Good morning, everyone. Thank you for the time. Pleasure to have you all here with us on the final day. Some of you might have been in the earlier session, but, again, we're saving the best for the last with the, the Canadian rails. We're really excited to have John here from Canadian Pacific Kansas City. It's been a remarkable journey for this group, over the last couple of years, for those of you who followed, the transformative transaction that's gone on. I'm going to let John give us just a few remarks, sort of a state of the nation to get started, and then we'll get into questions right afterwards. And then, of course, you can always follow up later with, the breakout afterwards. So with that, John-
All right.
Thanks for being here.
Steve, always a pleasure. Yep, honored to be here today to tell our story at CPKC. Let me start by saying thanks to the 20,000-plus CPKC family of employees out there that are battling every day to integrate these two great companies but also deliver to the results that this group certainly expects. You know what? As we sit here today, it is a transformative, unique combination. It creates a product in the marketplace, regardless of what is attempting to be replicated by our competitors that can't be replicated. It's a unique, seamless network that connects three countries, period. It's a one-stop shop. So, you know, we're getting close to our first-year anniversary here as we get towards April.
I can tell you, as you look at sort of how we finished 2023 and as I look at 2024, Steve, you know, I was super pleased with how we closed out Q4. We saw a nice inflection in the volumes. I think we had a really good operating environment, and we produced the results. You know, volumes grew at, I think, at around a 4% RTM clip, to close out the year. Then we moved into, obviously, Q1. We saw a little bit of a weather blip in January, but nothing that we, you know, aren't accustomed to in Canada, certainly. We battled through that. I think one week we were down about 20% RTMs during that, but it's rebounded nicely.
Super pleased with how the operating team has performed. February turned out to be a strong month. I want to say +8-9% RTMs with the extra day. And as I sit here today, you know, we talked about a quarter that would be flat, flattish RTMs to slightly down, and actually I'm seeing flattish to slightly up as more likely an outcome. So, you know, I feel good. It's a story about synergies. It's a story about putting these unique networks together and frankly, not counting on the macro to do a whole lot for us. If it does, that might be a little bit of a tailwind.
That's great. And so if we, if we take a step back and just think about some of the forces that have been driving this recovery, you know, is it, is it possible to sort of peel back what's, what's been macro-driven thus far versus, again, some of your own initiatives and the synergies that are starting to come together? Or is... Maybe speak to the category or two that you're finding as being that bit of upside surprise.
Yeah. Well, let me start by saying, I'd say it's definitely a self-help story. It is the synergies that has certainly, I would say, carried the day in Q4. We really saw a step up and a ramp-up of that run rate. You know, I think we closed the year from a synergy standpoint in excess of $350 million sort of annualized run rate. So a really strong position. And I look to have that be the story for 2024, Steve. Now, as we sit here today, there are some surprises. I would say that, you know, our grain business, both U.S. and Canada, continues to be strong. I would say somewhat what we planned for on the U.S. side, the Canadian side, a little stronger than we anticipated.
I do expect that sort of to have a tail, a little bit of a tail to it, but then be a little bit of a headwind for us yet in 2024 because of the drought condition in the southern part of Canada. We're a really busy railroad in our Western corridor as a whole. So think about that as being not only grain, potash, coal, but actually our international intermodal business has bounced back quite well. And I'm certainly trying to get a read from our customers if that's a short-term blip or something you know, maybe unexpected that we're gonna see going forward.
I can tell you, we're out in Long Beach meeting with a lot of them this week, and it's actually been pretty positive news about what the forward bookings look like in that area. So certainly international has been a little bit of a bright spot.
That's great. And so the visibility on that is still to be determined, I suppose, but managing both the outflow and the inflow is sort of a key part of the focus operationally, I imagine, in the short term.
Yeah. Yeah, absolutely. We... There's a lot of constructive tension around how much throughput we can put in that Western corridor right now to maximize that opportunity, and of course, continue to capitalize on the opportunities in and out of Mexico and with our synergies related to the transaction.
And if we think about the domestic side of the intermodal business, you guys have been very progressive in launching your own new service with 180, 181. You know, how do you think about that uptake thus far? And sort of how do you see that progressing through the course of the year?
It's the best service in the industry, Steve. It is truck-like. It's four days, Mexico to Chicago. It can't be beat, can't be replicated. I'll tell you, our border is secure. I'm super pleased, you know, as we looked at the transaction and understanding the amount of money and the effort KCS put into the relationship with Customs Border Control, with the Mexican government, with the State of Texas, it's paying dividends. It is a true differentiator as you think about our product relative to some of the other products in the marketplace. We have a fluid border. So that has been a catalyst to growing those volumes.
Just give you a little soundbite. We exited. Our February was up about 23% versus what we exited December in terms of volume on that train.
Mm.
So we've seen a nice step function, and the team just laid out 21 new opportunities that are gonna start up over the next 60 days on that train. So our partner, Schneider, is doing a heck of a job, but we've also seen a number of other customers step up, use the product, like the product.
Yeah.
You know, as I looked at 2024 as a whole around that product, it's gonna be a big year. I expect to get that train filled up.
That's exciting. I'd love to dig deeper on that one specifically.
Mm-hmm.
But I'd want to make sure we cover the broader portfolio. On the ECP side or the energy chem, you know, it was actually another period last year where we went through quite a subdued period, but that's also had quite the recovery. Do you wanna maybe speak to some of the drivers and how we think about that through the balance of 2024?
Yeah. My energy and ECP and merchandise sales and marketing team have been rock stars. It's been an area that, frankly, maybe uptake in some of the other synergy areas that we identified, maybe didn't happen as quickly as we thought, like Lázaro-
Mm-hmm.
Import, export. It's that, that single carload, onesie, twosies in that merchandise and ECP space that's overachieved.
Mm.
We've had some really nice... You know, we've talked publicly about our, our Shell contract win. The neat thing about that is, is really, that was towards the end of the year. The ramp-up, given some of the outages they had at their facilities, was quite slow, so we haven't even really seen the full benefit of, of that significant contract win. We're starting to. We'll see that ramp up through, through Q1, but, but that's not the only part of that, that story. We've, we've grown our, our business, as an example, down into the lumber business, down into the Texas market. It's just been a, a home run for us. That's an area where we're using existing assets, the land capacity that KCS had.
In the past, not having that line haul up into the markets really hindered their ability to grow it. They were fully dependent on a UP, a BN, a CN, another carrier to deliver that traffic into that market, where now they're not. We can control that. We can create the product at the destination to let that flourish, and that's what we're seeing in those areas.
That's great. Now, in the auto space, you've talked a lot about the potential to build sort of this closed-loop system or dedicated system for the, for the auto manufacturers. Is, is that playing out? How have you, how have you seen that come to fruition thus far?
It's definitely not a field of dreams. That, that's a reality. You know, as much as it was our vision in terms of an opportunity to create that tight-knit control, you know, with an OEM, just as CP standalone or KCS standalone, it couldn't work. What you ultimately need is a network of production facilities and destination compounds that can link those two networks together, and that's what we have at CPKC. Honestly, as much as I'm bullish about our intermodal product and some of our other, what we can drive the grain industry, if you think about the auto industry, that's an area where we can link the production in Mexico that's rapidly growing with our production in Southern Ontario, and again, create that closed loop.
And, you know, honestly, maybe it took a little bit of a crisis with all the vehicles left on ground and ready to be shipped last year, but we turned that crisis, I think, into an opportunity. And that's an area where I'll remind this group, you know, when we looked at our synergies in the art of the possible, really now going on three years ago, the auto area in that parts business was an area where it was long entrenched with some very standardized carriers, and we figured it would be very tough to sort of break into. And what we've found... And so sort of the synergies that were very back-end loaded in our mind, what has actually happened is we've pulled a lot of that forward.
In actuality, the desire for the OEMs to have another choice, to create optionality, to create competition, all the things we thought we would do, we just thought it was gonna be later in the journey, it's accelerated. So, you know, we're quite pleased. We're gonna see a significant step function in this business unit in 2024. You know, we set a record in 2023. I fully expect us to set a record in 2024. I'm excited about some things and discussions we've got in play for 2025. And then, a lot of the contracts or other contracts begin to roll over in 2026. So I think the auto story has a long tail to it, and it should be something that this group should be quite excited about.
... That's, that's fantastic. If we think about—I want to come back afterwards, just talk about the capabilities to handle the synergies being pulled forward.
Yeah.
Just sticking to some of the broader category topics first.
Mm-hmm.
You know, if you think about the bulk side, you mentioned grain already being maybe a little less worse or better than expected, but, you know, you had a lot of challenges last year in both potash and coal. Not so much on your side, but the customer side. And so, as you look into this year, do you, do you sort of foresee a more fluid network as it relates to sort of those two key bulk categories?
Yes. You know what? I was quite bullish in 2023 around that bulk business and our potash business. Things were set up well, and I feel what went wrong, went wrong. So, you know what? The Portland terminal, specifically for export potash with Canpotex, is back up and running. It's running well. It started up in December. We're actually working with Canpotex to do quite a surge into that terminal in Q2. So we're expecting big potash numbers. You know, as a whole, I think that market, the expectation is some modest growth finally in the potash market, and certainly we'll be well positioned to capture that. You know, Teck is well positioned. Prices are right.
They are, you know, pressuring us to move as much of that metallurgical coal as we can move today. So, you know, as much as maybe we see a little bit of headwind as you think about Canadian grain as we move forward, you definitely have the potential to offset some of that, if in fact, the potash and the coal delivers as we expect.
That's great. So let's go back then now to sort of thinking about the network. You know, you know, as much as a year ago, you were talking about-
Mm
The synergy potential as being, you know, certainly big, if not bigger than expected, but you were also tempering expectations about the pace you would want to bring that on at the risk of jeopardizing any service. So it sounds like you've been able to pull some of that forward. You know, how do you think about the network and its capability to handle the volume sort of flow this year?
Yeah. You know what? I would say, unlike maybe all the other rails, and certainly, if you know my boss, he hits home pretty hard on this, we're not going to oversell our capacity.
Mm-hmm.
As much as I want to capture every synergy out there, if we can't handle it, we fail the customer, we damage our product and reputation, that does us no good. We've seen that with others too much in the industry. So certainly, we're being very calculated on how we bring on this traffic. It's certainly a very collaborative effort, myself and Mike Foran and Mark Redd and John Orr, making sure that we actually can deliver and do what we say we're going to do. You know, that being said, yes, we have pulled ahead some opportunities, but there's been other opportunities that maybe have slipped back. So, you know, we're kinda constantly, Steve, sort of calibrating that cadence on-
Mm
... on how we bring on this traffic. You know, the good news is, you know, we talked about the intermodal. We launched that train. We still have a lot of capacity in that train. We can add a lot of boxes at a very low incremental cost.
Mm-hmm.
We don't need to add crews, we don't need to add train starts. All that will be very accretive to the margin, as we move through the year. You know, the automotive space, a little different area. There's an area where, you know, we hadn't planned to buy a bunch more auto racks. So maybe we've redeployed a little bit, you know, pulled capital away from one area that maybe is, maybe a little longer-term project, redeployed that capital, certainly worked with the customers to make sure we have the business to underpin those investments. And that'll help sort of drive, in that case, that automotive business as we move forward.
So if I think about sort of your description of the pattern of traffic that you're seeing thus far, we know that the comps will get a little bit easier as we move into summertime. We've got to lap some strike issues and a few different events. You know, if I tie it back to the guidance with a sort of a low single digit guide for the year, does it feel conservative at this point to you? How do you feel about, you know, the balance of the-
Well, I knew, I knew that, I knew that was coming. You know, I— Look, some of these trends have been so hard to predict over the last 24 months, to be honest with you. Let's not forget, we got 2 wars, we got 2 elections, a Mexican election, a U.S. election. I think we have a consumer out there that's still a little confused. Interest rates still maybe on the higher side. I'm not banking on the macro. And that's just simply how we've set this up. Perhaps, is it conservative? You know what? If some of these macro forces continue to play well, as we get to the back half of the year, yeah, I'd say that's gravy, and that's upside opportunity for us.
Mm-hmm.
You know, I think about it simply like this: My core focus right now, deliver the synergies. We do that, we'll double sort of our run rate of how we closed 2023. We'll deliver that low single digits based on that business.
Mm-hmm.
We're going to be intensely disciplined on our pricing. I still think there's some catch-up in some areas that we can get after. There's some you know, legacy KCS deals out there that have yet to totally roll over or are rolling over now, that we're getting a first crack at. But you know, we're taking the opportunity to reprice. And I'll remind you, my sellers are paid you know, based on how they deliver price in that. So it matters that they get an extra half point, quarter point in try to make the catch-up for the high inflation that we saw. So those are the core areas I'm focused in on. If the macro is a tailwind on top of that, well, that's upside.
... That'd be great. And it's just, I think it's a good segue into pricing. You know, you've been vocal about your ability to go, or the desire to go back and reprice some of that book. You know, I think you've described it as a process, though. It's not gonna happen all at once.
Yeah.
So is it, it's a 2-3-year process if a third repriced every year? How do you think how that plays out?
Kind of, Steve, but a couple of comments on that. You know, one is, as we develop some of these premium products, they, I believe, command a premium price. If we're making investments, we need to make sure we have the payback in those investments. So I would say we've been able to pull ahead and reprice certain segments of the business, on that basis.
Mm.
That's some upside. I'm quite pleased with how we closed out Q4 from a pricing perspective on the top end of what we would consider good.
Mm-hmm.
You know, that's Q4, so we're gonna see that tailwind as we move through 2024. And then I'll remind you, a lot of the KCS agreements were annual. A bigger percentage than what the legacy CP book might look like.
Mm-hmm.
There were a number of contracts that before we had control, maybe even out to sort of the end of May, had already been rolled over and, and renewed, that now we're kind of getting a first crack at.
I see.
So we're taking some opportunity to make sure that we're getting those pricing levels right. So it's kind of a combination of all those pieces that I think gives us a little bit of a tailwind there.
Okay. And just sticking to maybe to the Mexico topic briefly, there's been a lot of talk about congestion in Mexico. You send your SWAT team down there to deal with it, and there's been good reported progress thus far.
Mm.
I think that shows in, frankly, a lot of the speed and dwell metrics thus far, but-
Yep
... you know, if we look at the aggregate improvement in the network that we've seen, has a lot of that been improvement focused on the Mexico solution that you're providing, or where are you getting the benefits coming from?
Yeah. So first of all, many of you might know John Orr, who led the KCS operating team. John is solely focused on that Mexico operation. He's done a tremendous job with Jason Wilkerson down there, leading that team and improving that velocity. Certainly, we had some setbacks mid-last year down there, but we've come out of that strong. I can tell you, there's been a number of days we've set the all-time gross ton miles in a single-day record ever moved in and out of Mexico. So we're quite pleased with that, and frankly, we have to do it. The volume growth and opportunity down there is quite exciting. I can tell you, there's a lot of, though, what I would say, typical PSR principles that we're still working on down there.
How do we lengthen out trains? How do we put more rigidity in the first mile, last mile? We're working tightly with John and the team, the Mexico team down there right now, and doing kind of that whiteboarding. Well, you know, Keith and Hunter always talked about, you know, whiteboarding with the customers to really understand what their volumes and needs are. That was a big part of our transformation at CP in the day. We're taking that sort of same principle down to Mexico, spending time with those customers, understanding their facilities, and sort of squeezing out every bit of efficiency that we can get, but with that comes additional volume and opportunity. So we're working hard with the steel guys down there.
We've done a fair amount of work with the grain customers down there, and we'll systematically move customer by customer, region by region down there to continue to sort of drive efficiency into that Mexico product.
That's great. There's been a lot of talk about the election you referenced earlier.
Yep.
I know there's been talk about passenger rail, these things.
Yep.
I think Keith had suggested on the most recent call that he really doesn't see that as an impediment, irrespective of how the election plays out or the studies that you're conducting play out. I mean, how... Like, what gives you the confidence that you can manage that process, you know, from here forward?
Yeah, you know, I'd simply leave it at this: Whether it's the new leadership or AMLO and his team, they have been unwavering around their desire to have a world-class freight railroad system in Mexico. Now, complementary, where passenger makes sense, we'll see. It's gonna be a long process. We're into it with them. Again, the KCS legacy team did a tremendous job with those relationships. We're building upon those, and we'll take those step function movements with the administration and the new administration going forward to what that looks like.
But rest assured, whatever we do, we're aligned that if Mexico is gonna produce and do the things ultimately I believe the government wants it to do in terms of being a leader in production and industry in North America, they're gonna need a strong freight rail system to support that.
No, that's fair. And just want to think back to the resourcing side for a minute because, you know, referencing the volume opportunity that seems to be coming down the pipe. You know, I think last year you intentionally held on to some additional resources, sort of protect the service, and then traffic really suffered, of course.
Yep.
You know, now that we're getting into this recovery mode, how do you feel about your resourcing today from, like, a labor standpoint or in balance the network?
Yeah, You know what? I think, not that there's not, hot spots, here and there, Steve, and certainly, as I mentioned, we're quite busy in our Western corridor. But because of some of the actions we took last year, I think it sets us up as some of these businesses rebound in 2024, to be able to, again, add the business at a very low incremental cost with not a lot of additional locomotives or head count. Now, certainly, if this thing, I was laughing earlier, you know, we're moving 25% more international, and the industry wants us to move 45% more.
If we see that trend continue across a number of lines of businesses, obviously, we'll have to react in whether it add crews or power in certain areas, we'll do that. Right now, we think we're set up in pretty good position, though.
... That's great. And then just as we think about, you know, the one last piece I didn't get to touch on earlier, I want to circle back to, but you talked about this refrigerated market opportunity. It's been one you've got some good partners with. I mean, maybe just speak to what that has started to show from a network standpoint. I know it ties back into your broader synergy targets, but, you know, how do you feel about that opportunity specifically, and where do you see it evolving?
Honestly, it's sort of, it's not a secret, but it's our best-kept secret. It's a... I see it as a $500 million plus opportunity into the future. We are creating a complete ecosystem when it comes to food certainty, food security, cold storage, temperature controlled. You know, obviously, we've partnered publicly with Americold. We're super excited about the 300,000+ sq ft facility that they're going to be building in our ramp in Kansas City, direct access to our intermodal terminal. You know, a neat thing about that, we've been working with Customs and Border Control. We're actually going to have Mexico Customs physically located in the facility to be able to pre-clear, to make, again, our border completely seamless for this product, moving southbound into Mexico.
But it honestly, it is just the first step. We just inked a deal to build a similar type facility in the Toronto market. I've got good line of sight to another one in Eastern Canada. And as Americold has said, I think they fully expect to expand their footprint down into Mexico. So I can see, you know, this is sort of... I think, I tell my team, these industrial development opportunities are kind of this gift that keeps on giving. We create a product, we sell it, we partner with the right partners in the marketplace. You create this infrastructure, and it makes it real sticky, and it makes it real sticky long term.
Mm-hmm.
So, you know, these are opportunities that, as you start to think about your investment in CPKC, that these aren't next year, these are start to develop and really see the benefits of it as you get out into 2025 and 2026 and 2027 and beyond.
No, that's great. I think, I think Keith said it really well a few times in the past, you know, you're 100 days into a forever story.
Yeah.
You're approaching the 1-year mark into this forever story.
Mm.
It's really going to be exciting to watch you guys continue to grow here for the next couple of years. We're running out of time, so we're going to cut it off there. But just really appreciate the time. Looking forward to watching you guys grow, manage the growth. It's going to be a great time forward.
All right. Thank you.
Appreciate the time.
Yep.
Break out-