Well, thank you very much. We'll go ahead and get started again with another part of the transportation leg of day one of the Industrials Conference. We are very pleased to be joined by Canadian Pacific Railway. We have the President and CEO, Keith Creel, joining us here on stage. Keith, thanks so much for joining us.
Always a pleasure, Chris.
Great. You know, I feel like it probably makes sense to start with current events. Obviously the NS derailment in Ohio is getting a lot of attention and press, and don't necessarily wanna ask you to opine on the, on the situation there specifically, but maybe ask maybe a bit broader a question about, you know, your thoughts on what this might mean from a regulatory perspective in the U.S., if you think that there's gonna be the potential for some blowback here as a result, and, you know, sort of what, if any, interaction you've had with regulators, not necessarily as it pertains to this event, but sort of broadly speaking, you know, in the last couple of months that either make you feel better or worse about the situation in the U.S.?
Well, I think you started in the first place. I can't speculate, without being there. I don't think it'd be fair to speculate on what might have happened. I'm not gonna minimize the impact or minimize what it could lead to, but I think it draws you back to a fact to point. We need to understand the cause. I think as an industry, once we do, we need to analyze the cause. I think that if we could identify solutions to make it safer, if it truly was a safety concern, then I think it's our responsibility as an industry to address it. If we address it in a practical way that could be operationalized and adopted across the industry, we kinda self-regulate. There's no need for regulation.
You know, at the end of the day, this is a small industry. It's a very critical industry to commerce in North America. We need to make sure we don't have unintended consequences. I know these other CEOs. I'm gonna suggest there's not one that does not wanna run a safe and efficient railway. Again, I don't wanna get ahead of myself. I wanna understand what the cause is. Alan and his team, I'm sure their hands are full with the NTSB, trying to figure this all out. As soon as we do, I think it's our responsibility as an industry, and I'll advocate for this, to make sure that we address whatever it is if it can be addressed and made better.
We just gotta be careful because right now you know, in the absence of knowledge, of fact, stories, conspiracy theories, fact, fiction, what is, what isn't, we just don't know. We don't know if it's a track issue. We don't know if it's a car issue, a mechanical issue. We just don't know. Until we do, it's hard to really speculate. When we do, I think it's our responsibility to take the practical action that we can to regulate ourselves to create a safer network. The way the industry has for decades, we have not been adverse or shy of spending money and investing in technology, in process and in people to make it a safer environment. If you look at the numbers, we've historically shown that it's become safer and safer and safer.
In light of an accident like this, how can you say that it's safe enough? Again, zero accidents is the objective, but getting there is a journey, and it's something that you should never assume that you've reached because you won't ever reach it. It's perfection. It's a pursuit. It's a journey. I say that all the time in our railroad. Safety is something that you always work to get better. Technology limits you sometimes. People limit you sometimes. Process limits you sometimes, and there's no perfect world that we work under. At the end of the day, it's our job to try to make it better, and we will as an industry.
Do you think anything that we've heard, even just over the weekend around train length or ECP braking, that rule kinda was in effect and then came out of effect? Do you think any of those specifically are more or less problematic for you as you're running your railroad?
Let me speak to the facts because I like to speak to the truth. Some would suggest that, and I expected as soon as I heard about the derailment that some of the naysayers about PSR might come out and say, "Well, it's train length or it's ECP brakes, or it's track inspections," you know, whatever. There's a host of different, you know, accusations that might be applied to a PSR railroad. I'm gonna say this, that PSR done the right way is the right way to run a business. If you look at Canadian Pacific, and I looked at this over the weekend, I went back and looked at the capital dollars that were spent on CP's network in the decade before we implemented PSR, and in the decade since.
Because literally just two weeks ago, I celebrated my 10-year anniversary at Canadian Pacific, and we started maybe six months before that. If you compare those two decades, we've invested 50% more money in the infrastructure and in capital than we did before. Quite frankly, only because of PSR could we do that. Because PSR truly is not about cutting capital. It's about right-sizing assets and controlling cost, and then taking that money that you save and reinvesting to harden your infrastructure to create capacity to grow. That's exactly what we've done at Canadian Pacific. We just celebrated our 17th year leading the industry in train accident rate as an industry standard. Well, if you go again back to that same period and you look in 2012 when we first implemented PSR, CP was the best then by 29%.
If you look at 2022, we're the best compared to the industry average by 69%. This is a railroad that runs long trains. This is a railroad that runs a PSR, a true PSR. This is a railroad that's invested in infrastructure. It's led the industry through people, process, and technology, and it's only made possible because of PSR. It's, it's getting a bad rap, and it's our job at CP to speak to our truth. Our truth says that if it's done the right way, it can lead to a better outcome, a safer outcome, a more efficient outcome where all stakeholders benefit.
Okay. Is it too early to think that, you know, anyone from the regulatory bodies in the U.S. are reaching out to people in the industry? I guess maybe the question here is really, do you think the U.S. regulatory backdrop is willing or would be, you know, interested in working sort of hand-in-hand with the industry? 'Cause that's really what's necessary, I would imagine.
I think they're seized with understanding what happened right now. As soon as that dust settles, as soon as they understand what the cause is, I think they're gonna be as aggressive and as eager as we are to make it better, to make it safer. You know, to think about what those people are living through, to think about what the railroad is. You know, you're talking about human beings that run the railroad too, that care about the communities they serve. Perhaps the community may not feel that way today, but I know these people. They're human beings. Their employees live in these communities. This is not a case that people don't care.
It's just right now we need to be seized with what happened, find out what happened, and once we find out what happened, we're gonna take appropriate measures to make it better, whatever it is. We just need to understand on what the true root cause is and not speculate.
Makes sense. Okay, let's transition a little bit to how things are running on the railroad right now for you. I think you're off to a pretty strong start from an RTM perspective. I know this winter versus last year's winter are certainly different operating environments here. Can you talk a little bit about, you know, maybe what you're seeing on the railroad today from some of the commodity end markets that you're serving and where that strength is coming from? Obviously, grain's off to a good start and has been strong for a while, but what else is working well for you right now?
I think overall, our network's in, really good shape. Mother Nature has been nice to us compared to last year, which is we're thankful for that. That said, you know, if you look at our book of business, it's unique. We've got a grain crop that's the fifth largest ever against the backdrop of last year. It was probably the worst drought I've ever experienced in three decades of railroading. We've got strong fundamentals for potash, which is a large part of our business. You know, 40% of our book is bulk, it's grain, it's potash, it's coal. We've got metallurgical coal that is in still in strong demand with a very weak compare from last year. 40% of our book is doing extremely well.
We see those fundamentals continuing through the balance of the year. The other parts for us that are unique, that are maybe a little bit more sensitive to the macro environment, intermodal, quite frankly, because of our self-help initiatives, the contracts that we won last year that we brought onto the railroad midyear. We still have from a full year benefit the first half. We haven't lapped that yet. We'll have that on the back half as a continued strength to offset any negative headwinds from the economy that are domestic, especially on the Canadian side, portfolio remains strong. I look at it's a little bit different animal besides length of haul. Our book of business in Canada, because of our reliable service and our shortest length of haul to the key markets, you know, we are the primary carrier for Canadian Tire.
We are the primary carrier for Loblaw. We are the primary carrier for Nestlé. You look at those in Dollarama. As they restock their shelves, they've sort of normalized some of the oversupply that perhaps the U.S. has not caught up to, we're getting back to a normal restocking run rate. Because we're the carrier that hauls most of that traffic, we're gonna benefit from that. Some softness on the wholesale side, when it comes to the domestic, what I call the retail business, which we handle best, I think again, that gives us a bit of a tailwind compared to others might see a headwind. The other piece is Saint John. You know, we bought that railroad two, I guess it's been three years ago. We've invested capital to get it to a CP standard.
We've created a service offering going to Saint John. It's been matched by investment. I think in April, we're gonna have the cranes coming with DP World. We're gonna be at 300,000 TEU capacity. We added the second train from Hapag-Lloyd this past year. As we grow forward and as that capacity gets increased, it's going to 800,000 TEUs by the end of 2023 into 2024. We have the backdrop and the landscape to continue to grow in that space, which is unique to our, to our network as well. You get to the second half, and you get to CPKC. You know, again, we're waiting on the regulator. EIS was filed February 3rd. There's a 30-day period where the STB reviews that final statement. They're methodical.
They're going to do a thorough, careful review. 30 days after it was filed, we could get a decision, and I would expect and hope that we'll get a decision the first part of March. If it is as we anticipate, and we think it might be favorable, we certainly believe the facts indicate that it should be, this team's ready to go to work. They'll dictate in that decision when the control date is. Historically it's been 30 days, so you know, again, the STB can do what the STB decides is best. I would suggest that they believe in the facts of what we represent, increased competition, infrastructure investment, all the things that we said, make our merger make sense for the nations. It's never been needed more, and our team's going to be ready to go to work.
Assuming that, second half of the year, you should start being able to start layering in some of these synergies. I can tell you, there's some customers with some excitement, that are ready to put some freight on this railroad. It's not just rail freight. There's a lot of truck freight...
Mm-hmm.
that we've targeted in creating new markets that we'll be able to speak to at our investor day. We haven't advertised the date yet, but it's going to be in the summer.
Okay.
I'm looking more toward the end of June, where we'll be able to give a whole lot of color to what we see, the potential of this network for the next three years beyond that. I tell you, there's a lot of excitement, enthusiasm. This team's prepared to start going to work as soon as we get to that control date.
As we think about that control date, so 30 days from the EIS, and then does the STB mandate the period between approval and the control date? Would that just naturally be 30 days? Could it be accelerated, or would it be longer, potentially?
There's no statutory designation that says it has to be 30. Historically, it has been.
Okay.
The statutory said 30 days on the EIS.
Okay.
The STB, because they have plenary authority, they could say it's 15, they could say it's 30, they could say it's 23. I'm not certain. Again, I get back to the point of, if they approve it's only because they believe it's in the public's best interest, and it's only because they believe it's gonna increase competition, and it's gonna be good for the U.S. rail network, why delay it? You know, why begrudge anyone of the benefits from it? I would suggest this industry needs more capacity investment. I would suggest that customers want better service. And if you're an option to that, not a default, but you have a new option to create competition, to create service, to create capacity, if you're the STB, why would you hold back on that?
Do you have an opinion on the DOJ letter that we got a few weeks back? Timing was not in accordance to the comment period, of course. You know, and they aren't technically a party to it in the respect that they make a decision around this. Any thoughts around that?
You know what? I read that letter saying that some of the testimony that came out during the hearings that we had in D.C., some comments were made about or that might have suggested that the DOJ did not have any opposition to our transaction. Shame on us for ever leaving that perception because the reality is, I've always known that they care about competition.
Mm-hmm.
That's why I've always felt about the benefits of this transaction so much because it creates competition. To me, the way I read the letter is CPKC, we care about competition. To me, as long as we respect competition and create competition, I'm not threatened by that letter. We apologize. We followed what the STB said. Listen, we never meant to suggest. We left it open for interpretation. We clearly understand you're seized with competition just as we are, and that's exactly what we intend to create.
Got it. Before I dig a little deeper into the KCS side, I did wanna ask a little bit about your thoughts on sort of the economic backdrop that you see here. I think you mentioned that some of the retail side of the world that you serve feels like maybe they were gonna get back into a more normalized inventory scenario here. You have Saint John, you have a few of those other things. When you think about sort of the broader North American economy, is a mild recession or some sort of normalization sort of in your playbook for this year?
We're seeing and reading the same thing everyone else is hearing. It's, you know, I think people are probably betting on a mild recession. My personal view is perhaps. In spite of that, if that were to occur, whatever occurs, whether it's major or minor, I think again, our network is uniquely positioned for all those reasons, especially with our book of business and being not as exposed on the Bulk side to a recession because the underlying fundamentals, people gotta eat, people gotta still produce items. They gotta grow wheat. They gotta do the things that these Bulk products allow the world to do. That's my guess, maybe, perhaps. Again, I think the Canadian outcome is a little bit different than the U.S. outcome.
I think they're probably in a little bit better position, maybe not as much wage inflation as we've had in the U.S. They don't have the huge imbalance that occurred in the U.S. I think it's gonna take a little bit more time for sort of that stocking to sort of work itself out. Maybe to me, it's gonna be second half, first part of next year before things normalize. I think in Canada it normalizes first half. I think second half or later in the U.S.
Okay. We've talked a lot about sort of how railroads are managing resources, and you're in a unique scenario 'cause you also have to plan for the eventuality of the merger. When you're thinking about your approach to resources through an economic cycle, has anything changed? We talk a lot about furloughing, whether that makes sense or not. Do you have an opinion on how you wanna run the business going forward through the economic cycle? There's gonna be periods where volume's down. It's just there's no two ways about it.
I think the reality of today's world, and we adjusted a bit. You know, my previous life at the other railroad I worked at, I had an opportunity to go through a couple of economic cycles. I came to CP. We had a pandemic. None of us have ever gone through a pandemic. Because of the pandemic, as a human being, what I felt the company needed to do for employees, not just doing what we had to do, but doing what we could do. We had a different financial outcome, again, because of some of the success we've created at CP, we chose to invest in employees. We chose to go a little longer with employees. We chose to replace benefits for employees that we didn't have to replace.
Because of that, coming out of it, when all this business started to come back, we had created commitment. We created, I think, an emotional connection with our employees where they didn't feel like just employees. They felt like they're part of our family. By doing that, it cost a little bit more money. In the end, doing the right thing ultimately meant good business too, because we were able to retain employees. The other piece I think that sets us aside is we have an hourly agreement, especially in the U.S., which has been very problematic and challenging with some of the downsizing that occurred during the pandemic. People come back, they've got alternatives to work other places. There's not enough labor in the U.S. You don't have schedules in the railroad.
All the things that were fought with the challenges of the U.S. collective agreement negotiation, the PEB award were not true about CP because we have an hourly deal, and we have employees that are paid more money and they have scheduled days off. When it comes to attracting and retaining employees, if you can make more money and you have a better quality of life, naturally people are gonna migrate to that. That's something that we benefited from that perhaps the other railroads, though I say other railroads, the other big four didn't benefit from because they don't have the same mousetrap on their network.
Yeah. Okay. Understood. Definitely want this to be interactive, so if folks have questions in the audience, just raise your hand and we'll get a mic to you. Let's jump back to the deal here, and think about if there's any way you can kinda lay out a timeline. We talked about sort of when the control could occur potentially, you know, maybe within 60 days of the EIS. What are the things that you think need to happen post that as you're thinking about sort of the integration of those businesses? Are there any major milestones that we should be looking for post that?
To me, the most important thing that happens post-control is culture. getting the culture right.
Mm-hmm.
You know, we're bringing two companies together that are like-minded cultures. I think, you know, both railroads have been the smallest. There's a tremendous amount of history and pride in both networks. You know, recognizing and respecting our identities, but creating a CPKC culture, is exactly what I'm gonna be seized with doing. From day one, we're gonna celebrate whatever the control date is. It's a day for we're gonna pause, and it's historic. It's iconic. It deserves celebration because it will be, I think, in railroad history, a critical date. That's the first 12 hours, then we go to work. I'll be in Kansas City. I will announce the CPKC senior leadership team shortly after we get our decision from the STB.
Mm-hmm.
You can rest assured there is a series of actions that will be taking place, connecting with our employees, having town halls, letting people understand how we work and why. It'll be occurring on CP 'cause we can't forget where we came from. Front and center will be happening in Kansas City and on the KCS network because in true honesty, given that we're a larger company, the significant amount of change is gonna be most felt on the KCS.
Mm-hmm.
That's why we're moving the US headquarters there. That's why I'm gonna have an office there. We're gonna be there front and center. Those employees are critically important to us. There's a lot of talent on the KCS. We're gonna create a combined corporate culture, so that we can succeed. When we do, it's gonna be focused on service. It's gonna be focused on safety. You do those two with this network and this single line network that we're creating, the synergies are gonna be a natural outcome of that. It's, it's culture. It's create the service. Put the safety influence into it, and then we'll start to produce the synergies.
Let's talk about that. I think you've talked over the course of the voting trust period about some tests that you've been able to do and maybe some co-production type of arrangements that you've had. What have you been able to sort of achieve during the voting trust period, understanding that you have to keep sort of operational controls off from a KCS perspective, but, you know, how does that potentially influence the ability to quickly sort of start to generate some of these new contract wins and that customer excitement you were talking about before?
The upside of the long period, it's been a long journey. We've had a lot of time to think about this. We've had a lot of time to meet with customers and talk about prospective products and what the markets need. We understand the top 100 customers, what they'd like to see happen. We've been about creating negotiations, mousetraps, regulatory processes. There's several things that we'll expand upon in our investor day. You'll see some things announced after pending our STB approval.
Mm-hmm.
There's some things being negotiated that we'll be able to start to show. We'll see probably pretty quickly after we get control, pending the right STB decision or pending they approve our transaction. The trains start probably in the April timeframe. That will start the process. The second part, the systems piece, given that we've had the time, you know, to me, historically, if you look at some of the challenges of integration, be it our industry, be it other industries, it's computer systems.
Mm-hmm
... underestimating the complexity they represent. We've taken an approach where we're going to integrate first and innovate later. Essentially, KCS, they'll still be using the KCS systems. The customers will go maybe through a CPKC interface, but ease of doing business, it's gonna be what they're accustomed to. Same thing on the CP side. Over time, over the next two years, we've got a sort of a technology roadmap that we'll implement, and we'll integrate the two systems together, but it's only when we're ready. We're not gonna destabilize anything initially. The one thing that we will have, though, from day one is one operating plan. We've already done all the testing.
We've already created the system to be able to connect our two operating systems so that we have one integrated plan so that we can create visibility to the blocks perhaps that need to be made in Shreveport or the blocks that need to be made in St. Paul to create, you know, a bigger network instead of it just stopping at Kansas City. Immediately, you're gonna start to see better asset turns. You're gonna see a more fluid network. You're gonna see less handlings based on the businesses we have at day one, in line with our operating plan.
As we grow the network and we then bring business on to the network, you've got 85% of KCS businesses interchanged, KCS U.S., 85% total. What percentage of that 85% will our network be able to handle in a better transit time, single line, serve cradle to grave that the customer chooses they want to put on our railroad? Once you start to, I call that sort of, de-complicate the network, and you start to bring that density back to your network, you can create additional blocking synergies and density, to be able to create that service product and also to start taking costs down.
Do you think Mexico poses any unique or interesting challenges to operating? You know, understanding that you haven't operated in Mexico previously, but you've had, as you've pointed out, some time to look at the network and think about things. What's sort of the challenge of Mexico? What's the challenge and the opportunity? I'm sure there's opportunities there too.
I think the challenge is, we've got to respect Mexico's identity. You know, that's a country just like Canada is, just like U.S. is. We're not gonna go in and Americanize Mexico or Canadianize America. whichever way you wanna look at it. We've got to respect their identity, but at the same time, I've got to learn. I don't know what I don't know. What I do know is their collective agreements are uniquely different than the U.S. or Canada. There's one union in Mexico. That's not the same in the U.S. and not the same in Canada. Some of the things that are in their agreement could be modernized, but that takes negotiations. It takes time.
It takes sitting down with the labor leaders and explaining to them what's in it for Mexico, what's in it for them. Those processes are already started. I certainly expect that those discussions will continue. If we can modernize their agreement, then the Mexican employee can win, the railroad can win. That's how you get change. We'll take our time. We're not gonna force anything. It's gonna be an approach where they're gonna wanna have to do it. We can't force them to do it.
Mm-hmm.
It'll be a negotiated outcome. As we do that, I think you can create not just something that's in it for the employee, but a lot that's in it for the customer, because you get more reliability and more efficient and fluid processes. You eliminate the complexity with different classes of service, perhaps. Distance you can run trains, length of trains, all those things. How many locomotives you have on a train, how many men or women you have on a train, all those things that you can sort of work out over time that makes what it is today a better product, not only for the customer, but for the railroad too, and for the employees. There's got to be a balance between all stakeholders. That's gonna take a little bit of time. The infrastructure itself in Mexico, though, is in really good shape.
The other thing that I'm super excited about, you know, we knew about nearshoring when we started this transaction.
Mm-hmm.
What we knew then is even more powerful now. Ally-shoring, nearshoring, the announcements that continue to be made when it comes to the industrial investments that are being made in Mexico. They're all so far the ones I've read about, the ones I know about, are all we have an opportunity to serve those markets. It's close to Monterrey, it's close to Mexico City. That infrastructure runs down that east coast, which is what I call sort of the industrial heartland of Mexico. That's our network. If we can serve that network and bring manufacturing and connect the borders and make them seamless, which our network's gonna be able to do, it's good for Mexico, it's good for the U.S., it's good for Canada.
It's gonna be my job to make sure that the Mexican regulatory agencies, the Mexican government understands what this network can create for them. I do believe that that government cares. I know that President AMLO cares about growing jobs in Mexico.
Mm-hmm.
If I can help him understand, and I will, we'll do our best to do that, how we can help enable that success. I think that's positive for this network.
When you think about the opportunity set, as you noted, I mean, you know, you set some original synergy targets, you know, at this point now, a bit a while ago. The world has continued to evolve and maybe there's more opportunities, maybe there's less. I guess, as you think about it, I think people are fairly optimistic that there's more as we go forward here. I'm guessing you share that view, not necessarily asking you to front run your investor day here, but as you think about sort of day one post-approval, what the synergy opportunity feels like to you. Better than where we were before?
Yeah, it's definitely better. I can't put a number on it yet. I can tell you that, my convictions are stronger than they were. At the same time, I'm not gonna oversubscribe this network. I can't destroy my service proposition. Can't allow, you know, our zeal and our zest for growth to destroy the operating model.
Mm-hmm.
The operating model is the network can produce what it can produce. You gotta understand the capacity, and you sell the capacity, and that's what creates the service. That's what allows you to control the cost. That's what gives you the money. The OR is how you measure it.
Mm-hmm.
It gives you the cash flow to put back into the network to grow. We're gonna be very smart about how we grow the network. We're gonna be at the table. We're gonna have, I believe, the most relevant rail network in North America. I think that's what we're creating.
Mm-hmm.
I think the backdrop, the canvas, is a beautiful landscape for us that's only getting better. Again, we've got to pick our partners smartly, and we've got to play to the strengths of our network, and we've got to play to the natural markets that we'll serve. I think this network will create new markets that we don't know about today. Just like there's some we're discussing today, I didn't know about three years ago. I think that's what this network's gonna create.
Yeah. You've talked about achieving your goals over a three-year window. Any sort of shape of that, whether it be sort of equal parts one, two, or three, or do you just think it's still too early to kinda, you know, put a finer point on that?
No, I think it's still back to the discipline of building out the network in lockstep with the business. It's gonna take that period to build the network out, and I can't get ahead of myself. you know, we have a terminal. We've got 30 sidings to extend or build to realize the vision of the merger application. That's gonna take three years to do it.
Mm-hmm.
That's covered in that $275 million of investment. We've got, outside of the merger application, a terminal in Bensenville we're building. We've got a terminal to optimize in Kansas City. We've got potentially through these synergies, maybe we wanna do something outside of that in Dallas, in the Wylie area, maybe a lumber transload, maybe an automotive transload. We'll bring a lot more color to this when we get together in June, but again, we're gonna be very careful and step through this thing and make sure that we don't overcommit and underdeliver and disappoint customers, because if you do, that's the best recipe of not really building this thing out, not realizing its full potential. We're gonna be very disciplined and methodical about how we do that.
Okay. Understood. I guess I wanted to talk a little bit about operating ratio. There's been a lot of discussion about it in the industry and whether it's as important for other players as maybe it once was, and, you know, this trade-off between growth and operating ratio. You've done a pretty good job over the years of being able to emphasize both pieces of that. I know you've talked about OR being an output, right? You manage the business, and a better OR is ultimately the output. When you start to put some of the synergies on paper, the OR output ends up being quite good from an industry-leading perspective. So how do you think about that? You know, where does operating ratio versus growth, that relationship stand in your mind?
I think the key word you just said, Chris, is balance. To me, if you run the business the right way, you gotta have service. You size your assets based on your plan, which your operating plan, your service plan is what you sell. You control your costs through it, and you right-size those assets, whether it's men, women, locomotives, track capacity, car capacity. It's complicated. It's simple, but it's complicated at the same time.
Mm-hmm.
If you go and do that, and you get a fair price for your service, 'cause your capacity matters and reliable service matters. If there's anything that customers have learned, especially the last two years, is capacity matters and service matters. If you're the railroad that can provide reliable service, and you can do it at a low cost, you can charge a fair price for the service you provide, customers are willing to pay it if you're the reliable service provider, and your costs have been controlled, the output's gonna be a low margin. It's gonna be a strong margin. You're gonna create cash flow to reinvest in the infrastructure, to reinvest in the business or, at the end of the day, if you've reinvested in the business, to return money to shareholders or to pay it out in dividends.
That's kind of the model, but you gotta keep the balance. You can't be seized with any of that. To me, the true measure of success is earnings growth at the end of the day.
Mm-hmm.
I can't, you know Again, I've gotta make sure that I'm taking care of the customer, the shareholder, the employees, the communities we serve, all stakeholders. That's my fiduciary responsibility. If I do that right in the U.S. alone, I know my fiduciary responsibility is to optimize my shareholders' return. That's gonna happen too. That's the healthy way to run a PSR railroad. That's exactly what we're gonna do. If, if that produces, because of this growth, the lowest OR, then that's a wonderful thing. I can continue to invest in this infrastructure. We're gonna do the right thing for the business to be able to keep that balance, to sit and cut your way to profitability. It's right-sizing assets. It's make money so you can invest more money, so you can make more money. It's a pretty simple business process.
It just takes discipline to be able to do it.
When you think about the capital deployment currently and then over the course of the next couple of years, I guess two questions here. First one is, how do you see the path of deleveraging? Where are you on that continuum? I think you're pretty much on schedule where you thought you'd be, but can you give us a sense of sort of where you think you need to go before you can maybe take your foot off the gas a little bit in terms of debt paydown?
Yeah.
The capital can be deployed other places? I wanted to follow up on CapEx and your thoughts around really what the right number is. You mentioned, it was a great segue you mentioned earlier, in conversation about how much more money has been spent in the 10 years post you arriving at CP as opposed before. What's the right number of sustainable CapEx for an operation like you're gonna be running here?
It just depends, Chris. Right now, what we're seeing over the next three years, we're probably, you know, we'll go to around a 2.2x .
Mm-hmm.
This is kind of the number we're thinking about.
The leverage.
At the end of the day. No, 2.5x is the leverage. I'm speaking of total spend on capital.
Good.
We're gonna get back to 2.5x. That's what we've told the rating agencies that we have. We have focus on paying down our debt, which we've started to do, and we think we can get there by the end of next year.
Yeah.
By the end of 2024. That's kind of the glide path we're on. Once we get there, then we can start discussing then what do we do with this cash that we're producing. Number one, first call of cash is always gonna be physical plant and creating capacity and more customer solutions. I hope that I can come back and tell you I can give you a better return by doing that. If not, then we'll look at reinstituting some modest share buyback, and we're gonna increase dividends. Again, balance is the key across all three. Again, First call of cash is building out our network to optimize it. I think we're gonna have more opportunities to do that. Again, I don't have a crystal ball based on what we know today.
That $275 is our number. That $275 doesn't represent some of the productivity capacity, the capital that we're gonna be avoiding because we're gonna have more effective asset utilized locomotives, cars, all that stuff that's gonna come out of these operating synergies. With that said, that's kind of what the path looks like, and I don't see it changing. If it does, we'll tell you. We'll know a little bit more again in June.
Yeah.
to get this thing together. That's the way we see it today.
You had mentioned before about not overselling the network post-merger. Is there a way to conceptualize how much capacity you think you'll have relative to the volume flows today? Obviously, we can all think about what the synergy opportunities might look like to sort of, you know, in terms of filling out that capacity. Any way to think about that?
Not yet. I can't give you a number. I can tell you CP, you know, we don't have any capacity constraints at CP.
Yeah.
In KCS, I can say this, outside of the network they don't control, which is the route to Houston, you know, through all these service challenges that the industry has experienced, I've seen the KCS hold their own. They've done well. So again, as long as they're right-sized with people, with locomotives, with cars and track capacity, which on their network that they control, they are. I've been over it. I've ridden the entire route from Kansas City to Laredo. I've ridden from Shreveport to Dallas. They're not bumping up against capacity constraints. I think if we treat our employees well, we create the growth that we're gonna create by unlocking this single line extended network, I think we're gonna be the employer of choice. I think we're gonna be the most relevant network.
I think we'll have the most progressive collective agreements, and I think we're gonna create more capacity even than we have today because of our more efficient way of operating the network.
I've gotten to two minutes left, and I haven't asked you about pricing, so I got to get back there. Obviously, lots to talk about in terms of the merger, how do you think about the pricing environment in the railroads this year? We've heard some positive comments from your Canadian competitor about getting contract rates in the sort of 5%-6%+ type of range. I don't know if you have a view on where pricing's kind of shaking out for this year.
I can tell you it's, historically, it's still strong. It's not maybe as good as it was last year, but it's still inflation plus. If inflation's 6.5%, we kinda know where inflation is. I would suggest that we're not gonna be a commodity. We're gonna sell our service. We're gonna sell our capacity. It's valuable. As long as you provide reliable, safe capacity and service for your customers so they can grow, we don't have to apologize for charging that. We have to be able to stay in business and continue to invest in the infrastructure and provide the supply chain capacity that they depend upon to succeed in their marketplace.
Got it. I think with that, we are pretty much wrapped up. Thank you very much, Keith, for joining us. Really appreciate your time today.
Thank you, Chris.
Absolutely. All right.