Great. Thank you, everybody, again, for joining us for our 30th annual BofA Transport Airline Industrials Conference. Next up, we welcome Ghislain Houle, CFO, back for his 4th time in the past five years. Ed Harris, in the 20-plus years we've known you, we welcome you to our first BofA Transport Conference. A special thanks really to the CN team. They have been a participant in every single one of the 22 years we've been hosting the conference, so really truly appreciate the firm's steadfast commitment. After a 7-year stretch, we have a new face from investor relations following Paul Butcher's recent retirement. Stacy Alderson, is that who poured in the back?
Alderson.
What'd I say?
Alderson.
Alderson.
You said Anderson.
Alderson. No, you just didn't hear me right. Alderson is here for all everybody's tough questions after.
I'm French.
Ghislain and Ed, again, truly appreciate your commitment here. With that, let me turn it over to Ghislain and Ed. You know, you hosted your analyst day two weeks ago.
Yeah.
Set your long-term targets. I know you want to start with some big picture overview, thoughts on your 10% to 15% EPS CAGR. With that, I'll throw it your way, and then we'll jump into questions.
Very well. Thanks, Ken, thanks for everyone to be in the room to take interest in CN and also people on webcast. I wanna thank my old boss here, J.J. Ruest, who's in the room as well. He's grown a little beard here, so maybe when I retire, I do the same. Yes, we've been supportive of your conference, more so because we like Boston. No, I'm kidding. I'm kidding. I thought it would be good because you opened up with our investor day to just cap up, and hopefully, some of you in the room were able to participate and some on webcast. I thought it was a very good two days, and thank you, by the way, Ken, for participating yourself.
I thought I was gonna put that slide at where. You know, it kind of summarizes all the key targets that CN is gonna shoot for the next, for the next three years, from 2024 to 2025, and it's on our website for people that wanna take it with them, and so on. First of all, the key assumption here is we're assuming a supportive economy, and what we mean by that is that we are assuming an industrial production of at least 2%. That could be questioned as to whether we're gonna get there for 2024, but over the three years, that's what we're assuming. If you take that into consideration, then I think we feel comfortable that we will deliver 10%-15% EPS growth.
I think that's gonna be driven by growing our volumes more than the economy. If you remember, Ken, we had Doug and the commercial team go through a slew of very CN specific growth opportunities that are very exciting, that are very real. They're not all done. I think Doug was clear that 25% of those are currently under contract. There's still 75% to be done, you will agree with me that there's enough of them that I think we're comfortable that we will grow more than the economy. Now, some of these projects are in Western Canada, so we're gonna have to be very intentional about how we bring that growth to our network to make sure that it fits our capacity, so that you know what?
We don't oversell the network, and that we bring that top line growth to the bottom line. That's the key here. We will continue to invest in capacity in Western Canada with a view of capital efficiency. I went in detail to talk about this. Ed and the team going on the scheduled railroad. They double-clicked on that, him and Pat and Derek. I think it's clear that it provides a lot of customer value in terms of reliable service. We made the point as well that we're able to move more volume with less cars. With this in mind, I think we're comfortable that Doug and the team will be able to continue to price above rail inflation.
We are gonna continue to push on scheduled railroading, and Ed will talk a little bit about this today. We will use technology, and we do invest in technology at CN, not just for technology's sake, but to create value, to bring that scheduled railroad plan to the next level. On this, I think we're comfortable that we will be able to improve our margins on a year-over-year basis. You and I know that this is a tougher thing to do when volumes are, you know, get weaker. Over the three years, that's what we have set out as a target. From a CapEx standpoint, I think our CapEx is gonna inch up over the three years, starting at CAD 3.5 billion in 2024 to CAD 4 billion in 2026. This is not set in stone, okay?
This is a kind of a ballpark figure because some of that CapEx will be dependent upon some of these growth opportunities. If some of these growth opportunities do not materialize or you push them forward in time, then obviously we will adjust our CapEx accordingly. With this and with the capital efficiency I've just talked about, I think we're, you know, we have as a target and we're comfortable we'll deliver an ROIC of 15%-17% over the three-year period. We'll continue to generate shareholder value creation with a very consistent approach to capital allocation. We've grown, as you know, our dividends since we privatized in 1995, we'll continue to grow our dividends essentially in lines with earnings.
We'll use the share buyback as a very flexible and residual tool to get to our new leverage target level of 2.5 times. We'll do that over time. We're not gonna have jerky reaction, and we'll do that subject to economic conditions. That's the. I would finish to say that hopefully, people that participated could see the team, could see the fun that the team has. I think the service right now is humming and the team is gelling, and I think that bodes very well for CN for the next few years. On the short term, I'll shut up.
No, no.
You're looking.
We like you keep talking.
You're looking at me crooked a little bit.
He never shuts up, man.
I'll turn in French, you know, so.
I'm done.
On the short term, as you know, volumes are weakening, and we provide our volumes every week. If you look at our volumes at Q1, they were up 6%. When I talk volumes, always RTM because it's a better proxy. That was masked a little bit by a more normalized Canadian grain crop. When you look at April, our volumes were down 7%, and May month to date, they're down 9%. Negative 8% at Q2 to date, but if you adjust for grain, it's negative 14%. Obviously, the culprit, and you've heard Kevin talk a little bit before on intermodal. Intermodal, our volumes are down 26%, quarter to date. Some of it is some of the business that we curated, so it's not all economy, but definitely there's some there.
Domestic intermodal is down 16%. When you look at lumber is down 16% as well. If you see yesterday, the housing permits in the US came out, it deteriorated on a month-to-month basis by another 1.5%. Housing permits are down over 20% on a year-over-year basis. Lumber prices, I mean, they're low. I mean, they're very low. If you remember a few years ago, they were $1,600 US dollar per thousand board feet. They're now at $340. Canadian producers in Western Canada are losing money at those prices. We'll see, but bulk continues to be relatively strong. I think potash, we believe, is strong.
Frac sand, there's a little bit of a spring lull as we speak, but I think frac sand will be strong. Coal, with coal indices, both thermal and metallurgic, is way higher than the break-even point. That, we believe, will continue to be strong. Then we're counting on a good Canadian grain crop. I think it's early. You know, the seeding is happening as we speak. I think it looks good for now. People are starting to say that, and speculate to say that we should have at least a three-year average grain crop or maybe even a little bit better. We'll see. It's early. We'll monitor, but we're counting on a good grain crop. What we have in our view is, and in our forecast, is an average three year grain.
Now I'm an optimist, as you know, I'm trying to see signs that, you know, this thing is gonna turn around. I think in our view, we hope that this will turn around by the end of the year. You're starting to see a little bit of signs. When you look at blank sailings in Q1, they were up by 86 blank sailings and will be about 44 blank sailings in the second quarter, so half of it. Talk to our intermodal team. Our intermodal team, very close to our customers. They're telling us that the boats are fuller now than they were before, and I think there will be some inventory restocking in the second half of the year, specifically on school supplies and winter goods.
I'm hoping that, you know, intermodal is gonna come back better than it is now. Hopefully, we've hit bottom. Then, and then obviously bulk is continuing to be strong. Ed, do you wanna talk a little bit about the operation and what's happening in Western Canada related to what people are hearing on wildfires in the west?
Well, let me direct that a little bit more, right? Just 'cause Ed, we heard multiple times. I want you to answer that, but also we heard the plan is sacred so many times, right?
Right.
It was such a great to hear from Sienna that the focus, you know, is, is on the operating plan. Into your answer to Ghislain, also add in how easy was it to get back, you know, the system back, right? I mean, it. You know, you had the culture there, but it obviously veered away from it, and you brought it back fairly quickly.
Well, some of you may know I consulted there for a few months before I actually took the job from Tracy. I knew exactly what we needed to do, where we needed to look. This is not a long train railroad. Running trains 15,000-16,000 feet just to reduce train starts is an element of disaster. You can't do that across this railroad. Quite frankly, you can't do that across any railroad if you only have sidings that are averaging 12,000-13,000 feet. The first thing we did was to reduce the train length. Safer, quicker, more velocity. That was what I wanted out of the operation. We did that first and foremost. Secondly, when you originate a train at Canadian National, you start on time.
Mm-hmm.
That's the major guidance. That's the rule. Yesterday, I'm glad to report all of our major terminals had 100% on time departures. That's not an easy feat in this industry. Those of you that, you know, share my job or share what we do across the industry itself, that's a fantastic testament to a scheduled operation. Quite frankly, our scheduled operation focuses on the car, focuses on the merchandise car, focuses on safe transit, focuses on customer service. We wanna move the car as fast as we can. We wanna do it as safely as we know how to do it, and we wanna make sure our customers are happy in how we do it. That is the plan. That is our operating plan as it stands today. Ghis mentioned a little bit about the wildfires in Western Canada, Alberta specifically.
We probably took a 36-hour hit between Edmonton and Jasper.
Mm-hmm.
Once the fires were extinguished, we brought together our, what we call a Poseidon train, three or four tanks with a fire extinguisher type hose mechanism on it to water down the right of way. We also water our bridges, believe it or not.
Yeah.
We have sprinkler systems over our wood and trestles, and we keep the right of way wet. That cost us about 36 hours until we got our equipment in place. That fire moved very quickly, high winds. We had employees lose their homes who were helping out and trying to do what we can for the communities that were engaged. Right now, there's still a fire burning north of Prince George on our Slave Lake sub. We're shut down there for a short period of time, it looks like. Again, you know, if it isn't snow, if it isn't avalanches, now it's fire. We've learned how to deal with adversity. Our scheduled operation is resilient. While we lost 36 hours in one of our heaviest traveled corridors, we were back on track again two days.
Now with all this water going on a railroad, you go on the railroad and you think you're on a golf course.
Yeah. Well, you know, some of us like golfing too, so. You know, that's a tough way to railroad. It's tough to do that, but you have to protect your infrastructure.
Yeah.
We're doing that first and foremost while we're in the middle of our capital plans too, and our bulk work.
This is really interesting to me because, you know, we talk about getting back on plan, right? You know that the whole thing of, to me when I was growing up learning the business was scheduled railroading was it allows the network to take a hit, but then it gets back on track quickly. Is there something specific, how do you get things when, you know, whether it was floods or tornadoes that you just mentioned, all the things that hit the railroad, what has to happen to get the network back that others don't do that seems obvious to you?
Well, I've the only way I can respond to that is that our train dispatchers, our field officers, they know what the plan is. They know what it takes to get the plan back in shape. Yeah, we're delayed, and we take delays, but right behind the delays that we're taking, we're out there running 100% on-time departures again. That helps us regain our lost velocity. Actually, our train speeds are higher than they've ever been across CN's network now, and it's because of that resiliency to the plan itself. We all know what the plan requires us to do. We're ready to do that. May take a short-term delay, but it's soon forgotten about, and customers are notified when we do catch a delay, which they appreciate.
It's amazing how it's so obvious to you, and yet we see with the industry over the years where it gets out of whack and doesn't. Just, Ghislain, let me come back to you short term. You mentioned the car load's down, you know, double digits. You know, you called for a mild recession. Is this now looking worse than you thought when you talk about intermodal volumes being down 26%? I mean, these are phenomenal, you know, almost GFC type numbers when you look at some of the downside here.
I mean, it's definitely in what we were expecting. You know, as I said, as we said two weeks ago, I think we are in a mild recession. As you know, Ken, we did upgrade our guidance this year from low to mid-single digit DPS growth, but more so on the back of our solid Q1 performance. You know, yeah. I mean, it is, I mean, the volumes are down. I mean, I would be remiss to say that, you know, intermodal probably is a bit lower than what we expected. But there's some other counter effects involved that offsets it a little bit. Overall, it's still within the realm of our guidance a lot.
I think the key for us will be that, you know, there is some type of hit the bottom in the second and third quarter and then some type of going back up a little bit in the fourth quarter. I mean, that's what we're assuming right now. You know, I mean, in the short term, right now it's what we expected, maybe a little bit worse, especially in intermodal. As I said, we've got other commodities and other segments that, you know, partly offsets it.
All built in when you were thinking about that growth for 2024, 2026, this is the kind of environment or starting point.
Yeah. The starting point was the starting point that we had was that we would start with a mid-single digit DPS growth. That's our starting point to go forward.
Let's take it from volumes to pricing, right? I know you can't talk specifically on pricing, but maybe just help us, inform us, you know, because there's so many mix changes that you think about, whether it's even intra-commodity, right? Whether it's international intermodal, domestic intermodal, right? Maybe talk about how we should think about revenue per RTM and the impact on that and the loss of fuel, you know, as we go forward.
Yeah. When you look at revenue per RTM, and you and I have had this discussion many, many times, there's lots of different components that bring a lot of noise. There's FX in there. There's, to your point, there's a fuel lag. We said in Q1 that we had a positive fuel lag, as you remember, by about $0.10 in the first quarter. It was about 130 basis point to the OR. I think we're expecting a less favorable lag in the second quarter. We're still expecting a favorable lag, but less. I think that from a pricing standpoint, I think that we are in a great position. I don't think that at CN we've been in that position to get good pricing for a few years. It all relates to service.
I mean, I think we've made the point at Investor Day, first of all, how can you have a reliable service if you don't start your trains on time? Customers come to railroads for reliability. If you go Rupert to Chicago in 110 hours, do it 95%, 96%, 97% of the time. Don't tell me Rupert to Chicago in 90 hours and you do it only 50% of the time. The second is, I think we made the point that when you look at Q1, Ed and the team, they were able to move 6% more volume with 15,000 less cars.
Now if you're a, if you're a customer, and it's private equipment, and today about 60% of the cars active online are private and 40% is railroad, then they get the benefit of being able to either move more volume of those cars or return some of those cars to the lease. When Doug and the team goes and knocks on the door and says, "Hey, you know, I'd like to get a little bit more price because here's all the benefits you're getting from this, from this plan." Again, negotiating price was always, will always be difficult and will always be negotiation and so on and so forth, but I think now we've got more data points and more facts to put in front of the customer to get more pricing.
Doug, I must give it to him as a CMO, he's extremely focused on the bottom line. Extremely focused on the wrong. The last piece I would say, Ed, you can add to this, we look at all the contract renewals. They all come to this operating committee where Ed, myself, Tracy, we all look at the business, we all make sure that we have the resources, we have the capacity. We all look at the profitability, and we approve it. We are looking at this, all of us, with a view of taking that top line growth to the bottom line. We're bringing discipline to the system. Ed, you wanna add anything on that?
No, I think you make a really good point, and that's something that I think our operating counterparts don't think about so much. The better efficiencies we have, the less equipment we have on the railroad, allows us to run faster. We create more capacity, in other words. That equates out to velocity. Customers see that, especially our chemical and petroleum customers who have, you know, their fleet's all private. They're paying so much per mile and monthly charges. Now they don't need nearly as much fleet. We've had customers turn back equipment. That's a huge benefit to the railroad and to the customer.
Yeah.
We both benefit behind that. That helps us, keeps their yards fluid, keeps our operation fluid, and we've, you know, again, that's another plus to velocity. That's a really, really good point and important point that the capacity we create generates velocity. The faster we are, the less equipment we need. It's just a great cycle.
It's a great flywheel. Let's talk right into operating ratio, right? Sticking with that near term theme, before the bigger picture, usually you improve about 700 basis points from first quarter to second quarter. This year you had an easier winter as you noted. I know you don't give quarterly specifics, but, you know, is it something like just because the lack of a winter, lack of some of the other impacts, you could have half that normal impact? Is there a ballpark you'd throw out there?
The ballpark I would tell you is from a seasonality standpoint, we all know, especially because we're the railroad of the North, that Q1 typically is the quarter that we have the highest OR. From a seasonality standpoint, the quarter that we have the lowest OR typically is Q3. Now Q2, you still have some relic of the winter. It depends how it thaws in Western Canada and so on and so forth. It's a bit of in between. Q4, as you know, it depends when winter hits because there's some parts of our network where children goes trick or treating, you know, under snow. Depending on how the winter hits in Q4 then, you know, like, that impacts obviously the OR.
The other thing that I must mention that impacts the OR is the capital work that we do. Typically, again, when we do capital work, then we have those capital credit that helps on the operating side and helps on operating expenses. Typically, we do way less capital work in the winter. We do some in the South, but we don't do a lot of capital work under snow because it's just it doesn't make sense with capital efficiency and so on. The quarters where we do most capital work is, you know, starting mid Q2 and then Q3 we're full in. When you take that into consideration, that's why from a seasonality capital work standpoint, Q3 typically the less, Q1 the highest. You're right, we had a good winter this year, 61.5 OR.
Obviously, you know, Q2 and Q4 in between. That's the visibility I would provide.
I think we were better prepared for winter this year. While it may not have been as cold, we never broke a train line in, on the main track. We never set out. We never done any work on the main track. We had air repeater cars if we didn't have distributed power. We had air repeater cars that kept the air flowing through the train to keep the brakes activated. I mean, and shorter trains. The longer the train is, the harder it is to get the air through the train. Jumping into the short train philosophy and leaving on time and keeping that train on time and making the work events happen in the yards where you had support personnel, that was a big part of it. That was one of the reasons we were so successful this winter, I feel.
A little bit warmer, but look, a minus 30 is minus 30. I don't care where you're at. When it gets that cold it's hard to get air through a train.
I would say, Ed, every year, your team, the entire team looks at the winter, they do a postmortem, and they do a detailed winter plan of how can we improve on winter? Do we need more air repeater cars? Like, we're learning. Every winter there's something new. There's things new that happen and so on and so forth. He's right. From an operating standpoint, I think we operated extremely well versus other winters, let alone the weather.
Well, my postmortem is having been in Regina at minus 42, there's no need to go back at that time of the year.
We'll just bring you to Winnipeg instead.
Um-
Minus 40.
When Fahrenheit and Celsius meet, you're cold enough.
Exactly.
The, the big takeaway the, from the conference is the amount of CapEx rising, right? I think that was kinda really the thing that got to investors pretty quickly is, you know, that's a big difference. I think, you know, when we first started going through scheduled railroading, PSR, you know, the immediate benefits of, of being more efficient and not needing the capital and cars and locomotives and people was the ability to take CapEx down and overdid it because then you had so much stored, and then eventually storage stuff is you bring it back and there's not as much, and so you have to raise CapEx. I think to your level, you brought it back maybe higher than people thought.
Is there, you know, is this now the new normal at these upper teens levels? You mentioned we're not going back to the 24, 25 that we saw before. Are there other investments Kevin was talking about? Hey, we've got, you know, growth opportunities. Now does that mean there's potential where you scale or is that, you know, kind of all in your number?
No, I think I would be careful to say a norm because norm means that, you know. I think we review CapEx very carefully. I think it's important that, and it was important for us to be able to guide, that we will deliver an ROIC of 15%-17%. I think we've always said that the first use of cash would be for the business, and we have lots of these projects, most all of these projects that are, that have mid-teens IRR. And I think that, you know, we're very disciplined to monitor the benefits. We have internal audit going on big projects and doing post-completion audits on those, reporting directly to the board.
I think when you look at capacity in Western Canada, and I talked a little bit about this at the Investor Day, Western Canada is the gift that keeps on giving. If you listen to Tracy attended the RBC conference yesterday talking about the potential of Rupert, not only from an intermodal standpoint, but also from a multi-commodity standpoint, it's coming. We need to invest capacity year in, year out, year in, year out, recession or no recession. We know exactly where the pinch points are. We do this with a view of capital efficiency, meaning we need to have as close to zero leakage as possible and have 100% of our investments in the ground. You don't wanna build under snow.
You don't want engineering to do a ton of overtime where you pay time and a half. You do this, you monitor this, you make sure that Ed and transportation gives those engineering guys work blocks that they need to do the work. Then what you do is you sell to that capacity, and you do it year in, year out. In Western Canada, that's gonna be the case for the next years. I mean, that's the beauty of it. Like, don't chase the demand 'cause if you chase demand in Western Canada, we know you're not gonna be able to keep up, and what's gonna happen is you're gonna have that top line growth, but you won't be able to bring it to the bottom line.
When demand is higher than supply, Economics 101, you take the opportunity to get better price. On all the other projects, we look for, as I said, internal rates of return that are in the mid-teens, and we have a very disciplined approach to follow up on that return to make sure that it's there. Now, we're not always 100% right, and we make some mistakes, don't get me wrong, but I think overall, yes, it's inching up our CapEx. No, we're not gonna go back to levels of 2018 and 2019 because there's so much you can do. There's so much you can do. At one point, Brent Laing, our engineering guy, is gonna say, "Well, to finish this, I've gotta finish it under snow. I've gotta...
And here's the extra cost." no. Assume that, you know, in Western Canada, in this territory, you'll have snow, you know, in mid-October, and you can start building in mid-June. How much can you do during that time period? You have a rolling plan, a three-year rolling plan, and you continue, and you just do it like a factory. However, in Eastern Canada and in the South, we can really push more volume there because as you know, we have a lot of capacity, and we can accommodate that growth at very little CapEx. Go ahead.
Just on a roll. Love it. It's a lot of info. I appreciate it. Ed, you know, a big thing last year in the U.S. was the TCRC ability to hire and get where everybody needed to be. How is the network? Where are you now? Targets? Any difference you see in the U.S. portion, the Canadian portion?
I think with our early agreement in the U.S., we're staffed just right. I mean, our hiring is to take care of the attrition rate. We're hiring towards attrition in the U.S., everybody seems to be very envious of that hourly agreement that we worked so hard to get back in my first career at CN. That works out very well. It gives us a lot of flexibility with the crews and ability to do different things. Not to take advantage of them, but to get them home every night. That's all you hear anymore is quality of life. Canada, the Canadian work rest rules take effect in a couple weeks. We have prepared our staffs.
We've got Eastern Canada's fully scheduled to live within the Canadian work rest rules, which basically, if I can simplify it, after 60 hours, 64 hours of work, you gotta have me home in bed. Based on a 2-day off period for every five, we're perfect. Eastern Canada's done. Western Canada engineers are on a first in, first out basis, so they'll catch their mandatory rest based on when they're back home again. The only group left to schedule or work with a rotating board will be the conductors in Western Canada. I would say we're 75%-80% there with our, with our manpower as far as the scheduling conflict that we're gonna be looking at. Hiring, again, keeping up with attrition.
We have probably a higher rate of attrition in Canada than we do in the US, but we got an older workforce in Canada as well, too, and we've got to be ready for that. Those of you that were at Investor Day had a chance to go through our training center in Homewood. We have the same, exact same concept up at Winnipeg for the Canadian employees as well, too. You get very stringent training. It's almost a six-month period where they train, go out to the field, come back and train some more, qualify on their rules, qualify on their timetable understanding, and a very thorough process and works out very well for us.
Maybe your, this 60 hour, 64 hour, somebody could talk to our director of research about that.
Yeah, I'd like a little bit of that myself.
The new Falcon Network, teaming up with UNP and FXE. You know, maybe you could talk about where you see the opportunity timeframe. obviously, your peer came out of the gate, you know, announcing some announcements from what they had planned. You know, How you feel the progress is building up on this?
I think, and Ed can add to this. Let me open up. I think that we're very excited about that service. We started it, by the way, this week. I think that a couple of things, there's really three points. First of all, we do have a governance team with data sharing and looking at a daily scorecard to make sure that we work as a single line railroad between FXE, UP, CN. When you look at FXE, UP to Chicago and then CN, Chicago, Detroit, and then Eastern Canada, we do have almost a 300 mile route advantage. Ken, and you'll be well aware of this, you know, you rode the train, or you were on the train to go through the EJ&E.
We're the only railroad going through Chicago on our own tracks. We own the dispatching. When we decide when the light is green versus when the light is red, where other railroads may not be the one deciding this or will not be deciding this because they don't, they don't own the tracks and they don't own the dispatching. I think we're quite excited. I think there's a big opportunity. I'm, you know, but we're starting, and we'll start small. I think that the team is well engaged, and I think that, you know, to be able to have access to Mexico, you know, with this type of partnership with zero capital investments, you know, is just gravy. I think it's a win-win for all three companies, FXE, UP, and us.
I'm very excited. Ed, you wanna add anything?
Yeah, I would only add that we've been in contact with UP. We have our first joint operating meeting here in the next couple months after we get a few months under our belt. UP will be blocking the Canadian traffic on the rear end of their train when it gets into the Chicago gateway. Peeling that off within four hours, we're going either Toronto or Winnipeg with the rest of the traffic. We're looking forward to that opportunity. As Gis has said, coming around the J and our ability to get around Chicago, nobody can touch that. You know, when we're coming out of Yard Center with our train or with their interchange traffic, we're halfway to Toronto.
We've got just a couple minutes left. I want to make sure I dig back into some of the things you said originally with in your opening comments on intermodal, right? Being down as much as it is. You mentioned some of it was maybe culling some freight, some of it was economic, and then there was the hope. You know, hope is a tough one for us right on the turnaround that we're finding the floor. Does that mean you're not seeing any signs of finding that floor yet? Are you seeing signs?
I think we're seeing signs. I think when you look at the blank sailings, I think I'm seeing signs that this is gonna and there will be some inventory.
If blank sailings were in 2Q, wouldn't you have that double benefit in 2Q? Wouldn't you have seen that benefit instead of seeing accelerating losses?
I think we're seeing some benefit going into the second half of the year. I think we're hitting, I'm hoping, like, I don't know, like everybody that forecasts.
Right.
You know, economists, you know as well as me, they forecast very often and change in small increments 'cause they're never wrong. I'm hoping that we are seeing bottom and that we'll see a little bit of business coming back. The intermodal team, which I did not mention, they're working on some opportunities as where to try to get some market share on intermodal in the second half of the year as well. Maybe just there's a minute left, I'd like to-
Minute left.
I'd like to make a couple of points.
Go. I'm gonna let you make those points, but if I gather what I've heard so far.
Yeah.
Right? We've seen kind of, you said we're in a recession, volumes are down 8% to QRTM, looking for signs of that turnaround. Your operating ratio, kind of you get that improvement. It's solid in the second quarter, improves in, a bit more in the third quarter. Presume that means into the 50s. I'll let you go ahead and talk in terms of what your key points you want us to take away.
I think you're trying to put some words in my mouth. I was just going to.
Specifically.
I was just wanting to make a couple of points. The short term is the short term. I think this is not just happening to CN, but it's happening to the entire industry. It's happening to the world. I think that at the end of the day, as CN, you know, I've been through a couple of recessions before. You know, we get back on track. We're extremely well positioned to go through those very volatile times. We have the strongest balance sheet in the industry. I think, as we said, we're not gonna go and do jerky reactions and send a bunch of people home just to chase a couple of pennies in a quarter. We're gonna be ready for the rebound. We've said that, we're committed to that.
I think that we'll get out of that recession some way, shape, or form. Maybe, hopefully, I'm hoping it's gonna be by the end of the year. Maybe it's gonna be early 2024. I don't know. Nobody does. We're like everybody else. We're monitoring the environment. I think that from a longer term standpoint, I think CN is on a very good path. I think that I hope you could see that the team is having fun. The team is gelling. I think that we know that this scheduled operating plan works for CN. It works to improve customer service. I think we're having fun together. At the end of the day, it's all about people.
It's all about having the right, the right people in the right spots. I think that we're there. Then we have a great leader in Tracy. We had a great leader in JJ. He's now in retirement with a, with a beard. Maybe when I retire, I'll grow a beard back. Before I became CEO, I had one and I had to cut it. Now we have a good, you know, we have a good leader that's gonna bring CN to the next phase of where it needs to be, and I'm ecstatic to be part of it.
Ghislain, Ed, Stacy, thank you so much for your participation. Appreciate your thoughts.
Thank you.