mine, all mine. Wanting no applause, just enough, of course. Made a beeline over me and come back for more. Had to cool me down to take another round. Now I'm back in the ring to take another swing. 'Cause the walls were shaking, the earth was quaking, my mind was aching, and we were making it. And you shook me all night long. Mm, you shook me all night long, knocked me out. And you shook me all night long, you had me shaking. And you shook me all night long. Yeah, yeah. You really took me, and you shook me all night long. Oh, oh, you shook me all night long. Yeah, yeah, you shook me all night long. You really got me, and you shook me all night long.
You had me shaking, and you. I don't need no concentration. I'm on permanent vacation. Ooh, ooh, ooh, I don't need it. I don't need no situation. I don't need no reputation. Ooh, ooh, ooh, I don't need it. You know I've been disconnected, and on Facebook I'm neglected. Ooh, ooh, ooh, I don't need it. I've been perfectly selected, and I'm sexually protected. Ooh, ooh, ooh, now I need it. All I need is your connection. Girl, I need you now, dressed in sandals. All I need is your love. Put your arms around, my love handles. All I need is your love. That's all I need. My muscle man, you need it. My belly is trained and well-treated. Ooh, ooh, ooh, you know you need it. Come and get these extra pounds to keep you warm when the temperature's down.
'Cause you know, ooh, ooh, ooh, you know you need it. All we need is our connection. Girl, I need you now, dressed in sandals. All I need is your love. Put your arms around my love handles. All I need is your love. Come away with me, and let you all night long. Yeah, you and me, oh, oh, yes, indeed. That's all we need. Girl, I need you now, dressed in sandals. All I need is your love. Put your arms around my love handles. All I need is your love. Girl, I need you now. Girl, I need you now. Dressed in sandals. Dressed in sandals. All I need is your love. Put your arms around my love handles. All I need is your love. One life, I'm gonna live it up. I'm paying to fly, I said I'll never get enough.
Stand tall, I'm young and kind of proud. I'm on top as long as music plays. If you think I'll sit around as the world goes by, you're thinking like a fool, it's a case of do or die. Out there is a fortune waiting to be had. You think I'll let it go, you're old, man, you got another thing coming. You got another thing coming. That's right, here's where the talking ends. Well, listen this time, 'cause there'll be some action. Try out hard, I'm calling all the shots. I got an ace card coming down on the rocks. If you think I'll sit around while you chip away my brain, I ain't fool, you better think again. Out there is a fortune waiting to be had. You think I'll let it go, you're old, man, you got another thing coming. You got another thing coming.
You got another thing coming. If you think I'll sit around as the world goes by, you're thinking like a fool, it's a case of do or die. Out there is a fortune waiting to be had. You think I'll let it go, you're old man, you got it coming. I'll sit around while you chip away my brain. I ain't fool, you better think again. Out there is a fortune waiting to be had. You think I'll let it go, you're old man, you got another thing coming. You got another thing coming. Crazy! That's how it goes. Millions of people living as foes. Maybe, it's not too late, to learn how to love and forget how to hate. Mental wounds not healing, life's a bitter shame. I'm going off the rails on a crazy train. I'm going off the rails on a crazy train.
I've listened to preachers, I've listened to fools. I've watched all the dropouts who make their own rules. One person conditioned to rule and control. The media sells it and you're the role. Yeah. Mental wounds still screaming, driving me insane. I'm going off the rails on a crazy train. I'm going off the rails on a crazy train. I know that things are going wrong for me. You gotta listen to my words. I'm going off the rails on a crazy train . I'm going off the rails on a crazy train. I'm going off the rails on a crazy train. There was a time when I was so brokenhearted, love wasn't much a friend of mine. The tables have turned because me and them ways have parted. 'Cause that kind of love was the killing kind. All I want is someone I can't predict.
I know all I need to know by the way that I got kissed. I was crying when I met you, now I'm trying to forget you. Love is sweet misery. I was crying just to get to you, now I'm dying 'cause I let you do what you do down on me. Sometimes even breathing moves between pleasure and pain. Yeah, you cry when we're making love, must be one and the same. It's down on me. I got to tell you one thing, it's been on my mind. Girl, I got to say, I got to say, we're partners in crime. You got my thirst for faith. What you give to me takes my breath away. The word out on the street is the devil's in your kiss. If our love goes up in flames, it's a fire I can't resist.
I was crying when I met you, now I'm trying to forget you. Your love is sweet misery. I was crying just to get to you, now I'm dying 'cause I let you and where your love should stay. Oh, love means love and love will give your heart away. It gave your heart away! I was crying when I met you. I'm trying to forget you. Love is sweet misery. I was crying just to get you, and now I'm dying to let you do what you do. Done on me, done on me. I was crying when I met you. I'm trying to forget you. Yeah, yeah, yeah. Love is sweet I was crying. I was crying just to get you. Now I'm trying. Dying to let you, do what you do. Now I'm trying just to get you. I was crying when I met you.
Now I'm dying, dying, because I let you. Love is sweet. I was crying. I was crying just to get you. Oh. Dying to let you go. 1, 2, a 1, 2, 3. So you think I got an evil mind, I'll tell you, honey. I don't know why, I don't know why. So you think my thing will die this time, it makes me money. I don't know why, I don't know why anymore. Come on, feel the noise. Girls rock your boys. We get wild, wild, wild. Wild, wild, wild. Come on, feel the noise. Girls rock your boys. We get wild, wild, wild, wild, wild. So you see, I got a funny face, I got no worries, and I don't know why, I don't know why.
I got a thing with some disgrace. I'm in no hurry, and I don't know why. I don't know why anymore, anymore. So come on, feel the noise. Girls rock your boys. We get wild, wild, wild. Wild, wild, wild. Come on, feel the noise. Girls rock your boys. We get wild, wild, wild. Wild, wild, wild. Come on and feel it! Oh, yeah. Come on. Well, you think we have a lazy time. You should know better. I don't know why. I don't know why. So you say I got a dirty mind. I'm a mean go-getter. I don't know why. I don't know why. I don't know. I don't know. I don't know why. Come on, feel the noise. Oh, yeah. Girls rock your boys. Come on and feel it. We get wild, wild, wild. Wild, wild, wild. Come on, feel the noise. Come on, feel the noise.
Yeah, yeah. Girls rock your boys. Can you feel it? We get wild, wild, wild. Wild, wild, wild. Come on, feel the noise. Come on, feel the noise. Girls rock your boys. We get wild, wild, wild. Wild, wild, wild. Come on, feel the noise. Girls rock your boys. We get wild, wild, wild. Wild, wild, wild. Well, you think we have a lazy time, you should know better. It's all the same, only the names will change. Every day, it seems we're wasting away. Another place, where the faces are so cold. I drive all night just to get back home. Well, I'm a cowboy, whoa, a steel horse I ride, and I'm wanted, wanted, dead or alive. Well, I'm wanted, wanted, dead or alive. Wanted dead or alive. Sometimes I sleep, sometimes I'm up for days. And the people I meet always go their separate ways.
Go their separate ways. Well, time is now a day, but a bottle that you drink. And times when you're alone, all you do is think.... Wanted dead or alive. Well, I'm wanted, wanted dead or alive. And I want these dreams, loaded four string on my back. I play for keeps, 'cause I might not make it back. I've been everywhere, everywhere, and I'm standing tall. I've seen a million faces and I've fought them all. Well, I'm a cowboy, whoa, on a steel horse I ride. And I'm wanted, wanted dead or alive. Well, I'm a cowboy, whoa, I got a knife on my side. And I'm wanted, wanted dead or alive. And I ride, and I ride, dead or alive. I'm still trying, I'm still trying, oh, dead or alive, dead or alive, dead or alive, whoa! I'm wanted dead or alive.
We're leaving together, but still it's farewell. And maybe we'll come back to Earth, who can tell? I guess there is no one to blame. We're leaving ground, leaving ground. Will things ever be the same again? It's the final countdown. The final countdown. We're heading for Venus-
All right, welcome back, everybody. So, my next speaker, or our next speaker is Mike Cory, our Executive Vice President and Chief Operating Officer, a veteran of CN with over 35 years of experience. So, it's all yours, Mike.
Well, good morning, everybody, and, Paul, correction, it'll be 36 years in, I believe, one week. So, you know, the view you just heard from Luc and JJ is one that I'm committed to and I fully embrace. Luc spoke about our foundation, which is stronger than it ever was as it relates to our future. He gave you perspective on how our world is changing and the need for our strategy to evolve in order to deliver the value our shareholders have become accustomed to and they deserve. What we did in the past is critical, as we've really created a foundation for excellence. From an operations perspective, we thrive on doing the right thing. From a service perspective, we deliver on a demand that transcends growth and margin for ourselves and our supply chain partners.
From a business perspective, this solid foundation, it continues to create value for our shareholders. The question is: Will that be enough for what future success will demand? And how are we going to continue to extract value, and what will our proposition be? One thing is for certain, we will remain steadfast in our mindset of excellence. You know, after all, we do not need a major turnaround when we compare ourselves to others. However, if we just take a page from the playbook that got us here, it just simply won't be enough. As Luc had mentioned, I was also in Chicago in 2010 when we spoke about what we believed future success would demand from us. We shared with some of you what our vision was to be successful, and central to that vision was our need to grow the business.
We had to become far more inclusive with our customers, less inwardly focused, and we needed a modified strategy to extract value from a very efficiently run rail, railway. I'll never forget the first question that was asked after we did our presentation: How in the heck can this approach not reduce your efficiency? And then there was a follow-up: How can you keep your OR in the mid-60s and expect to grow the business through a deeper engagement with the customers? And I, I remember our answer very clearly, like it was yesterday. We said we would gladly grow the business into one that produced $12 billion in revenue, even if it meant our OR stayed in the same place. And we acknowledged that there could be a step change in OR to get there. However, we would increase our top line growth at a controlled cost.
Well, I stand before you today as part of a team of railroaders who have delivered those results and much more. A team that is proud of both the OR and the growth story we share with you today. Hindsight is 20/20. Foresight is what separates good from great. We believe embracing this vision, having this foresight to understand what our role will be in the future, and developing a strategy to realize this vision and achieve that role, is what separates CN from the rest. As Luc earlier stated, our plan is not developed with quarterly results in mind, and our operating ratio could be influenced by factors outside of our control. Our overall focus on growth at controlled cost is proven by the results you see behind me, and will be the cornerstone of our future execution of our plan.
Now, I've often been asked, "What is the magic recipe for our operational success?" There's nothing magical about it, and I can tell you, though, it's very, it's not very easy to replicate. It's a recipe that's concocted with ingredients such as speed, asset utilization, doing what we say we will do, innovation and continuous improvement, empowerment and accountability, and of course, strategic investment. Our people mix these basic ingredients together to create the end product that delivers value. Broadly, we have three core values that we intently focus on: safety, reliability, and efficiency. These values provide the basis for the decisions we make. How we blend the decisions together is the key to our recipe. First, we have the right stove, which we've built over time and continue to build. Our network and infrastructure has, and will continue to be, built to maximize value delivery.
Second, we utilize the stove properly by having and using the right dials. The dials provide visibility on all the moving parts in order for us to extract the most value from the stove. Our cooks must use the right judgment when reacting to the dial settings, and we regularly check the dials to ensure our values are being maintained accordingly. And finally, most importantly, it's always about enhancing our culture and skill set, and properly engaging with our cooking staff. Our cooks understand they have to work in unison to achieve our goals, and their skills and ability to operate the stove must develop and continuously improve. We've created an innovative model at CN that addresses the demands of our supply chain partners and the markets that create value. And we are evolving our operating approach, making it possible to deliver exceptional results in an ever-changing environment.
Let me share with you what our operational recipe has been, and our focus moving forward as we continue to refine and perfect this recipe. As I said, there isn't just one thing that we focus on in our path to delivering value. Let's start with the stove itself, our network. We have exceptional infrastructure. An infrastructure like ours didn't come about by accident. Our strategic investments over time have given us a network with unparalleled reach and control. It is our backbone to deliver tremendous operating results, superior service, and growth at a low incremental cost. We ensure it's properly maintained for safety and reliability, and we invest strategically so that we can handle traffic faster and more fluidly. We've been spending about 50% of our capital budget on regular maintenance each year.
This ensures that we can reliably move traffic without disruption. Maintenance includes the basics like rail, ties, and ballast, and those things will never cease to exist. But we also know there is far more opportunity to decrease the cost of maintenance as we invest in technology as a basic capital expense. You saw some of this technology at our booths yesterday. It is the way of the future. As we increase the use of our integrated data, we will determine component life cycles and increase them, and improve the quality of our inspections through automation. As we continuously introduce technology, today's capital requirements will change. Using our P3X planning process, we are able to align our top-line growth projections with asset requirements, pinpointing our investment needs. But before any investment, we continuously search for ways to improve process to better deliver the opportunity.
Investment in process improvement with capital is fundamental to doing things more efficiently, more reliably, and most important, more safely. When you invest in fluidity and capacity in a railroad, you see a domino effect. You can cut your cycle times on cars, and increase the size of the trains, which requires less people, fuel, and assets in the long run. You also get improved supply chain reliability, and that is increasingly critical to our market environments. Let me give you an example. Our line between Winnipeg and Toronto carries the bulk of our highly in-demand domestic intermodal offering, as well as the lion's share of overseas containers for Canada. This line has been in place since the inception of CN.
There are about 120 sidings over 1,200 mi, and for the most part, the sidings were between 6,000 and 7,000 ft. As the opportunity to grow our business developed, our dilemma was twofold. Our investment in our west, in our network in the west, allowed us to run very long intermodal trains. When they got to this portion of our network, our ability to run these trains in both directions could not be achieved on a consistent basis due to the lack of infrastructure. We tried a variety of tactics to increase the size of the trains, such as running long in one direction and siding length in the other, or running long in both directions, but splitting the trains in two sidings to make train meets. The tactics we deployed didn't work that well.
First, we couldn't balance the movement of our assets by running long in one direction. Not being balanced results in unnecessary long-term costs, something we don't accept. Second, our attempt to use double siding meets only delayed shipments and made planning for our terminals and supply chain partners nearly impossible. To execute one of our roles in the new emerging supply chains, our service offering would not be sufficient if we could not deliver a reliable product. Along with that, these factors reduced our ability to grow our top line at a controlled cost, as more train sets would be required to accommodate volume projections if we were to capture the growth opportunity that presented itself. I remember quite well the various discussions and the methodology that went into the plan we developed.
As usual, any discussion on capital at CN is one that clearly spells out the vision and the opportunity, but more so, the justification for the investment. In this case, we overlaid our projected growth onto the existing volume levels and service plan and created a time frame that would meet the need of our supply chain partners in the volume growth. From that exercise, we developed an investment plan that would strategically create 9 long sidings in order to execute the potential growth offering. This plan took place over a 5-year period and is designed to incorporate more growth in the future. Today, we run more volume than ever, but when you look back at what it took to move that comparable volume, we use 33% less train starts to do it.
JJ gave you great detail on our view of the role we play in the supply chains that we work within, and we all know it's far more than just running reliably from point A to point B. This part of the strategy for efficient top line growth resulted in the right amount of added capacity that both increased reliability and efficiency and provided the service offering that our supply chains need in order to win. Today, we're able to run trains upwards of 14,000 ft and 30,000 tons on a regular basis. And while we're still able to accommodate increased volume on some trains, we have a long-term plan for more of the same, pinpointed investment when required. So just to reaffirm, in case you think the answer is all about capital spending, it's not.
We don't move forward without a clear understanding of the return, and then we generally exceed our own expectations on getting it. So back to our foundation. The right stove is fundamental to creating and extracting value, but you need to have the right dials, and you need to use them in a way that drives continuous improvement. And any real railroader will tell you that's exactly when the fun begins. To maximize the use of the stove, we put very visible dial settings in place to ensure continuous improvement is at the forefront of all of our efforts. These dials and their settings can identify a variety of opportunities, from a change to a service plan, to a pinpointed investment. These dials can be used as a general barometer to assess the health of a given corridor, a function, and a work unit.
However, they can be very detailed and task specific. They are all in place to make the best use of the stove and are designed to maximize the use of all the assets in providing a superior service offering. Our approach to continuously improve the recipe and always have the right dials reflect the changing demand of the consumer and the environment. Additionally, they allow the cooks to have visibility of both the desired and actual setting to ensure our key values of safety, reliability, and efficiency are in clear focus and worked on for continuous improvement. We aren't enamored with any one dial setting. For us to continuously improve, we need to adjust the dials up and down to find the perfect recipe. As we adjust the dials, the customer's opinion on their purchased product is always at the forefront.
We never lose focus on the key dial settings for speed and productivity. However, we will never jeopardize growth and service to our supply chain partners, nor cost, in order to protect those dial settings alone. Nor will we add investment capacity before ensuring higher velocity, service, or efficiency can't be achieved by using alternate methods. While service and productivity go hand in hand, there are exceptions where we must place an added emphasis on one or the other to realize a specific goal. Once the goal is reached, we work very hard to reset the equilibrium on the dials. For instance, as volumes decreased in 2016, we found less need to continue our long-term investment strategy for capacity, and we directed our efforts to find innovative ways to increase productivity without affecting service.
As volume grew in the latter part of 2016 and into 2017, we have developed some capacity constraints. We've determined there are some investment opportunities to make in order to equalize the equilibrium between speed and productivity. While the locations aren't many, our Western Canada corridor has seen tremendous growth after the trough of 2016 and will be an area we make investment in. As the volumes have risen, we have continued to focus hard on our productivity dials, knowing it has resulted in a slight trade-off with our train speed and our car velocity. But at no time during this period have we jeopardized our service offering. We know that our long-term strategy for top line growth has to be successful by maintaining our service.
Q1 2017 was our largest quarter for volumes measured by GTM in our history, and we are prepared to once again strategically invest in order to continue our journey. This has also led us to work harder, creating a more integrated operational unit, and as a result, we've created new dials for better overall visibility and a closer reflection on the areas we need to improve. An example that comes to mind is our learned experience on maximizing engineering work productivity. In 2016, we increased our engineering productivity as a result of our decreased volumes and more available track time. Our commitment to maintain our basic capital plan resulted in the most productive year in our history for much of our engineering work.
To ensure we achieve the necessary productivity levels, we created analogies to operating metrics and in the view of the operations team, not just our engineering team. From cycle times on rail trains to individual service plans for ballast and ties, we incorporated many of the railroad operating dials we use for our revenue traffic. Along with this tremendous productivity gain, the operating team saw the benefit of a more reliable plant with less outage. We've continued with this same strategy this year, and although volumes have substantially risen, the value of the work being done today far outweighs the short-term impact on velocity and train speed. Information and how we integrate it and make it visible to our operating managers is critical to our future success.
I trust that while you visiting our booth yesterday, you observed that we are creating new information, visibility, and integration among all of our groups as we move beyond a very good railroad to the leading transportation and logistics provider. To get there, it's paramount that our people have full visibility, understand all facets of the business in order to extract the value offering we create. So let's talk about the effect of having the right dials on the stove and using them properly. As I stated earlier, our network provides our operating team unparalleled reach and control. To convert value, we focused on the big cost drivers: labor, fuel, and capital investment. Let's start with train productivity, a variable the team focuses on every day and is one of the most important efficiency factors.
Our ability to increase train load is not accomplished by simply waiting for traffic to accumulate, to make the trains bigger and then running them. There's a combination of factors that has resulted in the train productivity gains you see. Included in these, but not all, are investments in long sidings, leveraging our improved locomotive fleet capability, and at its heart, the people who innovate and convert the opportunity to the bottom line. The exciting story here is it doesn't have to come at the expense of service. In fact, there are many examples where increased train productivity improves service. Take grain, for instance. Most country elevators are 100 car spots. The port elevators in Western Canada are all built with ladder tracks that are generally confined to a small footprint.
The key at the port is having the correct sequence and type of grain to reduce switching in the confined areas and to ensure the product arrives in time for the vessels. There's no room for the cars to sit idle, waiting to be processed. As we built our network in the West, we increased train size, and to maximize the long siding investments, we used grain sets to fill out merchandise trains. Now, this worked well for us, but at times, not so well for the grain terminal. As we invested in new DP locomotives, we were able to increase the size of our grain trains as well. However, until we completed our last round of locomotive investments, we still had an issue with keeping the sets intact.
Our investment in AC locomotives gave us more ability to utilize DP technology to increase the size of the grain train. It allows us to run them at 2 full sets, over 200 cars, while reducing the power requirement of 4 DC DP locomotives to 3 AC DP locomotives. This increases our productivity, improves both sequence and type of grain into the port. As well, with less switching of cars at the port terminal, we decrease dwell time on the cars and return to the country for faster loading. You visited the booth yesterday, and you heard the overall story. This is one important part of our grain supply chain story that came about from a combination of strategic investment and innovation. Luc also spoke of our ability to increase our export potash with Canpotex, using the same approach, strategic investment and innovation.
The operations team pushing the envelope together with JJ's team is what produces these results. In 2010, our average train length was 7,100 ft. Year to date, our train length is averaging over 8,500 ft, or a 16% increase. The point here is that in 2016, we experienced a once-in-a-lifetime winter. While 2017 was a more normalized winter, we increased our train size and reduced our cost over 2017. This efficiency was a result of our strategic investment in capacity and locomotives, and to a lesser but equally important extent, air distribution cars. Our air distribution cars story is likely unique to CN. Being located where we are, winter has an effect, and it can be dramatic.
There are many factors in combating winter, but the biggest one, outside of snowstorms that can cripple you until the snow is removed, is arguably being able to charge the air line on the train. Back when I started, 35, almost 36 years ago, it was routine for us to run trains at 3,000-4,000 ft in the winter. With advancements in technology and components that affect airflow, the industry has made great gains. Well, we've taken it to a new level. By converting flat cars to carry air compressors, we are able to maintain, for the most part, our train length advantage in the winter months. This year, we will convert another 20 cars to double the amount we already have.
This, in combination with a further investment in AC locomotives that Ghislain will speak about, will have a positive impact on winters to come. Maintaining train length is key to reliability, addressing the needs of our supply chain partners, and to be efficient year-round. So let's look at efficiency gains. Bigger trains reduce crew cost and fuel. It's that simple. Labor and fuel are the two biggest costs in operations. Longer trains are heavier, which means for every mi they travel, they generate more GTM for the same crew cost. Since 2011, crew cost is down over 9%, and when you exclude wage increases, the productivity gain is closer to 23%. That's a tremendous productivity improvement. And as trains have become heavier, we haven't increased the horsepower used to pull them at the same rate.
In fact, horsepower used per ton pulled is down 13%. This is possible due to our relatively flat network and the enhanced pulling power of our new fleet of AC locomotives. Reduced HPT, use of technologies such as Trip Optimizer and distributed power, has allowed us to outpace our peers in fuel productivity gains. We're 15% more fuel efficient than our peers, and we expanded that gap over the last few years. Combined with these actions, our real-time management of horsepower available for use on trains with what we call HPT Analyzer, is something I'm extremely proud of because it is done in conjunction with our locomotive engineers. HPTA is a homemade solution, ensuring the last line of defense is in place so the right amount of horsepower per trailing ton is used.
This is managed through our train dispatch centers, and locomotive engineers are given instructions on the applicable horsepower needed for their train design, and then oversight is applied by our rail traffic controllers. This ensures that optimal use of horsepower is maintained over the run. The system is simple. We provide visibility to the end users on what they need and ensure accountability in executing the instructions are in place. Now, without these strategic investments, these opportunities would not exist. As you can see from the slide behind me, we've taken a step approach in investment of capital for capacity. As our volume steadily increased between 2010 and 2013, we made pinpointed investments in our Edmonton-Chicago corridor, with a noticeable capacity increase taking place in mid to late 2014.
In 2015, we continued with a multi-year capacity plan. Prior to this investment, and with the volumes growing, we experienced a decrease in both car velocity and train speed in 2014. Included in those investments were double track sections in Western Canada, as well as some yard configuration in some locations, as well as capacity through Wisconsin and Illinois. We also continued to invest in AC locomotives. As our volumes from the energy sector decreased in 2015, we saw benefits from capacity in both 2015 through to 2016. As volumes increased during the latter part of 2016 and into present day, 2017, we have observed both car velocity and train speed decreases in line with previous volume growth periods.
By utilizing our P3X planning model, we identify and create capacity in corridor segments to increase both the fluidity and realize opportunity for increased speed and more train productivity. Now, as you can see, the return on these investments goes right to the bottom line. And if you ask me, it's a pretty compelling story with a lot more to come. So let's talk about the people that make this happen. Our asset, our asset mix, the pots and the pans that we use over the stove, is tightly and centrally managed by our network team. The execution of the plan is decentralized. Leadership and accountability to produce the best possible results reside with the entire team. While we are fairly specific on the ingredients and how they are mixed, we teach our cooks to understand when they must stir the pots without compromising the product.
And because there's a limited supply of pots and pans, they need to be shared efficiently in accordance with our central plan. So, so far, sounds okay. We have a great stove, just enough pots and pans for the ingredients. Actually, we get a little less. That makes the cooks innovate. We follow the recipe. We know that the recipe isn't changed unilaterally by the person stirring the pot. We invest in the stove and the pots and the pans to make the product faster and better, so people get what they came for at a competitive cost. Sounds a lot like a restaurant. So what makes a great restaurant? Well, in ours, it's the cooks. Because you can have a great restaurant with the latest appliances, all the pots and pans in the world.
However, if you don't have the skills to use them, you can't make an outstanding dinner. None of this happens on its own. It's about having the right people focused on the right things and converting opportunity into results. To me, my cooks are the best in the business. They separate us from others. And like any kitchen, the right people have different skills and accountabilities that come together to make a great meal day after day. Sometimes, one of the head chefs leaves, and we replace them with the right person for the job. We always have a sous chef in training for positions that require in-house expertise. If a skill set we don't have is required, we hire the best in the business, looking beyond rail, if appropriate.
For example, in order to really deepen our safety culture, we hired someone from outside of rail, yet he's an expert from the safety sense of the petroleum and gas industry. You met him yesterday, Mitch Beekman. For our multimodal operations, which is, which encompasses automotive, intermodal, warehousing, and cargo flow, to name a few, we hired Martin Guimond, who came to CN with vast experience in logistics and warehousing. They joined us because they are of the same opinion as I am. We do this with the intention of blending these new skill sets with a vast collection of expert railroaders, so we can all become better. The cooks in the kitchen must work as a team and continuously learn and improve themselves and the product they produce.
The people in the kitchen, and not just the head chefs, everyone knows how to stir the pot. They know speed and reliability is of the essence when moving pots and pans across the stove, and they know to follow the recipe, or the product will be spoiled and of no use, incurring extra costs, or even worse, a customer leaves. They know that before any investment is made, they need to fully understand expected outcomes and go that extra step to make it happen, while ensuring everyone else around their stove understands what will change in the recipe and how it affects their role. And they are in the best position to see the recipe adjustments as they are always focused on the dial. Maybe some spice needs to be added, they're empowered to do this.
However, they are also accountable to any adjustment that they make, and most important, to share it with the other cooks, so in turn, they can make a change to improve their recipe. These cooks are trained to push the value of the infrastructure to the maximum. This is all understood, and it's woven in our culture, but they don't do it alone. The training of the chefs and the cooks starts with me. I know from experience that culture is only as strong as the leadership belief in it, and I'm extremely fortunate to have a like-minded leadership team with me. We fully believe and practice the adage that the name on the back of our jersey is not as important as the crest in the front. The leadership team and I are a hands-on bunch of senior chefs.
While I might not always be stirring the pot, I'm always checking the dials and making sure the chefs are creating the recipes we need. We teach our cooks to be experts at exception management, but to work feverishly to get back to the plan. If they feel the plan needs to be changed, their observations are listened to and acted upon as they are in the best position to react accordingly to what they see on the dials. They make sure the pots and pans are always working, and if they aren't, they're empowered to raise or lower the heat or request a recipe exception, but they are accountable to execute the opportunities that exist. We drive our operating philosophy down to the front line by being engaged and available.
While we centrally plan the overall need for assets, decisions are always made at the lowest possible level to execute that plan and take swift action when volumes go up or down, or an opportunity to do something better is presented. As an example of this, when our volumes decreased, it wasn't a central group that made decisions to reduce train starts and service. The chefs and field cooks observed their cost per GTM had risen. The dials on their stoves were rising. Action needed to be taken. The actions were locally driven, and the central network ensured the overall product remained intact. These cooks have a strong relationship with our unionized staff. Everyone must have clarity on their deliverable and are accountable to the team to deliver. That's how great restaurants operate.
We have a view that our relationship with our unionized employees does not have to be collectively exhaustive. The winning outcome of our relationship does not have to be ours or theirs. Our approach to the relationship is one of logic and respect. Logic, in that we collectively work toward a better culture of safety and performance for the company to succeed, and respect, as we listen and collaborate with each other in areas of mutual interest. You saw in our safety booth a demonstration of our working with operating unions on combating fatigue. It's a multifaceted approach that reflects our understanding and belief that our social license to operate requires both respect and collaboration with our union partners.
The use of the ReadiBand is indicative of how our unionized employees are willing to share personal information, so we may better understand how to help them balance their work and lifestyle. The ReadiBand s themselves are not the solution. It's the employees' participation and our collective approach to problem-solving that's important. That's what leadership is all about, and I'm very fortunate to be surrounded by a team of leaders that embraces this same belief. When we think of the future, the past and present play an essential role. We have our infrastructure, we have our reach and control, and we have a deep bench of cooks innovating and working together in order to continuously improve. As a result, the product also improves. Our insight is growing as we create different streams of opportunity to improve safety, reliability, and efficiency through new and blended leadership perspectives.
We will evolve and innovate, increasing our efficiency and supply chain effectiveness. We will do this by introducing new appliances and techniques to make our kitchen state-of-the-art. The opportunity to grow and leverage our expertise with big data, deep learning and imaging systems, and a host of other emerging technologies will lead us to future success. Work is underway, and you had some exposure to a portion of it yesterday at our booth. Now, along with those exciting initiatives, I want to review one that really wasn't showcased yesterday. We've Project NOW. Its name signifies that these improvement opportunities can't wait. The project supports the digitalization of manual processes. Today, these processes affect a wide range of our operations, from the timeliness, clarity, and exchange of information for our customers to risk reduction by enhancing our communication on operating rule compliance with our crews.
Providing a structured approach to extracting value from innovation is Project NOW brings. Yesterday, I hope you had a chance to talk with Scott and/or Kevin, who are both in our ERA booth . You may have heard it mentioned that at CN, we view our operations as part of an interconnected system, where all of our activities, capabilities, and investments merge together to produce safe, reliable, and efficient movement of goods. Earlier, I spoke about one of the key enablers of our success being that ability to have keen insight. We are building a data structure that will support advanced analytics and understanding of our operating rules. It's our ability to communicate with them in a. That's really, it's not a business segment as much as it is a, a location.
If you go back to 2010, I think one of the slides, you'll see what we were at in terms of train speed. It was 27.9 mi an hour. Now, can we get there? Do we need to get there, is the question. We don't believe, again, any one of those numbers, unless there's an added value, a strong return for doing that, it's not just about cranking up your numbers faster every year at this stage. Obviously, we want to turn assets faster. We want reliability more than that. So I'm not gonna give you a number, but it'll be better. Our goal is to always be better, not just the year before. We take some outliers, like 2016, with more than enough capacity with, you know, volumes going down.
That's kind of an outlier that year. Now we're back on track to continue to grow, essentially, our position in the supply chain. So we
Mike, Brandon Oglenski from Barclays.
Brandon.
Thanks for letting me ask a question. Heavily unionized business, so what are the unions thinking about with automation? I guess, coming back to the labor question, are they supportive of these efforts? Are you looking at ways to redeploy people, get them more productive? And then secondly, what are some of the things you're looking at in the future contracts? I mean, we've always talked a lot about mi versus hours. What are objectives incrementally that you can do on the labor side?
Look, Brandon, the first response to the first question, you know, I have the luxury. I was around when we got rid of the caboose. Labor unions have dealt with with change to their environment throughout the years as technology has come. In fact, I started when there was 150 people in a room carrying a piece of paper, and all of a sudden, a box showed up called a cathode ray tube, and then there was 25. People deal with change. To Luc's point, we have the luxury of attrition. We also believe building a culture of excellence that we have, we will retrain our people. They understand the CN brand, no matter what function or responsibility they have. Could you repeat the second part of the question?
Just incrementally, on the labor side, what are you looking for in future contracts? What can you get from productivity and-
Our network is not, is not conducive necessarily to an hourly wage agreement. That really works when you're in a very small, condensed location with multiple stops along the run because you have the frequency or the flexibility of the crew, not just doing work as a, as a road person, but also to go into a yard and switch. We don't have that. We have long-haul, 250-, 300-mi runs, so there's really no benefit for the, the employee and certainly not us. There's not a, there's not a reduction of 35% of employees to get that. So we find other innovative ways. We run trains 12,000 ft, 14,000 ft, 16,000 ft. That's how we keep our labor in, in control. Scott? Scott, are you there?
Thanks. So, a couple more on labor. So if we take JJ's numbers, volumes are gonna grow, give or take, double digits over the next few years. How should we think about headcount growth relative to double-digit volume growth? So that's the first question. And then just secondly, can you just share your thoughts on one-man crews? Is it something that you'd be supportive of? When, how? You get there.
Okay. First, Scott, we, you know, it's attrition, it's growth, it's very granularized right to individual corridors, where and what we need to hire. That's how deep we look at it. We have a plan. Right now, we're hiring, you know, not quite 10%, just based on attrition this year. We had We were able to absorb a lot of the growth because we had people laid off. But going forward, that's the approach we take. We know what our attrition is, and then based on whatever the growth is, where it is, we look at the productivity drivers, the work drivers, and then we come up with a number. Where am I on one-person crews? Again, I got to talk about my history. I started when there was five people on a yard job. There's two now.
You know, this is just technology that's going to come at some point. PTC allows you to stop a train. At some point, we're going to figure out how, and you talked, we talked about advanced train operations. At some point, we will get closer to being able to take the human elements out of certain locations and runs that we have two people. Some you're always going to need. You're going to need to switch boxcars in a yard. You're gonna need more than one person to be at this stage of the game until more technology is developed. I just understand technology. I've seen it throughout my career. I've seen our company decrease employee counts dramatically through technology. It will come. It might not come in my lifetime, it might not come next week, but it will come.
If I can just follow up on the first part of the question. So let's just say, over three years from now, volume is 10% higher. How much more headcount do you think you would need? Is it close to 10? Is it half of that? Is it we don't need any headcount?
It's very granular, Scott, for us. So if you tell me it's in the Winnipeg to Saskatoon corridor, I can get you the number real quick, just based on attrition and what our train plan is, the workload drivers. That's how specific we get. I, you know, be honest here, I gotta be honest. I was amazed at how many people seemed to be proud last year of talking about how many engines they had in storage. We hate that. I don't want any engines in storage. I don't want anybody laid off. We drive hard to be pinpointed about that asset that we're gonna spend money on. So I can't give you an answer in terms of.
I can tell you attrition, but other than that, it's got to be specific down to the car and when it's gonna move, and I'll tell you exactly what we need. Well, we're good. Shutting down Benoit? Okay. Okay, thank you, everybody. Oh, Ghislain Houle, let me, let me introduce the, meanest CFO in the rail industry, and I'm I hope you saved all your, numbers and, you know, sense questions for him. Ghislain Houle, our CFO.
All right, we've been cooking this morning. I guess I'm the dessert. Well, yesterday, you witnessed a glimpse of the innovation that CN sees in its future, be it through people, process, or technology. You heard Luc talk about the future of automation. You heard JJ talk about growth opportunities. You heard Mike talk about consistent investment being key to drive operational efficiency and service excellence. You heard all of this, but what does it mean for our financial policy? Will we stay in control of our spending? Will we continue to deliver earnings growth for our shareholders? Will we maintain the principles that have enabled us to thrive since privatization? As CFO, I can tell you with confidence that the answer to all of these is yes, yes, and yes.
Our financial philosophy and discipline have been real strengths for us, and you can have confidence that both will remain consistent in the years ahead. I want to walk you through a recap of what our investment philosophy is and what investing in the business has provided, both in terms of our unique franchise as well as ultimate returns to shareholders. Building on our solid foundation and own disciplined financial policy, we believe the future remains very bright for us. CN has been a consistent high performer and industry leader. It is no surprise that behind this performance are a series of unwavering, steadily applied policies. These policies have allowed the company and its investors to reap incredible rewards. We believe in this company and its ability to earn a healthy return on invested capital.
Therefore, our first principle is to reinvest cash in the business and ensure that we earn a return well above our cost of capital. Any investment over and above our basic track infrastructure is backed by a thorough business case, and we go back and test these in post-completion audits. This ensures that what actually occurred in terms of costs and benefits is in line with the original case, and identify lessons learned that we can then apply to future investments. Our second principle is to keep a solid balance sheet for potential strategic opportunities and/or to weather economic downturns, such as in 2008, 2009, where the resulting liquidity crisis negatively impacted many companies, but not CN. Our third principle on cash is for shareholder distribution, which we accomplish through a mix of dividends and share buybacks.
We will look at just how much CN has returned to shareholders a little later on, along with a sense of what these distributions will look like for the future. But first, I wanna show you a cohesive overview of what we've been able to do with our investments, which will help you understand what we intend to do in the next few years. As previously mentioned, our first call on cash is to reinvest in the business. As you can see, we take a steady, disciplined view of our capital investments. We consistently invest in basics, in basic track infrastructure capital to maintain the safety and integrity of our infrastructure. We invest in capacity improvements such as long siding and double track to enhance our network using our well-diversified commodity segments to help reduce investment risks.
We invest in growth projects that help grow volumes, taking the projects that have the most accretive returns on investment and mitigating any risk with take or pay agreements or backstopping our investments, ensuring customers also have some skin in the game. All of these investments lead to improved service. A fast, fluid network is a reliable one and one that allows us to provide unparalleled service to our customers. Yesterday, at the booth, you heard about our vision of automation and innovation and what it means for various areas of the business, including our multimodal franchise. We are looking to provide a unique service offering to our customers that will lead to top-line growth through volume and price. We've touched upon service excellence. Now, allow me to say a few words on operational excellence.
A faster network results in increased efficiency and productivity, as we are able to extract better asset utilization from faster cycling and carrying more traffic per railcar or locomotive. By cycling faster, our rolling stock requirements decrease, which enables us to continue delivering industry-leading operating ratios and margins, stronger bottom line, and solid return for our shareholders. I'll touch upon each of these three major investment categories, starting with basic track infrastructure investments. First, you need a solid foundation in order to be able to extract the full potential of all other investments. We have consistently allocated around 50% of our capital envelope on basic track infrastructure. Year in, year out, even during economic downturns, we continue to invest steadily. Why? We believe you don't cut basic capital, you simply defer it. Then because you deferred it, you are playing catch up.
As a result of this catch up, you end up paying a premium in total cost for the same investment because you are in a reactive mode. The negative impact isn't only limited to your capital envelope, it also impacts operations. As you put off basic capital, even for a year, you risk additional rail defects, get additional slow orders on your network, potential rail breaks, and so on. This leads to reduced velocity, increased costs, and deteriorating margins and service reliability. When you're installing over 2 million ties and over 600 mi of track per year, as well as maintaining over 7,000 bridges that are on your network, cutting basic track infrastructure investment is not an option.
Last year, we continued investing in basic capital despite the decrease in volumes, and we're able to leverage this weaker volume environment to improve the unit cost of rail and tie installation by roughly 15%-20%. When it comes to capacity investments, long sidings and double-track sections are the lifeblood of railroad's ability to grow volumes, remain fluid, and enhance reliability. Why we invest in capacity is fairly straightforward. These investments make up more fluid and allow us to deliver more effectively for customers, which drives growth. Most railroads in North America have historically built sidings of around 6,000 ft long, as this was the train lines that were running in the 1970s. However, with increased capability for more powerful locomotives through decades of technological advancements, we are currently able to run trains much longer at 10 or 12,000 ft or so.
Therefore, we have systematically built up our network to leverage this new potential train line and unlock significant productivity and value. Having long sidings enables longer trains and improve velocity by reducing the standoff time required for meets in a single-track territory. Where and when you build a siding or double track becomes key. The level of investment varies as we make targeted investments based on pinch points and growth opportunities. We are always seeking to invest at the right place and at the right time. With the acquisition of the IC in 1998, we acquired a network that already came with a relatively long siding infrastructure. That was the starting point for subsequent capacity improvements we continued to build on. As you can see behind me, we built four long sidings in 2000.
We systematically added additional sidings in each of the subsequent years. As the number of sidings grew, you can see the favorable impact on car velocity, train productivity, and the associated workload as measured by gross ton mi or GTMs. Some of you will remember the key areas of focus, such as the corridors between the West Coast and Chicago. We invested heavily in the corridor from Edmonton to Winnipeg, to the tune of $250 million. We also invested steadily in Winnipeg to Chicago corridor. This includes the double tracking of the Steelton Hill , which was a key pinch point for us. This is a location in Minnesota where we have some of the steepest grades on our network. We consistently invested in the NOD, or the Northern Ontario District, which is 1,200 mi of single track territory above the Great Lakes.
We went from having no long sidings to building a network with numerous places for long trains to meet. We have built up this corridor in line with our steady investment philosophy, and will continue to do so in the years to come to unlock even greater capacity gain. So what have those investments in long sidings and double track given us? Since 2000, we've increased car velocity by 52%, increased our train productivity or train load by 68%, while workloads or GTMs grew by 65%. I want to pause and underline just what that means. We are running significantly faster on much longer trains and handling a significant increase in volume. The payoff of our 15-year investments in capacity is clear. It has given us a unique advantage. When it comes to Chicago, we have a unique competitive advantage.
Prior to 2009, all the Class I railroads, including CN, would come into Chicago and get stuck in traffic, crossing different railroad lines in order to make it to their destination. However, for us, that all changed when in 2009, we purchased the EJ&E, which gave us a route around Chicago. I have ridden trains in Chicago, and before the EJ&E, going from our Markham Yard to north of the city at Schiller Park, which is about a 40-mi run, it would take about 10 hours on a good day. Today, the same 40-mi trip takes about 1 hour. The acquisition of the EJ&E was critical for us, and it is now a core competitive advantage versus our competitors. Our velocity and reliability have improved significantly, which is another advantage we leverage with our customers.
We now control our own train dispatching, and we have better operating and service quality as a result. With this acquisition came Kirk Yard, which is a key piece of our U.S. operation. We invested around $130 million to improve this yard as well. Having this upgraded hump yard adjacent to the Chicago core is a key part of the solution. With the EJ&E, we believe we have solved congestion in Chicago for the next 75-100 years. In terms of growth, we have also invested steadily in increasing our reach. As you will see on the next few slides, our automotive, intermodal, and transload facilities have helped extend CN's reach beyond the railhead.
Rather than only being able to serve a customer that is physically located on CN's network, these facilities allow us to penetrate further into the local market, resulting in an additional service offering for existing and potential customers. Our CN Autoport facilities provide warehousing, distribution, and accessorial services and handle millions of vehicles each year. We benefit from a great footprint, which is essentially impossible to replicate. For example, we have the sole access to Halifax for European imports. We leverage our understanding of customer needs to deliver value-added services. With our facilities, we have land to park a significant amount of vehicles as they transit from originating port or plant to the dealers. This provides a buffer and flexibility as inventory levels can be replenished accordingly at dealers who often have little parking spaces.
Intermodal has been the fastest growing business segment for many years now, and JJ gave you an extensive example of how our supply chain focus brings value to our customers. This, in part, is fueled by the additional inland terminal offerings CN can provide its customers. We have been growing Indianapolis and Detroit, as well as Joliet and Chicago. Having these facilities enables us to work with our customers to help translate this enhanced footprint into a tangible benefit for them. With our transload facility investments, we look to extend our reach even further. These facilities provide transfers between truck and railcar, heating, sampling, railcar storage, and many other services. Again, we provide an extra service offering to the customer and an extra means of growing our top line. We have also invested to connect customers to our network.
A great example is our frac sand business, which we inherited with the acquisition of the WC. To connect with our customers, we rehabilitated 40 mi of track on the abandoned Barron Subdivision for $40 million. We accomplished this rehabilitation in an impressive 9 months, something our peers thought could not be done. Similarly, we invested around $50 million on the Whitehall Subdivision. These investments allowed us to convince companies such as Superior Silica, Hi-Crush, and others to locate and set up on CN lines rather than our competitors. We also invested in facilities and reloads to further leverage our strong forest product franchise and attract customers to CN. Coal is another great example. Conuma purchased 3 coal mines following the bankruptcy of Walter Energy, including the Brule Mine, which is located southwest of Chetwynd.
We worked with Conuma to hammer out an agreement where CN invests in the rail line connecting to the mine at minimal risk to the company. We also invested on track infrastructure to support export coal to Gulf's Convent Terminal. Similarly, our reliable, superior service has resulted in the vast majority of grain companies building new elevators on our lines. Viterra is setting up at various locations such as Kindersley, Ste. Agathe, and Grimshaw in 2016, along with 2 additional locations in 2018. Grains Connect has 2 elevators being built in 2017 at Maymont and Reford, with a third at Vegreville. G3 has 2 elevators coming online in 2018. At the port, we are seeing a rarity in terms of port terminal investment in Fraser River Terminal.
All of this is on CN's network, and it is a direct result of having a reliable service that customers value. All these investments in capacity, fluidity, and growth allowed us to leverage the unique footprint our network enjoys. We are the only railroad to access three coasts. This gives us product diversity and unparalleled geographic reach, with access to key growth markets, including Asia, through Canada's West Coast. A strong balance sheet allows us to be in a position to convert on opportunities. We have successfully completed $8 billion of acquisitions since privatization, and we're always able to maintain a solid investment-grade credit rating. In fact, even with all these acquisitions, we never had one credit rating downgrade or even a negative outlook on our rating. A strong balance sheet also protects us during potential economic downturns.
During the 2008, 2009 liquidity crisis, our balance sheet allowed us to be among the few companies to have access to the commercial paper market. We enjoy a tangible benefit over our peers by being able to issue debt at the lowest cost of all Class I railroads. In fact, last summer, our debt issuance was the second lowest 30-year coupon ever at that time. Our third principle on cash is for shareholder distributions. Our shareholder distributions consist of dividends and share buybacks. When it comes to dividends, we have a consistent philosophy, which is to prioritize consistent growth and avoid volatility in good and bad times. Our dividend has grown every year since the company was privatized. That's 21 years of uninterrupted dividend growth. During this time, CN has increased dividends at an average rate of 17% per year.
We have continued moving towards a targeted 35% dividend payout ratio. Since IPO, we've carried out roughly $18 billion in share buybacks, which, as you can imagine from our continued stock price appreciation, has also proven to be accretive. These share buybacks are the residual use of cash and provide CN with the flexibility to stop or slow the program in case of an economic downturn and/or to take advantage of strategic opportunities should they arise. When you combine dividends and share buybacks, the value returned to shareholders is close to $30 billion since IPO. In addition, shareholder value creation has translated into a significant stock price appreciation. Since IPO, adjusting for stock splits, the cumulative total return on both our U.S. and Canadian shares is well over 7,000%.
By comparison, over the same period, the TSX and the S&P 500 increased over 400%. If we move the dial forward to start in 2001, the year our Canadian competitors spun off from their conglomerates, you can see the picture still holds true. When you look at the U.S. tickers, CN continued to provide the highest shareholder return by more than a full 100%. CN is not just a great stock, it is a great company. Let me take a few moments to explain what great means. I'm sure a few of you remember the book from Jim Collins, Good to Great, which describes how companies transition from being good companies to great companies, and how most companies fail to make the transition.
It sets out five criteria to sift out the few companies that were deemed to have transitioned to becoming great companies. If you look at these criteria, you see that CN meets all of them. In the book, Collins finds the main reason certain companies become great is they narrowly focus their resources on their key competence. As we have seen in the last day and a half, and in particular, earlier during my presentation, CN has consistently applied this focus to grow its footprint, volumes, revenues, operational efficiency, and service reliability. Investing in long sidings may not be the catchiest headline. However, it delivers solid results as CN has gone from good to great. We believe that even greater things lay ahead in the years to come.
These are exciting times where there are unparalleled opportunities to apply technology to advance rail operations and service beyond what was previously possible. However, we are not investing in technology simply for technology's sake. We continue to require any project to be accretive and create value, either through top line growth or through expense reduction. You heard JJ and Mike talk about some of the exciting technological initiatives we have underway. We see these investments in technology to be about CAD 500 million over the next five years. Again, we want these investments to be accretive, earning at least a required hurdle rate of 12% return on investment. Now, these projects vary, and some are foundational and are required to get to the next level. However, their benefits and savings are more back-end loaded.
You visited the different booths yesterday that highlight some of our initiatives. We know our supply chain focus resonates with customers. We are looking to further leverage technology to bring supply chain to the next level. We're also looking at big data analysis and predictive analytics to better deploy where we test and replace certain capital assets. You heard from Serge and the team that we are also looking to leverage advanced operations, which will be the building blocks for CN's future. We have only begun to revolutionize the rail space with the current available technology today, and the possibilities are endless and spread across all functions. To give you an example of how we are continuing to improve and evolve, let me talk about our procurement and supply management function, which is close to my heart as it now reports to finance.
We are in the midst of a three-year transformation journey for this function, which has essentially not been reviewed from a business standpoint for many years. To accomplish this transformation, we are pushing on all three levers of innovation: people, process, and technology. We are focusing on developing our team, establishing clear accountability between supply management and the business by implementing a strategic approach to managing our spend. Procurement and inventory management will be more clearly linked. We are leveraging technology to implement top-tier IT systems to assist in delivering on business efficiency and transparency in spend and supply relationships to deliver sustainable savings. With this three-year transformation journey, we stand to benefit from procurement cost savings, inventory reduction, consistent processes, and clear roles and responsibilities. To give you a sense of scale, procurement and supply management handles about $5 billion in annual spend.
We have already started the first of 4 phases, which we believe will deliver expected savings of roughly CAD 50 million versus our current baseline in the beginning phases, and over CAD 100 million cumulative when all 4 phases are completed. What will these savings provide CN? A portion will help sustain our operating ratio to roughly mid-50s for the next 5 years, assuming fuel prices remain at current levels. We expect that these savings will help offset other cost headwinds that we will have to face. For example, we know that as we deliver PTC, operating costs required to support it will increase. Also, we have numerous technological and innovative projects and look to use a portion of the savings and benefits of some early initiatives to cover the startup of others.
Regardless from which function the opportunity originates, and if it is technology or process-based, the successful steps forward rest on having the right people with the right culture, doing the right thing together. Again, from the booths yesterday, we have exciting initiatives underway. They all require a dedicated team that prioritizes the common goal of making the company even better. It is that business-centric understanding that that aligns us and focuses the group on common goals of delivering results quickly, efficiently, and safely. We are working collaboratively and together as a team.... We share opinions, and where individually one of us may not have the answer, collectively as a team, we have the solution. We leverage the unique strength of each of our team members, and together are embarking to undertake the next chapter of CN's evolution.
Our investors and those considering investing can rest assured that our core philosophy and our dedication to investing in a disciplined manner in order to deliver on our strategic agenda, will continue to guide us in the years ahead. Assuming a supportive economy growing in the range of 3% per year for the next five years, we believe we have the top line opportunities, which JJ covered, to grow faster than the economy. We believe that this backdrop and our consistent philosophy provide scope to aspire to 10% average annual EPS growth over the next five years. This should also translate in solid free cash flow generation. You heard yesterday how we are stepping up our investment focus on technology and innovation to unleash the next year of future growth, but we will strive to maintain our capital envelope at around 20% of revenues going forward.
Basic track infrastructure investments will continue to consistently represent the same proportion of our total envelope, and growth opportunities will be assessed as they emerge, valued on their intrinsic return on investment, along with a thorough risk assessment. Going forward, technology will represent a larger proportion of the envelope than it has traditionally. As I mentioned earlier, these projects will help contribute growing our earnings as they come online, with some sooner and others more back-end loaded. With a full docket of innovative projects, we will further extend our competitive advantage as a leading transportation and logistics company. As a result, our objective continues to keep growing our dividends generally in line with earnings growth, as well as using residual cash to buy back shares or to leverage opportunities that may arise.
In summary, our consistent financial philosophy has served us well and has been a key contributor to the success CN is today. Our strong financial performance is a reflection of these principles. We are focused on ensuring this philosophy is embedded in the DNA of the whole organization. We continue to build upon a solid foundation, and in doing so, I can tell you that as we unveil our strategic agenda, great days are still ahead of us. Thank you. I'll take some questions. Great.
Hi, Ghislain, it's Ken Hoexter from Bank of America.
Hi, Ken. Yeah.
Thank you for the insights and presentation. The timing of your mid-50s over the next 5 years, maybe you can just talk a little bit about that. Given your planned expenses, should we see fluctuation to that, just based on some of the timing of the costs you talked about? And then secondly, on the long train sidings that you talked about at the start, do you have to go back in and reinvest and extend those as you consider the future growth of CN and make them even—what you've done, make them even longer?
Yeah. The, I think the mid-50s operating ratio is what we see over the 5-year period, so you can have some fluctuations. For example, we've said already this year that the fuel prices are negatively impacted OR. And, again, and coming back to, Walter's, question, I think our first result, first quarter results were masked by, significant higher fuel prices. And when you look at OR, it was 50%, it was 50 basis points higher than last year. But if you adjust for increased fuel prices, it was, it was actually 210 basis points lower. So we've guided at the end of, we guided at the end of the first quarter on the call, that fuel prices, if they remain the same, will have an impact of 50 to 100 basis points on OR.
So again, you know, we, some of this will obviously fluctuate, but what we see is over the next 5 years, you're gonna be in a range of about mid-50s OR, assuming again, that fuel prices and the environment stays relatively where it is. On the sidings, again, I think we continuously sit with Max, with Mike's team, because Max is the guy that we work with in the detail on the network. And we continuously look at pinch points, and the way that we look at it is standoffs. So how long does it take for trains to meet in single track territory? And I tried to make that point in my presentation.
When you can reduce that standoff time, that's when you gain velocity, that's when you gain train speed, that's when you gain a lot of efficiency. The Steelton Hill was a good example where it was a key pinch point for us. We invested close to CAD 70 million on the Steelton Hill , and now it's working very well for us, and this is with all business going from Winnipeg to Chicago. So I'm not sure we're gonna actually increase the size of our siding from 10,000 - 12,000 ft to 15 or 16.
We'll have to see how the environment will evolve, but we're continuously looking at our network, looking at where the standoff times are for trains to meet and trying to reduce that, so that, again, we continue to get more volumes on at a low incremental cost. Coming to our first quarter result, Walter, I wanna pick up on your question on incremental OR. Fuel prices had a significant impact on the operating ratio, and I just mentioned the impact of it. When you look at the incremental margins, if you just look at it on the face value, incremental margins were about 38%, and you would say 38% is? But if you adjust for fuel, our incremental margin for the first quarter was 65%.
So again, and fuel prices, we gave you guys a heads up that, you know, they were helping us when fuel prices were going down. We gave you a heads up that, guys, when they're gonna go back up, you know, heads up, it's gonna hurt us, so it has. This is not something necessarily that we have control of, but I think it's important for you guys to see, you know, the behind the numbers.
Ron from Scotiabank.
Yeah, it's Ron. Yeah.
I wanted to ask a little bit about the technology investments that you're putting in-
Where, where, where are you? Okay, I'm looking for you. Okay, sorry.
As you put the money in the technology investments that you're talking about, is there room to materially lower that $1.5 billion basic capital that you're spending towards the end of the, let's say, on, on the 2020 timeframe? Or does it show up more maybe on the income statement in some way to really improve the efficiency of the capital that you're putting in the-
Right. I think, I mean, as I just mentioned on our financial perspective, I think we're comfortable for the next five years that our capital envelope will remain in around range 20% of revenues. And that includes some of the initiatives. I mean, that's baked in with the initiative that you saw yesterday in the boost and so on and so forth. I think, again, what our financial perspective on operating ratio in the mid-50s includes some of those benefits that we talked about. I just gave a little bit more detail on supply management today. You know, Mike talked about Project NOW.
Some of those projects, you know, as I said, they're more back-end loaded, so we don't expect a lot of benefit early on because you need to set them up, you need to design. But then once you get going, then we think that, you know, around year three, four, and five, then those benefits are gonna start kicking in. So when you put all of this together, and remember, we're still in the midst of PTC. So PTC, from an operating cost standpoint, is a headwind for us. So, and we're starting to see it a little bit this year, where as we're gonna get closer to deliver PTC, then we need to add people to support the, the new infrastructure that PTC will entail.
So again, so PTC will be a headwind from an OpEx standpoint. Now, from a CapEx standpoint, hopefully it'll dwell down as you get closer to 2018 and then 2020. But again, we, we've remained very consistent, and if we have some good projects that deliver strong value, and I mentioned we're looking very hard at making sure that they deliver a return on investment, and our threshold is 12%, and we actually have our internal auditor going back and doing post-audits and reporting back to our board on these projects. And if we have them coming up, we're gonna invest in the business because we think that's the right, way to do. That's the way we've done it for the last 20 years, and it's served us well, and that's what we're gonna do, do going forward.
Thank you.
Thank you.
Ravi Shanker from Morgan Stanley. Right up here to your right.
Hello.
Two questions. One, just as a follow-up to the question on OR, you said mid-50s, if things remain fairly consistent from a macro and a fuel standpoint. Can you help us frame a range of what that looks like if macro either rips here to the upside or if we go into recession, in down kind of how that range looks like? And second, can you comment, obviously it's early days, but some of the new policy initiatives in the U.S., whether it's tax reform or infrastructure stimulus and such, how do you think that impacts your ROIC expectations or your CapEx investments over time?
Right. Okay. I'm gonna try to remember your two questions. You'll see when you get to my age, you lose your memory. Trust me, my wife reminds me all the time. So on the OR, I think obviously, if you look, you touched upon what about if there's a recession? I think we've demonstrated, you know, in 2008 and 2009, and we've demonstrated it again when the energy markets tanked, that we were very quick. We were able to turn around pretty quickly. I mean, honestly, when you look at it from our standpoint, we even surprise ourselves.
When you look at Mike and the team, we have a team we call it P3X that actually looks six months to nine months ahead to try to align the resources to the business needs that we have in the volume, and if it comes up to us, then we react positively forward. If it comes down, then we, you know, we did what we did when the energy market hit us. So I think to me, I'm not I think the recession neither here nor there in terms of OR because we will react. Now, obviously, if you. Depending on where fuel prices go, depending on, you know, where the business goes and so on, it can move.
But from the crystal ball that we have today, when we look at the five years ahead, I think we're comfortable with 50%. Now, it may not be 50% year in, year out, but over a five-year period, it will be in that range. On the U.S. environment and tax. My financial perspective this morning did not include any significant change in the U.S. tax environment. Now, I know there's been discussion about reducing corporate taxes in the U.S. There's been discussions about border tax. It does not include any of that. Now, if you go back and you say, well, what would be the impact of a reduction of corporate taxes for CN?
Well, it will be less favorable for us than it is for our U.S. peers, because we have about 30% of our business that's in the U.S.. So but it still would be favorable, but less. But in the numbers and the financial perspective I've provided, I have not assumed that there would be a significant change in this environment.
Hi. Fatoumata Barry from GMP.
Yes.
So you talked about the sensitivity of the OR to the 3%, I guess, economic growth assumption. I'm actually interested in the sensitivity of some of these volume growth initiatives to a change in the economic environment, because 3% is kind of a high GDP growth rate. So
As a CFO, I'm very optimistic. I think, I mean, we're assuming 3. At the end of the day, could it be 2.5? Could it be 3? Could it be 3.5? I mean, I think at the end of the day, the 10% EPS growth that we think is achievable for the next 5 years assumes a supportive economy, and it assumes that some of the initiatives that JJ talked about. Now, it doesn't assume that all of what he put on the board will convert. I don't have gray hair for nothing. I mean, it's, and I've seen these marketing guys before, and I know them. Sometimes he says, I'm looking for my heart, and sometimes I think he's right.
But, so I think, though, there's a good slew of initiatives, and we've talked about this before, that are coming online. I think it shows that organically, we have a good slate of opportunities. They're not going to come all tomorrow. They're not all going to come either. But I think that, you know, law of averages, we have so many lines in the water that some of the fish will bite. And obviously, this financial perspective assumes some type of supportive economy. If we hit another 2008, 2009, recession, then obviously that will have an impact. Did I answer your question?
Well, I was actually a little bit more interested in quantifying the sensitivity, like if we're closer to 1 versus a 3, plus the volume. It's just how much of the volume growth is under your control versus economic sensitive loss?
I think, okay, so I think.
2020
I think if you're talking how much overperformance we believe we can get, if is that your question? How much overperformance how much more of the economy can we grow? I would tell you that I think we're relatively comfortable that we can do the we can grow, the way we've done historically, which is in the tune of about 50-100 basis points.
Ghislain, this is Benoit. If we look at the cash deployment opportunities, you laid out the three principal, and it seems you have a good grasp on the principal number one, about money that you will be reinvesting in the business, going forward. So now, if we look at principle number two, what you can share in terms of information about the strategic opportunities and or also about the caution you want to keep for a recession, and what type of optimal level you want to run the business going forward in terms of net debt, EBITDA?
Yeah. I think right now, we're comfortable that we have growth opportunities that requires our balance sheet to remain strong. It has served us well in the past. And if your question now relates to, well, what about strategic opportunities? And you're doing yes, with your head. So, what's out there? As you know, we do monitor it on a regular basis. You know as well as I do that the regulatory environment is not necessarily that favorable for mergers of railroads. But you know, there's a slew of small railroads, tucked in acquisition that we're always monitoring. I can't say that there's any on the market right now, some that would work with us.
So if there's any that come on the market at the right price, we're actually we actually want to be able to move. So I think right now, our game plan for the next five years, as I laid out, is we want to keep that strong balance sheet. We're still targeted to a 35% dividend payout ratio. We're first call on cash is in the business. We've got a slew of exciting projects that are requiring money, that will provide a good return. And we're gonna we monitor what the environment, and if there's opportunities from an acquisition standpoint, that would provide us synergies and would provide. Again, the key is that it needs to provide value for the shareholders, and it needs to be accretive.
If there's some that are out there, then, and at the right price, at the right time, then we want to be ready to move. Any other questions? I guess some of you guys are all hungry, and we still have another hour of questions anyway, so one more? The gentleman behind raised his hand. Over there. No, no, oh, okay. You, Scott, or there was the gentleman behind you that, whoever.
So, it's Scott from Wolfe. So just to follow up on that question, looks like over the past few years, you've bought back about 3% of the stock a year, or share counts come down about 3% annually. Is that what you've assumed in the 10% annual guidance? And then any thoughts on pension, which has been volatile over the years for you and what you're assuming on pension?
Yeah. So, on buybacks, we're assuming the same range of share buyback as what we have, give or take. That's the first question. Number two, on pension, it is volatile. We're not assuming major pension headwinds in the next 5 years. We're not assuming that in the financial perspective I provided. Now, I want to give you guys a heads up, and we've mentioned this before. There's been a new accounting pronouncement on pension that actually will have to be implemented on January first, 2018, where only current. Today, all pension elements are in labor cost, which is above the line, and going forward, only current service costs will be above the line in labor cost. Everything else will be below the line.
So if and this is only, this is a reclass, so this has no impact on earnings. This has no impact on free cash flow. But what it does have an impact is our current service cost is about $120 million, and our current pension income is about $160 million. So if you do that reclass, and if you would have done it with the numbers of the first quarter, then our OR would have increased by about 230 basis points. This has not been implemented yet. Our numbers today have not assumed that reclass. That number today does not assume that reclass. I'm saying that our mid-50s OR does not assume that pension reclass I've just mentioned.
Hi, David Tar
Okay.
David Tyerman from Cormark. Just on the dividend payout, I think you just said you were targeting 35%. I don't think you're there now, if I remember correctly, with my numbers.
No.
So it sounds like you're actually gonna, you're intending to grow the dividends faster than earnings growth over the next five years. Is that
It's gonna be in line. I mean, like I said, it's gonna be in line. If I, you know, earnings, if we shoot for earnings, and we think we can aspire for earnings at, at 10% in line, could be a little, could be around 10, could be a little higher, could be a little lower, but dividends will be in line with our earnings growth.
We won't be at 35% in the end of the period, or will we?
Our target is still to try to reach 35%.
Okay.
All right. Thank you. Nick, back to you.
All right. Thanks. Thanks, Ghislain, for. We'll have plenty more of an opportunity for you to grill, Ghislain. All right, so let me just kind of wrap it up quickly, before we get to, the next phase of the event, which will be lunch, and which we'll have in a minute. So what we tried to do over the last day and a half is really just to give you a better sense as to where CN stands today.
And understanding where we are today, we did take you back, looking over the last sort of, you know, 5, 6, 7 years, which have been very important in terms of how we continue to evolve CN through operational and service excellence, how we leverage our network, how we perfect our operating model, and how we leverage the great contribution from our people, how we renew our team, and how we look forward. So it's important to know where we're coming from. I think you all track our numbers very closely, so you know where we are at today. And what we wanted to achieve is give you a view of the future. So I know, I mean, and that's the problem with us financial people, and I, I'll include myself in there.
You know, the danger here is we're trying to give you a sense, a color, for what the next five years may hold. Now, contrary to what Ghislain said, we don't have a crystal ball. Maybe he has one in his closet someplace, but the reality is, we can't exactly tell you how the world will unfold. I think that's a given. We don't make the economy. We derive our business from what the economy has to provide. And so, you know, I think you just have to take a step back. What we're trying to do, and whether it was JJ, which actually wanted to really convey to you and help you understand that it's more than a fLuc, that we've grown faster than base markets and faster than the competition.
So he tried to help you understand the DNA of how we actually focus on the customer needs, how we work supply chain from all the way from Asia to destination, wherever it is, in the Heartland, in Canada. Again, I mean, JJ's perspective was to try to help inform you on some of the things that are unfolding, some of the initiatives, some of the ways in which we continue to grow this business, and how the mindset that we have behind it is what's so special here. Then you heard Mike. And Mike, with all of his experience, you know, has gone through incredible change at CN over the last 36 years. And what he told you, and what, hopefully, he conveyed to you, is that sort of deep sense of confidence that we understand what we need to do.
Not just be great operators, but be the team that actually can put the product together, that can innovate, that continues to find best ways to do things, better ways to do things than we've ever thought before possible. And how, with the combination of infrastructure, technology, people, we develop that winning formula, and how we keep perfecting it over time. Now, there's a lot of change that's ahead of us, and again, if you wanna look at precisely how much business we'll convert or how much, you know, automation will cost, or how many people will get dislodged in the process, trying to get that fine line, that fine number, is not the objective here. This is not strict guidance in the pure sense of the word.
What we're doing is we're trying to help you gain color in terms of why we are confident, why we look to the future as a world of opportunities for us. You know, what makes us different? What makes us special? You know, what are some of the things that are going on? And that's also why we wanted you to experience the trade innovation fair that we had yesterday. So you get a chance to touch our people, you know, to understand the technology, understand what's going on behind the scene. 'Cause when you look at the numbers and you try to project the numbers, it's a tough game. It's a tough game. We know.
So trust me, I, I understand, you know, the struggle to actually try to convert what we're talking about into your model and into a forward-looking, you know, sense of where we are. So it's not about, contrary to our business, which is, you know, more about precision, this is not the intent of the last 24 hours or so. Our intent is to help you understand how deep our competitive advantage is. But we're not saying we're not staying there. We're not status quo. We want you to understand the momentum that gives us that confidence to look into the future. We want you to understand why CN is a leading North American transportation and supply chain and logistics company, and why we have that sense of quiet confidence about the future. The competition will be there. Technology will happen.
I mean, trucking will advance, and all of these things will move. So, you know, given that backdrop, your interest is to understand why CN is a good place to invest, and why we can continue to thrive and deliver the kind of results that we have in the past. So hopefully, we've been helpful and constructive in that sense. The story is still there to write, and you have our full confidence, our full commitment, that we will write the story. Make no mistake about it, that team and all the 22,000 railroaders that are behind this team, we go out there every day, and we know we have to win the business. We know we have to deliver. We know we have to get better.
That sense of commitment, combined with all of the other things that we highlighted today, is what gives us that quiet confidence. We're not cocky. We're not resting on our laurels, but we are continuing to be true to the principles which Ghislain outlined. So, you know, we are going to be investing in our business, and we believe in that. Hell, how can you gain competitive advantage if you're not investing in some way, shape, or form, right? But the important thing here is still gonna be to maintain that balance, 'cause the danger is for the pendulum to move from one end to the other, and that's seldom good. You gotta be pretty confident that you've got the absolute, you know, precise view of the world, 'cause we don't know exactly where the puck's gonna go.
We have a good sense, but we need to continue to be mindful how the world around us is changing, how it's evolving. So we are leaning forward. We are aware of these trends. We are keeping up with what's happening in the world. That's what makes us relevant. But we're also agile. We're also quick, we're nimble, we're opportunistic. We're looking for these changes that are happening in the, in our customers' world and their supply chains. So that's what kind of makes CN special, and that's what we wanted to really bring you up to date through this, you know, 2017 investor update. So at the end of the day, at CN, the journey continues, and we certainly hope that you'll all join us in that exciting time as we look forward.
In the meantime, we'll invite you to join us for lunch just next door. We'll have a pause, and we'll probably resume with the Q&A session.
Just about probably a little bit after 1:00 P.M., but let's try to aim for 1:00 P.M. All right? Okay, thank you very much. Just a quick note, the Q&A will also take place in the.
We start the Q&A. We found in the other room there, there's an iPad, and there's also a brown bag there, so I'm sure it belongs to somebody. Bart! All right, Bart. So it's our Q&A session with all the presenters. So what I would like to do, if you want to ask a question, you can just come up here to the mic. Thank you.
All right, no problem.
Do you have a question?
Bonjour, Mathieu.
Bonjour.
First of all, thanks a lot for hosting us for the last 24 hours. Dan has always done a great job with some of these events, and I think the message comes through as well.
Thank you very much. That's, it's a pleasure for us, so.
I wanted to ask a question. Maybe it's the elephant in the room, maybe it isn't, in terms of competitive improvement. We all know that CP has come down the cost curve at the very least, and would look to leverage that going forward, much like you have done over time. How does that change your view of the competitive intensity? And does it change anything in terms of the urgency in any of the initiatives that you're doing?
Yeah, I think, you know, there's always a lot of focus on, you know, how we're moving forward, how CP is moving forward. I think the reality is, you know, the environment is one where there's actually growth in many segments of the business. There are many opportunities. We continue to improve our products. CP has tried very hard, and they have made some improvements in terms of their products as well. You know, the race is not so much one against the other. The race is who's gonna win the hearts? Who's gonna be able, over time, to improve their product in a way that is truly connected with where the customers want to go? Not, it's not a matter of destination, it's a matter of knowledge, it's a matter of reliability.
It's a matter that really touches a lot of the things we talk about, right? So over time, the same way as we've improved over the last seven years by, you know, advancing our supply chain mentality and, and skill set, by the same token, as we've also been more customer centric, you're likely to see a similar move on the part of CP. It's normal. You would expect it, right? So in that sense, I think, you know, we're just, we're further along in that journey, but that doesn't preclude them from continuing to improve their product and, and do quite well. So it's not a zero-sum game, and it's also we're not competing. While we are competing in some cases head-to-head, there are other circumstances where we're competing with other modes of transportation, and we're competing with other rails.
And we're still trying to put together a product that is competitive, but it's not necessarily a head-to-head competition. So I think, you know, I think there's always a concern, and it's not a It is a valid concern, but both companies continue to grow. Both companies are profitable. Both companies are trying to find ways to, you know, better cater to the customers. They have a different profile in terms of their mix of business than we do. And I think that's, you know... So it's not an unhealthy world, but it's one where, you know, we may not have the same momentum and we may not be focusing on exactly the same businesses, the same lanes, and providing exactly the same product.
So, you know, as far as I'm concerned, we're not in a situation that leads to, you know, destructive tendencies on the part of one competitor or the other. I think it's, it's one where the competitive, you know, challenge is for both of us to get better. And in that sense, you know, we certainly respect our competitor, and we wish them well. On the other hand, you know, we're just doing what we're doing. And it's getting better, and it's getting closer to the customers, and it's continuing to offer better products. So that's kind of the way we, we look at the world. I don't know, JJ, if you wanna add some comments or color on that?
The customers decide who they want to do business with, so we can talk about operating ratio, and we're getting better. That has to be viewed in the eyes of people actually buy trades and sign contracts. So when railroads say, "My services improve," you got to take that with a grain of salt and go and talk to people who actually buy trades and see how, where they put their money. So I think in size, CN is much bigger than CP. We might be the gorilla in the room.
He's a civil guy, okay? We wouldn't want to-
All right, so assuming that Paul doesn't run over here and tackle me, I'm gonna ask you two questions. I think that's as curious as that. So, on the intermodal side, JJ, I think you talk about U.S. markets and the opportunities there. Two, is there a way to further extend your network to open up additional US markets aside from, you know, Chicago, Detroit, Memphis? You know, is that partnership opportunities with Eastern rails, are there other elements that, you know, that you could kind of broaden the available market? And then the second question is for Luc. So you've got, you know, great track record, great team up there. What do you do to keep the team intact, and so that, you know, others don't, you know, poach the talent and the, the strong team that you have?
Okay.
Thank you.
The market in the U.S. that we're focused on is the Midwest and Mid-America. So Mid-America, all the way down to New Orleans and Mobile, and the Midwest going to Michigan and Wisconsin, and Minnesota. We'd like to access that from the three coasts. We talk a lot about, you know, the Western Canada ports, but we want to drive that also from the Montreal, Halifax, Mobile, and New Orleans. The opportunity is, here, the scale, the economy, and the population there is quite significant. So we would love also to have a deeper, deeper intrinsic products with some of the railroads when it comes to stuff that we can't physically get at ourselves or stuff that they themselves can't get at directly. And I think that in the future, there's some potential on that front, too.
Tom, on the issue of people in the team, I think this is, you know, this is one of those, again, very qualitative factors. Now, you can't put quants on it, and you can't, you know, as much as you can pay people well, you can't buy their heart. I think what we're trying to do is we're trying to pick great people, great talent, give them opportunities to grow, to develop, and that's what's exciting here. And when you look at some of the projects that we have on the way, we have the ability to attract exceptional individuals to come to CN. Why? That's because they know they're gonna be part of building and putting something special together, something that they can't get elsewhere.
So some aspects of our growth agenda and our transformation and innovation agenda is what actually gets people's juices flowing. Now, you know, I mean, if, if it comes really just down to dollars and cents, and, and that's what's gonna move you at the end of the day, you know, you can't lock people up. So, you know, would people consider other opportunities outside of CN, whether it's in the rail or otherwise? Hell, yeah. I mean, you know, I, I don't think, I don't think we can lock up the kids, if I can use that expression. The best thing you can do is give them in an environment where they can thrive, where they can contribute, where they feel they're part of something special. And that's more powerful than money. And, and I shouldn't say that, because money is important to all of us.
It's, it's not honestly insignificant, but that's what we're trying to do, and that's, that's the environment that we try to foster, all four of us, and certainly every member of the team that's here. That is the powerful attraction, and that's what people, you know, that's what we think is, has been, and will continue to be a key trend. Even more so as we continue to push forward and we go into areas where, you know, they're a little bit more uncharted territory. So, so there's a lot to be said for that. Typically, there's not a lot of moving around within the rail industry, and it's just the nature of it. We're not in You know, if we were in the high-tech world, I mean, that'd be a different thing. If you're in the investment banking, that also may be a different thing.
So it depends on the environment, but we don't take that for granted. Our job is to get everybody at CN engaged, everybody at CN feeling that they're part of that great journey, that they have a contribution to make. What can you do to make the company better tomorrow? That's what we try to do in terms of engagement. But that also calls for us to listen as opposed to just broadcast. A lot of the work that Mike is doing in terms of engaging with the front line, getting folks to come up with ideas, thoughts, innovation. Innovation actually, you know, doesn't start at HQ, you know, back on the 16th floor on Montgomery Street. A lot of it actually starts on the front lines.
People that are closer to the business issues, people that actually kind of go like, "I don't know, it's pretty dumb. Why are we doing this?" You know, and they have ideas. So that's what we try to do. It's not different than the operating ratio. I'll bring it up before you do. We're not solving for an operating ratio. What we're trying to do is set the context, set some challenges, some objectives for people to do what they do best. And if we get that right, then it's powerful because it actually will ultimately translate into a pretty decent operating ratio. So it's, you know, it's again, it's that sort of balance. It's listening to people. It's treating people with respect. It's all of those things, right? So that's what we focus on. And you know what?
I mean, you know, hopefully everybody stays on the boat, and everybody rows all in the same direction, and that's what powers it. But, you know, the world is what it is, so no guarantee.
Just a quick one here. Sorry, I'm sitting down a bit. Just a quick one on the growth.
Paul was the one that set it up.
I think we'd all agree, you've outlined a lot of a really good growth profile in the coming years, which is exciting. It's just one on the grain note specifically. I think that's probably one of the more provocative statements today around taking share effectively, at least the competitor probably views it that way. So the one question I had on the elevator issue in particular is can we get a sense for how much of the new capacity that's being built, I think the 16 of the 20 new elevators, is the, I don't want to call it cannibalization, I know new elevators in the exact same territory. A lot of new players coming to Canada, G3, these other players, they're going to be competing for the same amount of grain, I believe, that's still in the deck.
So how much of it is incremental territory that you're gathering from the competitors as opposed to just new facilities and old ones going away? Do you have a sense for that, or can we just take it at face value that 15 facilities means a lot of new share?
So obviously, it's a combination of both. As grain companies once we enter the marketplace, we choose an example, the new entrants. Some of the grain they will be moving with us is probably grain that we moved in the past with some others, and CP as well, so. But it, that's the way the world is. So rather than being afraid of, I might cannibalize some of my sales, we actually embrace that and say, "If for every ton we move, half of it is the ton we were moving already, and the other half is a new one, we will move forward to the marketplace." And especially in a case where a Viterra or a Cargill or a G3 invest into a new facility, they will probably be able to load it faster. It will make us more efficient.
Hopefully, there might be longer trains, so we can make more use of our famous tunnel and lift bridge in Vancouver and North Shore. So all these things are good things. So I don't know how much sales will be cannibalized. There will be sales that we cannibalize, but the objective is by the time this is all done, we want to be 55%+. And we're taking the risk, calculated risk that this thing will pay out. And I think to Doug and Doug and Dave, credit, the three of these grain teams, we've done 55% in the first quarter, 54% in the fourth quarter, so it's within reach. I think it's an achievable goal.
It's not unlike retail, if you think about it, right? Retail, the footprint, the footprint is actually traffic pattern shifts over time. So you really want to be where, you know, where the action seems to be. These are high-footprint elevators, so clearly, they don't have the efficiency, they don't have the footprint. They'll be able to, you know, gain more share at the expense of others. So, so the notion of, you know, some of it will be cannibalization is absolutely right. On the flip side, you've got to go where the business is growing, where the key players are also winning and, you know, setting up for, for winning for the long term. And the good news is, it's also a growing pie.
I mean, we've made the point that, you know, we see yields as continuing to be growing in terms of Canadian grain production. So here again, we're growing share, but there's, you know, enough grain for everyone to go around and to feed all mouths. We're just a little hungrier than we are.
Just one follow-up, if I may. So, it's just, it's just on the South Shore of Vancouver. That's been brought up a couple of times. I don't think it was mentioned today, if I recall, but, but in the last call or two, that's been brought up. Can you just describe the backdrop there to how you actually won that business? I think your competitor has a slightly different view about it. And then ultimately, what does that mean for the network effect or the, the fluidity benefit you might get out of controlling that site?
Are you talking again, maybe?
Well, I think in the last call, for example, you described it as CAD 30-40 million, to pick up the handling your own volume, that they, the competitor was handling-
Oh, okay.
Previously on South Shore.
Because we, you know, question of who was serving, physically serving the container terminal, Centerm and Vancouver. I think for many, many years, we were getting these containers via the co-production somewhere outside of Vancouver. And Mike here can describe better than me the before and after. But the dwell time at the port in October, November, December became extremely painful in the CN existing business, to the point that we felt it was time for us to go and get our own container battery system to terminal, so we could keep the business that we had and grow it.
Hi, Bascome Majors from Susquehanna here. I think if we closed our eyes for a good chunk of the day, a lot of what you said could, could have been said by non-asset or asset-light logistics company in the supply chain management space. And, you know, as we think of. And not a railroad, and as we think about that, not so much next year or the year after, but as you get through the, some of the transformations you've talked about today, is, is that potential for a revenue stream in and of itself? Or is this really a long sales cycle tool to help you grow the business across your network?
Interesting question. You know, I think it's clear to us that the basis for competition is increasingly going to be on knowledge and expertise. Everybody will be looking for ways to combine that expertise with some asset structures. Could be trucking for some of the 3PLs and morphing. You know, we certainly have a great railroad that we can leverage. I think those skill sets will be in high demand. Potentially, you know, over time, we'll have to see where and how the customer relationships start to be influenced by who's in the chain, who's sitting where in the chain, and who's directing what. It's not unreasonable to think that the logistics component of what we do will become increasingly important.
And I think that's something that we've seen over the last seven years, and we can see a lot more of that, you know, happening. Could it be an independent income stream and profitability stream? It's possible. I think the question that we've had is we need to first make sure that we bring up our skills, that we bring up our system capabilities. So there's a lot of what we're doing, which is actually potentially going to enable that. And over time, we'll see. I mean, I think, you know, it's it is valuable. And if you have on top of that, the possibility of supplying it with proximity to customers and leveraging a strong asset to back into it, then you've got a pretty, you know, compelling proposition going forward. So it will evolve.
We'll see where it takes us. I don't think it's just moral, but I think directionally, what you described is something that, you know, we may aspire to.
Thank you.
Hi, David Tyerman from Cormark. So perhaps extending on that, you already are partway in that through your CNTL division. I'm wondering if you can help us scale what that is relative to what the railroad is. I'm sure it's much smaller, but what's happened in the last few years? Is it growing, getting smaller or whatever? And how you see this fitting going forward? Could you scale this up much larger because it's an extension of the, the existing business and that's the whole multimodal idea is critical, you own all the assets all the way through?
Yeah. Our trucking operation is about, what, 1,100, 1,200, maybe 1,200, independent contractors that work with us under the CNTL umbrella. It is a key asset of the retail product that we offer, so really on the first and last mile . So it's done. It's served us really, really well. Certainly, the world of trucking is also changing. So, you know, I think over time, we'll have to think about where and how we look at that asset. We know it's strategic to us. The question is, you know, can it and will it play a bigger role? And if so, what does that, what does that mean? What does that require in terms of capabilities, in terms of, of scale?
You know, this is not necessarily a business that we're, you know, historically has been structurally attractive, but the world's changing. There's consolidation going on. There's technology that's going to change also the lay of the land as you look at, you know, out five to 10 years at the trucking business. So, you know, we kind of, we're pretty pragmatic. We look at those things and, you know, whereas we might have said, five years ago, absolutely not. Well, today, you know what? We're, you know, we're monitoring what's going on, and we're trying also to understand.
To JJ's earlier comment, you know, when if I'm looking to get your transportation dollars, and I know that the trucking element is a component, then the next question becomes, you know, would you be willing to deal with us to provide you with more than just rail transportation? And if so, what does that mean? So we have to be careful because we have to make sure that we understand and are not kidding ourselves in terms of our ability to be competitive, to actually add value and be good, you know, owners of the business and investors. Because, again, while it's helpful to grow, you know, the beast, as we call it, you know, nothing stands still in time.
You know, if you let these things be cross-subsidized by the rail, then you're maybe kidding yourself, and your position may not be sustainable. So we keep a very open mind. We look at these things, I mean, and everything that's on the periphery of what we do or we're participating to some degree, we reassess it. So there's some of the transload business, you know, what we had, we actually shut down because it wasn't strategic to us. It wasn't really. And we said to ourselves, "We're not in the transload business." However, you know, if there are customers and if there are circumstances where it's absolutely, you know, the right thing to do in order to facilitate, then we'll participate. But it's also that in some cases, we're not the best players to do it.
So we'd rather work with somebody who's really good at it and have a turnkey, you know, solution, even though we may not be performing the activity ourselves. What's important is going to be to make it transparent to the customer, and that's where some of the work that we're doing is to have that ability to actually, you know, provide the customer with one easy facing to our company, and then we can determine how we assemble the different pieces in the background, some which we may own, others we may partner, but do it in a seamless fashion. That's, you know, because at the end of the day, we can't, and we won't own everything in the supply chain. I mean, it's just, you know, it's just not, in our view, the end goal.
So it's a pragmatic look and evolution, which I think we, you know, will spend certainly over the next five years. We'll spend a fair amount of time better understanding that, better building capabilities, and looking at what's the best complement of knowledge-based advantage, you know, strategic ownership of assets and strategic alliances to perform and to have a more compelling proposition, a more integrated proposition for yourself.
Thank you.
That's the trap. The microphone is supposed to be closer to the trap in case the questions are not good enough.
So, my question is for Mike and one for you, Luc. Mike, if you were to look at all of the technological innovation or innovative solutions that you showed us yesterday or ones that you might not have showed us, what ones would you say are the most interesting, the most that if they go out to fruition, if they achieve everything that you would want, will have the biggest impact? And particularly, if you could answer that as it relates to CN only, you know, going to zero-person crews could be a benefit for everyone, but is there any technological thing that you're investing in that is sort of proprietary, that would be that would have some really interesting results? And then, if I could, a second question for Luc.
When we look at risk in the rail sector, maybe years ago, we would have ranked the two key risks as being perhaps recession and regulatory. You've weathered a recession pretty well, and that's taken away a little bit of that downside risk. At least it's not as, it wouldn't have been as bad as we would otherwise have thought. And now, regulatory, I mean, we've got in the U.S. an administration that is anti-regulation, if I can put it that way.
You've seen the Canadian regulations now, and how often are they reviewed? Every eight years. So they're not the best thing in the world, but they're not the worst either. We have eight years of visibility before we see another CTA, CTA reactive risk. Outside of those, are those two still the most compelling risks or the highest risks, or have new risks come about in the last few years, in your mind, for now?
You go first.
No, Walter, that was a long one. I guess I have a different view. I leave automated planes out of it, but every piece of technology that we are investing in is proprietary, period by foot. Our view on a long, on a different plane, let's say, than other rails, and I think we've proven that over the years. We don't. We have two rails, we have cars, we have locomotives. We got the same as everybody else. So the question is, why are we different? And that's a proprietary, proprietary ROI. So in terms of the technology you saw, I think it all has, you know, a tremendous outcome in the future, you see 5, 10, 15 years from now. If I picked one, it would be the connected railway.
The ability to have data streams that are not just visible to, customers, that are, not just visible to us internally, but collectively, we're able to, make decisions that are right then and there, whether it's for safety, speed, efficiency, that everything is done at the drop of a moment versus through somebody's experience that takes 15-20 years to gain, or through some other channel that takes hours to get to, done there and now. And that's, that's what I say the biggest, but they all have a tremendous opportunity, have a tremendous impact, and it's how we will deploy them in the future that makes the difference.
On the second question, Walter, you know, and the way, the way I think we need to look at it is, you know, when you look at North America and the freight railways, it is an amazing system, and it is working, you know, extremely well. I think every railroad over the last 10 years has improved its performance in terms of customer service, in terms of efficiency, in ways that, you know, probably people couldn't even imagine. So, you know, now there's still room for improvement, and I think that we'll see customer demand continuing to, you know, to look for more. But if you're the regulator sitting back and looking at this, you know, there's a pretty good balance.
Now, you know, there's always a little bit of noise, and sometimes it's around, you know, shippers that don't have choice or enough access to railways. You know, some of these things will come and go. But on the whole, I think that both the Canadian and the U.S. regulators are in a position where, you know, there's been enough, there's been consolidation, there is profitability. The roads are reinvesting in their franchise. They're delivering, you know, pretty good customer service on the whole. And as long as that equation continues to work, you know, their desire to intervene and regulate has to be tempered because, you know, where do you hit the tipping point with the play?
And you know, that, I think, is on the U.S. side. I think that's why there's been a lot of discussions, but there hasn't been a lot of regulations that have come. And in fact, the current administration has a sort of two-for-one rule, right? So they actually are looking at what can we take out that actually might facilitate even better service, even better investment, and so on and so forth. But I think the infrastructure in North America is stellar. And why? That's because we've been able to reinvest in our franchise. So I think that's what, you know, the regulators are trying to balance. You know, there is a little bit of tweaking. On the Canadian side, we did talk about Bill C-49.
You know, and I think again, I think the regulators and we've had, you know, long and engaged discussions together, as they were preparing to put this forward. And I think they get it. I mean, I think they really understand that that's what they have to balance. You know, if you try to squeeze the price down to the lowest possible level, the next question is, you know, if you go too far, then all of a sudden, the capital doesn't get protected. And we're all, you know, we're all in the business of deploying capital and earning a decent return, so it'll start to drift to look for other opportunities. That's just the reality of what we do.
You know, I think our efforts, just as one railway, to continue to evolve the customer service, to deal and to engage with the communities that we work in, and more importantly, I think, than anything else, our, you know, social license. You know, when Mike and Mitch were talking about, you know, safety, that's at the very core, because once you start losing that credibility, that, you know, we are a safe mode of transportation, then all of a sudden, you know, things start to unravel. And then you get, you know, the regulators sometimes have a knee-jerk reaction and looking for the magic bullet, the magic solution. And that's where we become vulnerable.
So, I think we have to be proactive as CN and railways in general, to continue that engagement with the regulators, to help them understand what we're doing, how we're investing, how we're pushing in terms of whether it's fatigue management, whether it's track safety, you know, because there's a lot that's going on. And frankly, I think that, you know, again, I think the future is very bright because I think we, the whole industry will be able to bring the level of safety and, and the performance to a higher level. So, you know, we're, we're a big player on the Canadian side, so needless to say, we have to step up and we have to fulfill, we have to play that role.
And we're certainly working with our industry colleagues, both on the Canadian and the U.S. side, to make sure that, you know, that level of understanding and foresight in terms of the regulators is something that, you know, doesn't sort of start to shift the industry into a direction that wouldn't be constructive. So I feel generally, you know, quite optimistic. I think that's. But our job is, we need to do a lot more education. I mean, arguably, some of the folks on the regulatory side, if they had a chance to go through some of these issues that we, you know, you guys went through over the last couple of days, they would go, "Boo!" Now, they have, and they will. So I'll use an example. I mean, we've moved CanaPux.
We work, you know, very closely with several ministries of the government. When Mike is doing the, you know, fatigue management, I mean, he's doing it hand-in-hand with Transport Canada and the TSB. So we have to reach out there, and we have to be really, really engaging all stakeholders. That's the best way, you know, we ensure that people make informed decisions. Now, they may decide to regulate in the end, but at least, you know, they'll do it in a thoughtful fashion. Well, it's sort of. All right, let me tackle the first one, then JJ can take the second part. You know, there's, when you've got a tremendous partnership, and it's worked for a long, long time, and both partners have grown with this, in this partnership, I mean, that's a tremendous thing.
I mean, the relationship between the US and Canada, whether it's on trade or other dimensions, is just an outstanding one. So, you know, every now and then, though, I mean, you know, one of the partners goes like, "Well, I think things are changing. You know, I got to rethink my, my options," and, you know, so that's going on. And when that happens, then all of a sudden you go, "Well, maybe I need more friends, and maybe I should have a couple more of other friends, which I can do things with," right? So I think, I think there's been a lot of noise. I actually think that, you know, Canada and U.S. will work out these issues in a constructive fashion, because at the end of the day, we both win by doing that.
So it doesn't mean that it's going to be exactly the way it was, but I think it needs to be balanced and constructive for both. It's not winner takes all in this case. Now, Canada, I think, is, you know, rightfully taking that step back and kind of saying, "Geez, you know, maybe we need more friends." If you look at the initiative on the working with the European Union, that's trying to open up, again, you know, different trade channels, different opportunities for Canada. The U.S. decided to pass on TPP. Well, there's another opportunity potentially for Canada to kind of step in and to use this as an opportunity to engage with other Asian countries in trade. And again, it diversifies and it expands our footprint and our influence as trade grows in the world.
So I believe that it's a little bit of a wake-up call. Certainly, perhaps less so for Canada than for Mexico. But again, I mean, these have been very, very good long-term partnerships, and it doesn't mean people are gonna walk away. But it also says, you know, big world out there, and the more friends you've got, the better position you are to weather the storm or to deal with changes in terms of, you know, administrations or philosophies that may happen over time. So we're quite encouraged, and we think that that's, you know, that's where the Canadian government is headed. And, you know, we'll see in time how that will bring some opportunities for CN. But we feel that that's what's going on, and that's, you know, again, that's positive for us.
To the second question regarding Prince Rupert, the capacity for Rupert is 500,000 TEU capacity in the month of August. And I always refer to it as rail capacity because most terminals, when they expand their terminal capacity, they mean from the water side. So if it, if this was 500,000 TEU in Mobile, Alabama, or Newark, New Jersey, a lot of it is just to leave the port by truck. Rupert is a rail terminal, so what comes in on the water side leaves out on the rail side. That's a pretty viable solution to CN. So 500,000 TEU of rail capacity, the market for that will partly be, you know, organic growth in Canadian economy or organic growth in the U.S. Midwest economy, and diversion from other ports.
I think and there might be some level of cannibalization to the point earlier. Some of it might come from Vancouver, and some of the business that Andy is currently handling, some existing terminals. But all in, there will be displacement of business over and above the economy, and some of that will have to come from other ports, other railroads, maybe more so. And because we're tied in the US and Western America, mostly, we may have a chance to weigh that might come. So it's basically creating a part, supply chain with a shipping line, first port of call, terminal, which then turn the box in two days to the rail, and us providing enough destination that we would attract more than, its share of the global economy. Where will it go?
We are investing, and we've been working with Gislaine and Suzanne in the last 18 months to expand the terminal in Detroit. So we want to overperform in Detroit, to expand the terminal in Joliet, Illinois. We want to expand and overperform in Joliet, Illinois, and same thing in Memphis. So these are key areas that we are targeting for Prince Rupert and the GCT Global Container Terminal. We also have our partners at the INRD and the Port of Duluth. This is where in some cases, CN is the investors of the inland destination, sometimes we've partnered with others. So think of it as a restaurant chain, where sometimes we own the corporate store, we own Detroit, and we get expanded with our capital money, and we're the operators.
Sometimes we work with franchisees who own the corporate store in, at INRD in Duluth, and they take capital money, and they are the operators, but they run it under the CN brand. The customers who go to Indianapolis have the same experience as the customers who go to Joliet when they go on that team. And then there's a third layer that we're working at this point, and we're not really as, as, as comfortable to explain how we would do that. But some cases we invest, some cases we're franchisees, and we're working a third layer to increase the other success from view of the plan I was talking about this morning.
John Larkin with Stifel. I want to thank you for putting on this wonderful two-day session. It's been really helpful. And I also wanted to make sure that Ghislain didn't get off easy during this session as I was dropping—He would have been disappointed. We've heard over the last couple of days that basically, volume should grow faster than GDP, that pricing should come in above railroad inflation, and that there are a fair number of productivity initiatives underway, technology-based and otherwise, that should offset some of that railroad inflation. Yet you chose to use a mid-50s operating ratio target, not for the end of the period, like many of the other railroads have used for some other operating target, but a sort of average of mid-50s over the five-year period, including the gyrations you would normally experience the business.
How is it possible that with, say, 3% volume growth, pricing in excess of inflation, and productivity offsets to inflation, that the operating ratio will not mathematically decline?
Well, John, good question. You gotta, you gotta be careful because, again, some of the projects that we're talking about, they have some operating costs before they start to be capital. So when you do, for example, an assessment planning, when you start, as you get people in, they've got to be on board with the CN and so on. So in some of these projects, so therefore, have some operating costs at the beginning, but the benefits will be back end loaded. So you may not get to your OR directly at 50, and I said 60 range.
Y ou know, on the first year or two, but we're comfortable that over the five-year period, if you do the math on average, you will be around the 50. And I tried to explain that a little bit, and some of them are back-end orders from a savings standpoint. The other thing that's important is PTC is starting to creep up from an operating standpoint. So PTC, when we talk about PTC, we think CapEx, and I was thinking CapEx, too. You know, we're building this infrastructure. But as we're getting closer, and I see it this year, we're getting closer to 18 and then to 20, then, you know, we're training people. So training is OpEx, and we've got to train a ton of people.
Then we have to have the infrastructure that will support this. So we're setting that up. So when you put all of these together, and again, it's a range, right? So I think we're comfortable, but just to give you a heads up that it might not be 50 every each year, you might have a little bit, to your point, gyration, but over the five years, we're comfortable about the 50.
Got it. And then maybe just as a follow-up to that, you mentioned there was a big initiative to take a look at the purchasing program, that the company spent something like $5 billion on purchasing products and services on the outside. Can you give us a little more granularity in what that involves, and how much of the expected $100 million in savings are just going to be from price reductions on the part of the suppliers, and how much will be due to perhaps better internal processes at CN?
I think it's going to be both. I think that, when Nick became the CEO last year, came in my office and said, "Just, you know, you're, you're going to be my replacement." And as he was walking out
It was a good news, bad news story.
As he was walking out, "Oh, by the way, I didn't tell you, but supply management will report to finance going forward." I said, "Thank you very much." No, I think it's a great opportunity. So we have help from outside to... The beauty of the supply management is it's a mature function. So every company had a supply management function. It always reported to operation. We haven't looked at our processes in the past for many years. So now we're getting in. We've been in CN, and I won't get into tons of detail, but we've been doing our purchasing very tactically. We haven't looked at strategic spend. Some of our master data is outdated. We haven't kept up the master data the way we should have.
So it's very tough for us to get perspective on trends, on how suppliers are performing. How my contractors, when I use contractors in engineering, how are they doing? So it's all of that, that we're getting some experts. We've started the first phase. I think we're very, we're very optimistic about it. And as I said, I think that, you know, that we see in the first phase or two, $50 million. This is not out of it. This is not compounded. This is based on the current, on the current baseline. And then, I think we see 100. Could it be more than 100? Could it be 120, 130, 150? Maybe. But, I'm happy.
Of course, it's to try to make sure that the people in supply management have the skill set that are required for these new processes. So it's first to look at the process, to look at our master data, to get that thing right. And then with the help of sales and the IT teams, to get the systems behind it, to support it, so that it is sustainable, and it is sustainable from an efficiency standpoint, because otherwise, you can throw people at it, but the savings are going to be tough to be sustainable. So this is another area of opportunity and automation that we have that we believe will deliver those sustainable savings.
Thank you.
Let me just add a couple of comments on that. So that's sort of, you know, sustainable mid-50s, or it's a balancing act. It really is. Because we've got, you know, as Eugene described and, and we've heard from the team, so we've got some of these. Like PTC is $ billions of investment over the time frame. The benefit? Zero. Zero. The operating cost is going up. And for a while, you know, we're not going to be able to transition the whole, you know, the whole business on that. So you're kind of, you know, you're kind of going through a transition where we're going to have half the subdivisions done by the end of 2018, the other half by the end of 2020.
So, you know, that's one example of a very back-ended project where all the investment is up front. In fact, all the investment will essentially have been made by the end of 2018, and the benefits won't really start to show up until, you know, we get to what Mike was describing, which is sort of the, you know, the thinking about the railroad of the future and how... And we're probably going to have to put a little more technology because it wasn't designed for that. But, you know, we can see the potential. So that's why we're, you know, we're looking at initiatives like Eugene described in supply management. We're looking at Project NOW, with a lot of the opportunities to try to offset.
So, because the balance here is, you know, you got to invest a little bit if you want to secure that higher ground for the future. I mean, I wish it could be, you know, you're investing, you get the results tomorrow morning. Now, some opportunities are there, and we're pursuing that. Others are, you know, a lot of investment before you get the really big payback. Also, we're looking at things that are a little bit outside the box. I mean, look at classification, right? I mean, how many of you realize that as we try to advance that, I mean, it's, that's operating hard. It is, right? So some of that innovation, you know, will pan out. Some other things that we're doing probably are not.
On the whole, we feel that, you know, that's, that's what innovation is about, right? They're not always going to bat a thousand. But on the whole, what we're challenging the team to do is to chase down those low cherries, so we can afford to make some of these more structural investments that are gonna really bring us to the next level and provide, you know, long-term benefits and competitive advantage for, for, for CN. So it's, it's a, it's tricky balance, and in that sense, that's why, you know, as you say, saying, "Well, it may be a little bit bouncy there, so just, you know, don't panic." At least you understand what's happening, and, and this is why we're doing this. So you understand and have a better appreciation for what's happening behind the scenes. It'd be easier actually, not to invest for the long term.
We could grind down that OR, trust me, we could, you know, we could blaze a new trail. But, you know, five or 10 years down, you know, it'll be a hell of a challenge for the next camp. We thought we leave something for the kids, right? So we're kind of trying to balance this. So the younger members of the team are, you know, very excited about this because they know, you know, we have, we have the best, future interests at heart. And, and but that's the kind of thing that, again, separates us from simply looking at a short term, whether it's a turnaround or a short-term profits maximization strategy. And but it's tougher. It is tougher to do, and it's a little bit, you know, it's kind of. It's like trying to run, land a plane.
If you're sitting in the back of the big plane and, you know, you don't see what's happening in the cockpit, you feel pretty good. I mean, it kind of looks pretty smooth. You get into the cockpit and all of a sudden, you realize that things going like this, and you're going, "Oh, my God!" Right? That's so we're trying to give you just a little bit of sense of what the being in the cockpit feels like. And, you know, I know a lot of people over time go, "Oh, you know, I'm sure they sound identical. You know, look at all the growth. Look at what they're doing on the OR. I mean, you know, look at all the initiatives. This is good stuff." And so you try to really bring it down to, you know, to a model and to numbers.
You know, we try to make you guys look good and prove you right in the long term. But you know, it's a little more challenging than that. That's just again the benefit of having the time with you to help you better understand.
Thank you. Hey, guys, Jason Seidl here from Cowen, and I'll reiterate what a bunch of people have said thank you so much for putting this on, and I appreciate it. And thanks to Paul and his team, because, you know, as somebody who puts on conferences, I know all the back work that no one sees. Trust me. So two questions. One, Luc, I thought for you. You know, when I came in here, I've heard a lot about operational technology, and we've heard that in the past, but it feels like there's been more talk about this now because there's a little bit of a sense of urgency. How much of that's come from just CN trying to maintain its market leadership, and how much has come from you see some disruption out into the future and you want to act now?
Both. You know, on one hand, we're a little bit paranoid. You know, we look at what's going on, and again, we don't think of our world as being just rail. In our world, it's transportation, it's logistics. It's to be really more in tune with what's happening out there, because otherwise we get blindsided. Our customers start to move in a direction, and next thing you know, you know, things start to shift, and we run away from it. So from that standpoint, you know, there's a genuine desire on our part to make sure that we stay in the game. And it's not just versus the other railway. It's more broadly than that. The second one is, again, it's back to our mindset. Our mindset is going like: Okay, I mean, you know, this is pretty good.
What else, what else are we gonna do here? Okay. I mean, how are we gonna push the envelope? How are we gonna innovate? What, what does it mean? Well, there's all of those things that are happening in other businesses, so let's challenge ourselves. Why can't we do that here, right? So, so I think it's a combination of both. And, and it's, I think our sense of conviction is also from the standpoint of bringing a lot of good people also to help us move in that direction. Because I think it's, you know, if we sit back and we go, you know, "We're railroaders, we know it all, we're gonna make it happen." The reality is, you know, we're, we don't stand a chance. So we have to get, you know, these great people to start to be part of the organization and to work with us.
I mean, we for the first time, set up an operating technology group. Now, you know, not a criticism on, on, you know, on the past, but it's a recognition that to move forward, you know, we're gonna need a team that, you know, knows and understands how to apply technology in an embedded operating world, to really manage this business in a different way, to give us the tools, to give us the confidence, to actually pave the way. So, so, you know, again, I think it's, it's not just a recognition that the world's changing, that if we wanna stay on top, you know, we gotta outrun the bear. But at the same time, kind of going like: Okay, listen, you know, I'm not sure I've got that perfect answer. Let's get some people that actually can help us achieve that vision.
It's the mindset that, you know, you heard JJ, and JJ talked as a different example about the cold supply chain, right? First thing we did is, well, we understand the railway pretty good. Why would we need anybody? Well, wait a minute. You're going into a very different business segment where if you can get the insights and if you can get a better understanding, you're off and running much more quickly. You reduce your risk. You're actually feeling pretty good about, you know, investing and trying to, you know, to move more quickly along that, you know, that growth vector.
So that's the same kind of thinking that's, I'm using an example to help you understand that it's getting applied not just on the operating or the technology side, it's being applied as well in terms of the way we think commercially. So that's, again, part of what makes CN a little bit different, I guess.
And I'll get one more, just so I can finance them. I have to piggyback on Mr. Larkin's question here. Can you talk us through what is going to be an ongoing maintenance capital for the PTC that's actually in the ground versus what you're already planning to put it in, so we can get a sense of where that cash flow might be? Understanding there's going to be some cost to operate it as well.
Yeah, I mean, I don't think I can quantify exactly the maintenance. We first need to deliver it. So we're still in the thick of delivering PTC. You know, we're committed to do half our subdivisions in for 2018, and then full PTC operational in 2020. So I can't, it's, it'd be very tough for me to quantify exactly what it is because we haven't delivered it yet. We're starting to talk with our railroads, our peers on interoperability, but again, that has not been fully defined. What I can tell you, though, is I can see some operating costs going up, so I don't know what percentage it will be.
I think, I think it's not going to be a small number. And I think that it's going to be like any other, significant, and significant to any other. I don't think we've seen in the railroad industry, that disruptive of a technology as PTC. So I think you're going to see it. It's going to be higher in the first few years. We're going to have growing pains, and then it's going to come down because we're going to get better at it. We're going to get, and now the key is not just how much cost it will be to maintain it, but what impact will it have on the railroads? What impact will it have on the railroads? What impact will it have on train speed? What impact will it have on car velocity?
So again, the team is building it so that it will have as less impact as possible. But again, if you've got trains stopping all over the place because PTC breaks down, because it's not configured correctly, because, then just the cost to support it will be one thing, but I tell you, the cost that we'll have on. And I don't want to sound dramatic here.
Sure.
But the cost that it will have on the railroad in and of itself, and it's not just us. I mean, we talked about Chicago, where now it's all the interchange. At least now we have EJ&E, and we have our own destiny in Chicago. But we don't know how the other railroads are going to function as well. So we talk to them. We're in there as an industry, but this is something the railroad industry has not seen, I would say, ever. If I, you know, and, I mean, I haven't seen it in my lifetime. I've been with the company for 20 years. Mike, you've been, you were there when I was in kindergarten, so.
We were saying the beginning.
So it is just what you need to understand. In my view, without sounding dramatic, PTC will change the way we railroad in North America. It's like in the U.S..
Yeah, and I think, I mean
Yeah, just we'll, we certainly will figure it out. I mean, I think Sal has assembled and working with Mike, you know, a terrific team. So I, we feel very good. We've got one of the best teams to figure out all the kinks and so on and so forth. So we'll minimize the impact on the railway. Having said that, you know, the recognition from all the roads is that technology is not mature. Some of the software providers are not software, you know, software houses. And quickly, we're starting to see some of the design weaknesses when it was construed in the first place. So I think there will be obsolescence. There will be a need to actually retool some assets.
And then back to our conviction, which is, you know, we're going to be seeking the higher ground, then we will have to weigh, you know, what are the level of investments that we want to make to actually take it to the next step, where we can, you know, get not just the benefit from having a less worse PTC impact than the other guy, but then how we can leverage it to actually bring more tangible, positive benefits to the railway. So I think, you know, Josephine is not kidding you. I mean, he doesn't have a clue. And frankly, we're kind of trying to figure it out. And we're being very candid. I mean, I think that's, it is an undertaking that is of quite significant.
And, you know, you look at what's going on and how much capital is being deployed towards, you know, driverless cars, just as an example. I mean, so, so we're into that. You know, this is a complex, uncharted territory. And, and there's a lot of investments, but this is technology, right? So it's, it's, it's a, it's a whole new world. And rightly or wrongly, it was, it was initially designed by people that were probably more in tune with the world of signals and communication and railways, the way we thought about it, you know, some 10, 15 years ago, as opposed to the way most, you know, people in the technology world would think about today and the future. So there's a little bit of that, which is going to be, you know, make things a little bit tricky. But, good point.
Thank you, John.
All right, well, again, we just want to thank you so much. We know your time is precious. We know that you've got a lot of good investment opportunities out there. And, you know, we at CN and the team that you've had a chance to rub elbows with over the last couple of days, you know, we're committed to growing our business. We're committed to delivering to you, shareholders and to investors, you know, a compelling proposition for the future. And we don't, we don't take, you know, the fact that we've outperformed, and we've done very well in the past for granted.
I think hopefully you walk away with that sense, but you also walk away with a sense that, you know, the future is actually quite bright for us at CN, and we've got a very committed, very dedicated team that's working damn hard to actually secure the future. So thank you again for coming. We really enjoyed you being here.
All right. Thank you, thank you, everybody. I just wanted to make one comment.
One last, one last question?
Yeah, one last question.
Yeah, you get the last word.
I'm sure you're all amazed how we grind the OR. You know, we went within an hour and a half from a mid-50s to a 50. So I just wanted, I just wanted to make sure that the guidance is still mid-50s OR. All right? I want to make that clear.
Thank God, it was only an hour.
It was only an hour. All right. So on that note, I know a lot of people have to take the bus to go back to the airport. So I would ask that you make your way out as quickly as possible. The bus is going to leave within the next two minutes. And once again, thank you very much. Thank you.
Thank you.