Comfortable, pick your spot, and don't forget to ask questions. Very happy to kick off today with CPKC and have CEO Keith Creel and Chris de Bruin from IR with us today. CP is arguably the best idiosyncratic story in our coverage. I think I've been saying that for the last three Laguna Niguel in a row, which kind of tells you how enduring and structural the transaction was and the thesis is. I think no better way to kick off than with CP. Before I do, though, please note that research disclosures are available on our website, morganstanley.com/researchdisclosures.
Please read these disclosures, and again, I'll turn it over to you guys, for Q&A, towards the end of the session. So with that, Keith, thanks so much for joining us. Maybe we can start with the topic du jour, which is the labor situation kind of in Canada. Obviously, a lot of headlines back and forth, fast-moving developments in the month of August. So for those who may not have been keeping track or on vacation last month, can you just kind of bring us up to speed on where we are, what are the next steps, and where we go from here?
Well, everyone, thanks for the opportunity for the next three years. Let me say this, the labor situation in Canada is stabilized. There's an unfortunate work stoppage, 'cause kind of the pressure has been building up for quite some time. We've been negotiating with TCRC, as has Canadian National. What was unique this time is it was both railroads. They were aligned at the same time, first time in three decades of my railroading this ever occurred. So essentially, with the strike, the country was shut down, all rail transit, for four days.
Mm-hmm.
You know, the Minister of Labor got involved, initiated a directive to this Canadian Industrial Relations Board to mandate the parties back to binding arbitration, and we all went back to work. That said, at this time, you know, we're in the process of working with the Federal Mediation Office. They have to appoint an arbitrator. Once an arbitrator is assigned, binding arbitration, which is what we had voluntarily agreed to prior to the work stoppage, will occur.
Mm-hmm
... as it has in the last several work stoppages or work differences over the last rounds of negotiations with this one specific union. So we think that leads us to a place towards the end of this year, first part of next year, we'll get a binding contract. We're advocating for a term of three years.
Mm-hmm.
That's up to the arbitrator. Obviously, it could be shorter, it could be longer, but that's certainly kind of the zip code that we're aiming for, and I think that gives the country and gives the parties time to create some labor stability, which our customers need, the country needs, and get beyond maybe some of our differences, and hopefully get to a better place, so we can actually negotiate an agreement.
Got it. I think you had said that your guidance includes about two weeks of a potential labor disruption. Maybe there is going to be some impact on the third quarter, kind of from the stoppage itself. Kind of, how do we think about dimensioning that?
You know, obviously, we said we were prepared to take about a two-week strike. In the absence of something being longer, it was not gonna affect our guidance. I would say, given it was four days, I feel even more strongly about it.
Mm-hmm.
Not the same impact that we had anticipated, certainly still an impact. Quarter to date, we're up about 6%. If it were not for the strike, I would say, you know, add one or two points to that.
Mm-hmm.
So it shaved a little bit on the revenue side. On the cost side, though, there's some wind down costs, startup costs, but kind of net neutral. I don't think it's material. So at the end of the day, our guidance is not in jeopardy. In fact, I think, you know, probably feel a lot more strongly than I did before. Very convicted about the opportunity. We're gonna have a strong quarter. We're gonna close with a strong year and sets us up well for a strong 2025 as well.
That's great. And maybe last question on this topic. Any way to dimension the potential outcomes of the arbitration, kind of, you know, in terms of an inflation number or something?
Yeah, no, typically, the way the arbitrations work in Canada, you're gonna be bound by other awards and other trends and patterns that have been set, because effectively, you know, you've got to be fair to the other employees and the other unions, when the arbitrator weighs all these things into account. So-
Yep
... we've accrued and expected something around a 4% number. That's what we've accrued for. Could be a little less, could be a little more, but I think probably in that zip code is likely where it's gonna be. So again, that's what we planned for, that's what we anticipate, and I don't think it's gonna change much from that.
Understood. So obviously, given the disruption itself, there has been some impact on volumes. How do we think about the catch-up of the diverted volumes? Kind of, when do we see that? Kind of, has some of it moved to the U.S.? Is there a pent-up demand there?
Yeah, I would say we were very methodical and intentional, you know, kind of back up. We expected the strike to occur in May.
Mm-hmm.
It got delayed a bit. Our network, we prepared for that. We're in very good shape. We went into the strike in very good shape, and we've bounced back very quickly. The operating team has done a phenomenal job bouncing back with our customers. Our car miles per car day, all of our metrics, they're normalizing now. We're two weeks out of the strike, and the network essentially is caught up. There's some revenue we won't get back, some went on the highway, some was struck. Obviously, in some, when it comes to some of our commodities, be it coal, be it potash, the cycle times have not normalized yet. They're in the process of doing that. Some of that will be pushed forward, but as far as pent-up demand, we've got strong demand. Our customers are happy.
We've bounced back very quickly, and I think we're getting back into a very good rhythm, running a very fluid network.
Got it, so great segue to my next topic, which is just the underlying level of demand. Obviously, kind of as Mark Midkiff put in his opening remarks, it's been kind of two years of just kind of steady, feels like nothing's been happening, but then it's not terrible, but it's not great either. Are you seeing any signs of life out there in terms of kind of either intermodal volumes or any other end markets?
Ours is a unique story, Ravi. So as you've said, at a macro level, we're experiencing some of the same things everyone else is. There's uncertainty at a macro level, but at a micro level, because of what we're doing.
Mm-hmm.
putting these two railroads together, creating, these unique revenue streams, winning market share, creating new products, we're just in a different place.
Yep.
So we've got, you know, if I look at the demand standpoint now, and I look forward, and this is true for 2025, in spite of what the macro might do, we've got strong demand. We're leading the industry in automotive. You know, we had a record year in 2023 in automotive. We're going to have a record year in 2024, and with contracts that we've already got locked in, wins that we've already made that come online in 2025, we can't talk about yet. We're going to bring the high watermark up again. So this network, from an automotive standpoint, is truly, truly becoming. It offers a premium service, a premium product, and we're being rewarded for it in the marketplace. If you get to intermodal, specifically domestic intermodal, we talked a lot about 180 and 181.
And just for those of you that don't know, it's an industry-leading truck-competitive. It actually is faster than the truck and more reliable than the truck service that we put into play, originating a train out of Chicago every day, going to central Mexico, going to the Monterrey markets, going down to the Mexico City markets, and it's four-day transit time, so a truck can't beat it. That particular service, just since the end of the year, has grown 60%. August was a record month, and this is in spite of a challenging macro and an oversupply of truck capacity.
Right.
The issue is speed of service, reliability, and creating an environment where, from a safety perspective and from a transit perspective, that Mexican border, the U.S.-Mexican border, is transparent.
Mm-hmm.
It can't be replicated. We're the only network that can do it. It's best in class, and it's being rewarded, and it's continuing to grow. So it's, you know, it's automotive parts. We've got automotive parts for Honda, we've got automotive parts for Ford that are riding that train today. Those are plant shutdowns, stuff that typically rides trucks, hasn't ridden the rail because of the reliability and the risk of the railroads not getting the product to the market to shut the lines down. It's riding that train.
Mm-hmm.
So it's creating an ecosystem of reliability that you're stacking auto parts, you're stacking refrigerated goods. Next year, that specific train, you've got Americold. We've talked about Americold. It's a very strategic contract we signed with one of the world's leading cold storage providers.
Mm-hmm.
They're physically building their plant, their location, their warehouse, their cold storage warehouse on our facility in Kansas City. That started a couple of months ago. I was at the groundbreaking ceremony. Steel's being erected, concrete's being poured. That's coming online next year. Once that comes online, that's another tranche of business. And then the other very exciting opportunity, which we do not even envision when we started this, is now connecting the Southeast US. As we get to, and I hope, soon get a decision from the STB relative to our MNBR transaction to create that gateway with CSX and CPKC to Mexico, to the Dallas markets. That's a whole another opportunity that equals and parallels a lot of the moves that are being made out of Chicago going into the Dallas markets or the Texas markets to ride that train.
So that train continues to grow, and it will, because it's a premium product, and it's needed.
Yep.
It's necessary. The other place that we're doing extremely well in is ECP and merchandise.
Mm-hmm.
Again, thinking about eliminating interchanges, three to two moves, two to one moves, extending length of haul, taking products out of Alberta, energy, chemicals, plastics, taking them into Mexico, taking renewable diesel fuels in the Gulf back into Canada. There are so many moves that are based on the value of the transit time, car cycle times, and service reliability that we're converting. I think I looked at it yesterday from a synergy standpoint, just in ECP alone, we're going to finish this year, and this is with contract wins, singles and doubles, five-car shipments, bigger shipments. We're talking about CAD 200 million of synergy revenue just in that space alone, and that's going to continue to grow. There's line of sight to probably another CAD 50 million-CAD 75 million just in that group for 2025.
So again, these are early stages, early innings. We're 18, 17 months old.
Right.
And we're building a forever network, and we're creating an ecosystem that's never been possible before, in this industry. So we're becoming the most relevant rail network, that enables growth, and that's the reason you see us at 6% RTM growth. It's all about extending length of hauls. It's not obsessed with our units, because on units, we're down, but we're down because of short-haul intermodal business.
Sure.
We're not, we're not hauling anymore. That's a hundred and seventy-five thousand headwind. We lapped that in Q4.
Mm-hmm.
There's a lot of demand for our product. We're going to continue to be on track for renewal. We're going to continue to grow the network. We're not going to allow our appetite for growth to exceed our capacity to handle it, because that's the recipe of running the railway we do in a very profitable and reliable way, and we're going to carry that momentum into 2025.
Got it. Great color there, kind of lots to unpack. But before we go into the micro opportunities, just on the macro side itself, kind of obviously, kind of given that uncertainty that's out there, do you feel like it's just continued kind of, you know, uncertainty, or do you see any signs of green shoots kind of going into 2025?
You know, I guess it depends on line of sight. I think, in all honesty, this election is a lot of people sees what's the Fed going to do? So I don't see a lot of clarity on the macro until probably we get beyond the election.
Mm-hmm.
But I do still see stability. Again, if I look at our products, and I'm a bit biased, we've got a lot of demand out there. So again, I'm focused on our story, our opportunities. I think we're in a very unique place. I think macro is going to be stable. I don't know if we're going to have a runaway with GDP, but
Mm-hmm.
In spite of that, we're still going to produce industry-leading results based on that growth opportunity that nobody else has.
Right, and just kind of going into some of those micro opportunities. Obviously, on the intermodal side, 60% growth in this macro is really impressive. How much runway do you have there? How much capacity is there? Kind of how much, you know, capital do you need to put in that network, kind of, as the volumes do come back and you do continue to take shares?
Yeah, well, I think about capacity. I think that one particular train, you know, the train, I think about a 10,000-foot train pair, and that train's running on average 6,700 feet.
Mm-hmm.
So there's quite a bit of room still left to grow on the train. So we're in a good place there from a capacity standpoint. The money that we've committed to invest as part of our transaction, we're well ahead on track of that. And in fact, from a capacity standpoint, the Laredo Bridge is coming online fourth quarter. It soon will be there. There's an additional $75 million of investment that we targeted in Mexico that was not part of our submission, which came as a result of some of the service challenges we had last year with, you know, with the response team we sent down. We identified six, seven different, what I call, bottlenecks-
Mm-hmm.
that we poured capital into to eliminate. That's all essentially driven by the need for speed. To turn assets faster, more locomotive productivity, you know, places that have forever in Mexico been capacity constrained, because perhaps, like Salinas Victoria is a great place, very busy intermodal terminal, a lot of growth coming. Trains literally stopped while trains worked ahead and sat there and watched, switch in, switch out. It's painful.
Yep.
When you got an asset sitting there, and you got two or three trains waiting on a train to work ahead, well, spend some money, buy some land, build some, invest some capital, build bypass tracks, faster leads, faster turnouts, and it's all about speed. When you start turning those assets, you don't need as many locomotives. When you do, you've got them in your back pocket for additional growth.
Yep.
You've got more track capacity, crew capacity. So again, we're in early stages in optimizing the Mexican network, but again, those six or seven projects will come online by the end of this year.
Mm-hmm.
We'll start to reap the benefits from them next year.
Got it. And just kind of on new customer openings at the Miracle facility, kind of automotive plants, like, is this something where you have, like, a clear line of sight over the next eighteen months? You're like, you know, "Hey, January, gonna get this, February, gonna get this," and kind of, you know, and you get, like, later updates? Or just trying to get a sense of how much visibility you have, kind of, as your customers kind of put those products on bringing them online.
Yeah. So any, Ravi, the way we do this, any major needle-moving project that requires capital, we're very methodical.
Mm-hmm.
Because it has to fit the network. Again, don't oversubscribe. So that automotive piece, kind of the linchpin that has accelerated the integration of the automotive closed loop system, is building that compound in Wylie. We finished it, turned it over in less than a year. It would open in June.
Mm-hmm.
We're actually gonna host investors, I think there next Monday night. Is that correct? Showcase it. It's a beautiful facility, 30 acres, but the beauty of it is, there's, it's literally almost sold out, or we have additional OEMs that are interested in the concept, as those contracts that they're locked up in come open in 2025 and 2026. There's another tranche of opportunities to feed into that Dallas market, and we've got 500 acres adjacent to it to expand into. It's truly an opportunity that's unique in my career, where you literally can sit there and say, "These are the pieces of the puzzle." You start putting it all together. You methodically map it out. You don't get ahead of yourself.
You make sure you match it up with your capital investments, your ability to deploy that money, your ability to execute the projects, and you start connecting the dots. You know, again, automotive, there's one of the particular automotive contracts we've already negotiated for next year-
Mm-hmm
- with an OEM. The rates change for this year, but the market share wins come on next year.
Right.
We already have that planned in the model.
Mm-hmm.
So again, that kind of methodical approach is truly what PSR is all about.
Yep.
It's about building a model. It's about being able to turn assets. It's a very methodical, disciplined approach, but it allows you to provide a great service. You don't oversubscribe your network, you control your cost, and in the end, you're able to to drive significant operating income, that low margin business, and you plow the money back into creating capacity and rewarding your shareholders. And that's all, that's, that's how we create value. That's kind of the, the method of the madness, and the secret sauce of the discipline, and it works extremely well.
Understood. I mean, yeah, if obviously you guys have made a machine that works, and so on. Once it's working, it looks great. Kind of just on that machine, kind of the $5 billion pipeline of business that you gave us at the Investor Day, I know I'm just being a greedy sell-side analyst here, but kind of just given your wins and, you know, the way you rattled off kind of all the new volumes coming on, is there an opportunity to kind of revisit that and potentially upsize it kind of in the out years, or kind of drive the conversion higher? Or kind of how are you looking at how that number is evolving?
I think we've got a pretty compelling plan we put out there through 2028 that's gonna... You know, essentially, if you look at a revenue basis, we said at that time period, it's about $1.5 billion of synergies.
Yep.
CAD 200-CAD 300 million of that is operating synergies that naturally fall out. The balance is driven by revenue growth. Do we have a chance to overachieve? The answer is yes, we do.
Mm-hmm.
I think we have a responsibility to be conservative and be realistic, which we've done, but quite frankly, you know, automotive is a great example. We thought that was coming in 2026 and 2027, based on our ability to compete for contracts that we know are coming up in 2026 and 2027. I think we pegged that at CAD 250 million of revenue synergies. We're gonna hit that number this year, and those contracts haven't even opened yet.
Yep.
So I'm not gonna tell you we can't. I'm gonna tell you that we're gonna be disciplined about it, and we've got to make sure the network will handle it.
Yep.
But we certainly are building something that has balance of probability more likely to overachieve than just meet expectations. We certainly intend to overachieve. But as far as moving the pin, we'll stick to what we've committed to for now. You know, maybe a year from now, a year and a half, I'll give you a different answer when I get a little bit more clarity, and I know what the macro is doing. We feel very confident about that guidance, and I do feel confident that we're in a position to overachieve.
Understood. Maybe last question on volumes. Obviously, the labor disruption in Canada has been a bit of a setback in the short term, but there's a potential for East Coast U.S. port labor disruptions later this year as well. Is that potentially an opportunity? Are you maybe seeing some benefits on the East Coast of your network, kind of, with some share gains as a result?
Yeah, no, I think the opportunity from that, for us, is more about, customers' willingness to consider diversification of their supply chain. So historically, customers were burned on the West Coast. They shifted some to the East Coast. Now they might get burned on the East Coast, we shift some back to the West Coast, well, there's a value play.
Mm-hmm.
Since all this shifting has occurred, we've talked about Lázaro Cárdenas. We've talked about... It's a port that is one of the most advanced ports in Mexico. It's got two million TEU capacity now. It's running at 50% capacity. It has sustained and enjoying the greatest growth in Mexican ports.
Right.
Primarily domestic, but that's where we introduced this international project. So what's happened is we've had much more interest from the Costcos of the world, the Home Depots of the world, Toyotas of the world, big players that move products that have to get to shelves or to automotive facilities that have test moves on the water now.
Mm-hmm
... to Lázaro, to feed Texas markets, which may have been fed East Coast or may have been fed West Coast. That whole concept is starting to get legs and starting to gain traction. I think, in all honesty, the East Coast has made those customers more willing to say, "You know what? Let's try it out." And once they try it out, it works extremely well.
Right.
It's extremely reliable. The reliability, the transit times, the distance from the port, the transit time of the port, from ship to rail car, to our terminal in Kendleton, Texas, or our terminal in Wylie, it's, it's unparalleled. It shaves time off ships, and it gives the customer a reliable transit. So once they experience it, it's going to be hard. When you know it works, you eliminate the risk from the trial moves, it's going to grow. It's going to be much like what happened in, and I said this a long time ago, like Prince Rupert.
Yep.
Prince Rupert, you had to crawl before you walk, you had to walk before you ran, but I would say it's compelling.
Yep.
Back then, I was involved in all that. There were a lot of naysayers and people that didn't believe.
Mm-hmm.
There's space for both ports to do well.
Right.
LA Long Beach is going to do well. East Coast is going to do well. This is going to serve the market, to meet the premium products that need to get to shelves, that they need to get to market, and we're going to be able to carve out our little niche that's going to be extremely valuable for the shipper and valuable for the railroad.
Understood. Maybe switching gears and talking about pricing. I think you said that, you know, pricing has been catching up with some previous, some broader cost inflation. Obviously, it's a very inflationary market, kind of, for everybody out there, but you also have the best product, right? So to what extent are you able to, A, monetize that product that you have to cover inflation, but also, the rest of the market is not standing still, right? I mean, obviously, other rails are going to be more competitive on price because their product is not as good. Trucking is very competitive out there. So, kind of, what's the net of all this?
I think it's. You know, the thesis is that's why we're leading the industry in price, because there is, it's not just, you know, raising price, it's the value of the service, it's repricing the book of business that, quite frankly, before with KCS, because they were a railroad that went to interchanges.
Yep.
With the extended length of haul, there's value in that.
Mm-hmm.
So that's allowing us, again, to lead the industry in the pricing story. I think quarter to date, same store book, we're over 5%. If you back out multiyear contracts, that's closer to 6%. So, you know, again, that's pretty compelling.
Yep.
It's certainly beating cost of inflation, and the reality is, it's a value sale.
Mm-hmm.
I can think about one particular opportunity I've talked about, repricing the book of business for the value of the product. Car loads are up 6%-7%. Revenue in that particular space is up double digits, and it's all because of repricing for the value of the product.
Mm-hmm.
We're going to earn cost to capital. We're going to allow you to save money. When we do that, we give you guaranteed car supply. You win, we win, we share in the winnings. That's the value proposition.
Right.
If you've got a product to sell, that's what's unique about this network. We have something new to sell, something that, because of our track record of reliability, our customers trust us, our new customers are learning to trust us. Quite frankly, supply chain reliability, more than ever, there's value in that.
Right.
There's value in being able to know when you lay your head at night, if you're responsible to run an assembly line, that your supply chain partner is going to get the product there.
Yep
... that's required to run the assembly line. You don't have to pay 20% more to the truck. You have a railroad that's truck-like reliable. You're willing to pay a premium for that, more so than what just standard, you know, inflation adjustments every year, at 2% or 3% that... You know, it matters.
Yep.
It covers your cost inflation, but it doesn't get you really excited-
Right
... you know, relative to this opportunity. This opportunity gets you excited.
Got it. Just kind of to wrap all that up in a bow, right? I think you clearly have a lot of opportunity for volume growth out there. You've also spoken a lot about balancing that with what the network can handle and making sure that, kind of, there are no disruptions there. How do we think about... And this is an issue where, kind of, you know, it, it's a challenging problem to face, right? I mean, if you have too much growth, kind of, how do you handle it? What's your philosophy to that? And, kind of, as investors, kind of, how do we think about your approach to growth versus profitability, versus OR, versus an ROIC? Kind of, what's the North Star here?
... to me, there's a principle: low cost, sustainable growth. That's something that's been drilled in my head for twenty-five years.
Mm-hmm.
You can't let your appetite for growth oversubscribe your capacity. So again, it's in that recipe of knowing what capacity your network has. You sell to that capacity. You have to have a very disciplined, measured approach to understanding how many cars, locomotives, people, what you need to be able to turn and provide that service. And if you do that, there's value in that, and you're able to grow your customer because your customer trusts you. Then you're able to do strategic things with your customer, like what we're talking about in automotive. To have a customer backstop the investment, to move as quickly as we moved, building that facility in Wylie. We did the same thing in Vancouver when we started monetizing our land assets to create stickiness for the customer, creates a unique supply chain solution.
There's reliability and value in it for the customer, there's value in it for us. It's a strategic partnership.
Yep.
So again, we're very well positioned, and that's been the playbook. That's been the strategy at CP. It's going to be the strategy at this network. Quite frankly, it is the right way to run any business. We have a responsibility to grow. We have to make money to invest back in these hardened assets to be able to continue to create capacity to grow. But when you pick your partners wisely, you have strategic partners, and they win, we win. That's kind of the way it works. It's not any more complicated than that, but at the same time, it requires discipline.
Yep, absolutely. Maybe one more from me before I open up to the audience. Obviously, nearshoring is a very big part of your pipeline, and probably one of the kind of hardest secular trends in industrials and cyclicals over the next decade. How would you characterize kind of how that's shaping up? Obviously, we had an election in Mexico a few months ago, with quite a meaningful victory for one party that, you know, that has a broad control there. What have your conversations been like, kind of on nearshoring with your customers? Has anything changed or in other direction?
You know what? They're still. We're in such a unique position in Mexico. Mexico has grown, and listen, they've had an election, and there's all kinds of headline discussions about what may or may not happen in their reform. Listen, they're a sovereign country. They're going to do what's best for Mexico. I think that KCS did a phenomenal job of recognizing that and working with the government, and we've kind of personally picked up the same approach. To me, understand what the government needs, understand what's important to the government and what this government needs, and I think even more so with the election change with President-elect Sheinbaum, she is focused on continued growth. She's focused on manufacturing jobs, improving middle income, you know, bringing people out of poverty. She's also focused on the environment. She understands...
She's an environmental scientist.
Mm-hmm.
The discussions we've had with her, we met with her as, as the president-elect before she won the election, spent a day with her in our operations center in Monterrey back in January. And one of the compelling messages, and she said it publicly, and she said it privately: "We need to take trucks off the road. We need to create capacity. We need to do what's right for the environment. We're kind of landlocked." President AMLO told me the same thing. That's the reason this whole passenger initiative came up.
Mm-hmm.
They're out of space on their highways for people to move-
Yep
between city to city, much like some of our interstate systems itself, times ten.
Mm-hmm.
Because there's a lot of people in Mexico and a lot of trucks in Mexico. So when she's speaking and thinking about truck regulation, she's thinking about the policy changes that have to be made that incent and organize an industry to shift. So she knows, in the conversations I've had with her team and with the existing people that are leading the agencies now, is, "Listen, we can be part of the solution.
Mm-hmm.
We protect freight capacity. We can do passenger trains. We have experience doing both. We've built the right infrastructure. Not only do you create a passenger train to get cars off the road, you create a railway with the capacity to take trucks off the road. That's a win-win.
Yep.
And that resonates. So those kind of initiatives, when you hear her speak, she's speaking to those things. So again, I'm not going to comment on the politics. I'm just going to say that I think working with her and her administration, if they recognize those key facts of the social needs they have in Mexico, which align with our rail capacity, I think that's a great place to be in, and especially when we connect those key markets, Mexico City, all the way up to Monterrey, and everything in between, I think we're in a great place to partner with the government, and lead to a good outcome for Mexico and a great outcome for our rail network.
Where are we on the passenger service? I think the last comments you put out, you almost sounded excited about it, so, you know, is that-
Yeah, no, I went back to Mexico and met with the Secretary of Interior probably six weeks ago. We presented the study. There's some additional information that was requested, which we continue to work with them.
Mm-hmm.
Quite frankly, the last place we've left it at which, again, we're going to go through a leadership transition, I would expect soon after she takes control, I'll be going back to meet and pick the file back up with her. But I think it's leading to a place of looking at building a separate rail line adjacent to on our right of way with our freight tracks.
Yep.
So right now, we have double tracks coming out of Mexico City, going up to Querétaro, which is the key focus right now.
Yep.
There's enough right of way there in most all locations to add a third track, which would essentially be dedicated to passenger. So a lot of work between here and now. It's going to cost a lot of money to do it, but it's a true social need. It's a true social problem that I think this government sees with solving. So I think it may take a little time. It's going to take several years to get there, but I think there's a path where it might actually become reality, and I think we're going to be in a good place when we do it.
Understood. Any questions from the audience?
... Thanks. You talked a little bit about the intermodal opportunity earlier, clearly with the cross-border, but just curious if you could parse out a little bit. You know, how much of what we've seen to date in terms of the growth is kind of low-hanging fruit versus-
Yeah.
What might be a little bit harder fought for? Is there still a bunch of low-hanging fruit, you just need the capacity for it, which you mentioned earlier? Just wondering if you could parse that out a little bit more for us.
Yeah. I, I wouldn't say it's low-hanging fruit because you've got, you know, you've got a very challenged overcapacity subscribed truck market. So you know, it's, it's in spite of that, we've won this business because of the reliability and the speed, but there's many more chapters in it. You know, there's a lot of. I mentioned auto parts. Typically, what's happened because of the industry's lack of reliability, there's parts that, a lot of parts that move on rail, but the stuff that shuts the factory lines down, it's moving on truck. So this is over-the-road conversion. So the, the Honda opportunity I talked about, the Ford opportunity, that's what we're moving over the truck. Some of the, that rail, those rail moves are locked up in contracts. Those come open in 2025 and 2026.
So the concept is, it's pretty simple: You prove the product. You get with some of these same suppliers, if they can trust you with their overall conversion, they're going to trust you with their rail conversion. So again, there's many more chapters to play. The people that are enjoying the business today, they're going to compete, but all they can compete with truly is with price, not with service. And at the end of the day, when it comes to, again, the pains and sufferings that unreliable border points have created, especially in the last year, with all the uncertainty over Eagle Pass, you know, you think about those trains predominantly shifted to Eagle Pass.
The APL's and the Loups that carry that other tranche of auto parts, they're going over the, one of the most problematic border points, that the industry has experienced in a long time, so their service experience, you can imagine, has not been very pleasant. At the same time, our service experience over Laredo has only improved. We've got additional capacity, we've got a second bridge coming on, we've got the best security, value proposition in the business. That border was never closed, has not been closed. The same challenges that you have at Eagle Pass don't exist at Laredo. We just run it differently. It's a different product. Now, we're going to charge for it, but the outcome and the product that you receive as a result of it is uniquely different.
I think for those kind of niche markets, and these are meaningful revenue opportunities for this company, it plays right into our wheelhouse.
Great. Any other questions? Yeah, Wanda.
Could you please talk about your balance sheet and potential for new issuance supply, and where you are on that? Balance sheet.
Uh, leverage.
Yeah.
Yeah, sure.
Yeah.
We committed to paying back debt coming out of the acquisition, getting back towards two and a half times leverage. We anticipate being back there early next year, at which point we'll evaluate share buybacks and dividends, and be back in kind of regular cadence of debt issuance activity.
Yeah, listen, now let me say this. I'm going to clarify this. You know, investing in the company and growth is our first call on cash, but we're investing record amount of capital. You know, CAD 2.75 billion. KCS and CP both leading up to our transaction, we were probably the most capital-intensive rail networks together to anticipate and get ready for bringing these two companies together. So we got to continue to invest, we will, but in spite of that, we're getting to a place from a free cash flow conversion, from revenue, from the way we run the railroad, what we're producing, we're going to be able to get to a place where we can do both.
So next year, I fully anticipate being in a place to go to our board of directors in the first part of 2025 and reintroduce, given that our debt's down, given we're still investing tremendous amounts of money for growth, we'll reintroduce the share repurchase program. So that'll become part of the value creation of, of this, this story that hasn't... Quite frankly, we haven't enjoyed that, for the last several years, and in spite of that, we're still going to produce double-digit earnings growth. So again, if you're new to this industry, if you're interested in this industry, there's no story that parallels ours, period. End of paragraph.
That's a great-
Just doesn't exist. It's very unique.
Yeah.
It's a great place to wrap up there. Keith, thanks so much for joining us, and, yeah, maybe fourth year in a row next year as well.
All right.
Thanks.
No, it will be.