Good afternoon. My name is Lita, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Pacific Conversation with CEO Hunter Harrison on Railroad Mergers and Acquisitions. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to introduce Nadeem Velani , a VP Investor Relations, to begin the conference.
Thank you, Lita. Thanks for joining us and those on our earlier Q3 call, welcome back. I'm pleased to have with me here our CEO, Hunter Harrison. Before we begin, I want to remind you, this discussion contains forward-looking information. Please refer to our website. The formal remarks will be followed by Q&A, open to both the financial community and registered media. It is now my pleasure to introduce our CEO, Hunter Harrison.
Thank you, Nadeem. And thank you for joining us today. You know, the purpose of this call is to try to clarify CP's position insofar as any M&A activity or so-called rumors that have been bouncing around, and some inaccuracy of some reports in the media. So the best way I know to do this was to have this call and make a few remarks, but more importantly, I want to answer your questions. You know, first of all, that there are no secrets, we've learned that with the potential CSX transaction. We did not make an offer to CSX. We contacted CSX, had a dialogue with them, and asked them if they would be interested in exploring, quote, opportunities that we both might share.
They indicated they did, and we had several meetings, 3-4 meetings in exchange with their people. And really, what we were trying to do was effectively two things. One, we felt like it was a huge opportunity, I don't think that's overstating it too much, to enhance shareholder value of both sets of shareholders in both companies, and at the same time, improve the service offering of the two organizations, and more directly impact Chicago and potential further problems there. So we were—I would not call it, we were not rebuffed. We had some fascinating conversations about the potential, but it became evident that we saw the world a little differently, which is fine.
I mean, there's been a lot of media reports and some on one side and some on the other, but I thought that I would try to clarify our position and what we've taken here. Now, some of the issues are, number one, I would say this: a lot of people have taken the position that there's no way that this transaction would be approved by the STB. We don't agree with that. You know, the law is the law, and this law, since it's been amended back with the moratorium, really, there's not been much, if any, merger activity. And our view and our model for a merger, if you will, is different. A merger is not a merger, is not a merger. Our view of the world is a little bit different than others.
Not saying we're right, or not saying they're wrong, but our views are different. Number one, I'd give you an example. We, I, particularly, have never agreed with rail's positions as far as bottleneck. So if we had bottleneck issues, we would relieve all bottleneck issues in the market. Now, there's a lot of customers, I understand, would be proud to hear that. But if they've only heard one approach to a potential merger, they might be opposed to that transaction. The second thing I would tell you is that we would grant access to the markets. Meaning effectively, not reciprocal switching that's been suggested, but if an impacted customer shipper is affected, we would always give them the right to bring in Brand X .
So if we're not providing the service or if our price is not where it should be relative to the market, and they want to bring in another carrier, that would be perfectly fine. That, in my view, also addresses the issue that people say that the new law says that this must be pro-competitive and add to competition, and that was one of the stipulations. Well, I think if you can make a case, just hypothetical, that two carriers would improve service, I would think that that would improve competition with their competitors. At the same time here, when we would take those kind of steps, once again, I'm not sure that those things have been bounced off the shippers to understand what the potential could be there.
So if you, if you are willing to grant access to the market, if you're willing to make commitments to improve service, if you're willing to change traditional conventional wisdom in the rail industry about bottleneck, and you take a look at the law as it's written, I think I can make a rational case that, and I'm not gonna be so presumptuous to say what the STB would rule, but I think the law, in my view, is pretty clear. Now, people say, "Well, it's bad timing." Well, my response would be: When is good timing? My experience in the rail industry has been that most mergers or transactions have been done out of weakness or a need to merge, to create some value or to solve some issues.
Well, I would say that this is the kind of time that we need to deal with that. One of the things that we focused on, that I mentioned earlier, was the impact to Chicago. I don't think anybody disagrees that Chicago is fragile at best. It is not where it should be as far as providing service. It's certainly a pinch point that offers us a lot of challenges. Well, in this case, once again, hypothetically, we could have taken a lot of traffic that's today going over the Chicago gateway and taking it over the lakes, if you will, and used the Buffalo gateway or Albany, New York, gateway to carry traffic from, for an example, western Canada, going to the East Coast or the far Southeast. It would have been a very logical response.
I don't know when the timing is gonna be right. I think that it's worth looking at where the rails are today, where we are. If you look at it, the final analysis, I think we're gonna... I think most people agree, we're gonna see further growth, setting crude aside. But crude, all of a sudden, was, is like a gold rush to us, and crude has come on board. And I would remind you that we have the same obligations, common carrier-wise for crude that we do with any other commodity. We don't get to choose what we haul or not haul. I guess the other thing I would tell you is this: There appears to be an attitude, given some of the tragic incidents, one specifically, in Lac-Mégantic.
We've got a real issue with NIMBY, Not In My Backyard. I'm talking CP, CP specifically now, trying to expand, add infrastructure in certain markets where there's pinch points, and the people in those areas are resisting making improvement to the infrastructure. At the same time, they're asking us to haul and provide better service, and at the same time, the government is sitting, saying, "Well, we got to slow the trains down." We even have issues on our network now, where there's city councils and groups of citizens banding together to say, "We don't want you to run trains at night." So we are, in my view, at least, we are quickly approaching a time where none of this works.
We cannot, I don't think, in this industry, continue to go down the road we're going down and be successful or not having some, some gridlock beyond anything that we've experienced before. So I think that's something we all should take under advisement. One thing, let me clarify this: I'm not obsessed with some transcontinental merger, okay? This is not about me. You know, I'm limited on my, my contract about how much time I'll be around, and if some M&A activity happens, the chances are I could be gone when this is-- before these things are approved. But I don't think you can turn your back on them. You know, we've got in North America today, and I would specifically talk about Washington now, you know, a lot of us and a lot of people think that we got Congress in gridlock.
Well, we do! And when you're in gridlock, you can't get anything done. And to some degree, we're in gridlock in the rail industry with the regulators and others. I mean, we're still arguing about the tank car specs, harmony across the border, and all those things. None of those things start to answer some of the questions that we had. Chicago is not the only pinch point. We've talked about it in our previous call and other calls. There's a tremendous pressure right now with growth of business over Minneapolis-Saint Paul. Now, it's inappropriate for me to talk about other carriers and other parties. I'm not sure where their issues are.
I know that we're working very diligently to try to solve issues in Minneapolis-Saint Paul, but I don't see a lot of answers, and staying with the status quo doesn't necessarily work for me. I'm not advocating, it's not my position, it's not my responsibility to say if there ought to be any mergers, or if there ought to be three or four, or if there ought to be two carriers. That's for individual carriers and rails to make their own decisions on where they think the best place fits. We think that a lot of the potential success or failure of M&A activity is in execution. People talk about, well, mergers set back service. I don't buy that. There's been a lot of successful mergers.
In fact, we, this team that's been with me for some time around here, we have been involved with, if you go back early in my career, it goes way back, I'm dating myself a little bit, but the Frisco-BN and the IC-CN and the CN Wisconsin Central and the CN BC Rail. And I think if you go back and look at the track record, those mergers came off pretty well. So if you plan correctly and have appropriate plan, it doesn't necessarily mean that through merger activity, it's gonna cause a setback in service. It's, you know, railroads have different performances, and the reason why, in my view, is because they have different ability to execute. So, I wanted to take this opportunity to try to clarify our position. You know, the, the CSX transaction's behind us.
There's no more activities planned. I'm not gonna speculate on what might happen in the future. Times change, and we have to adjust with them. But I thought it might be helpful if we could share at least some of our thoughts with the various constituencies that we're dealing with here. And then I'd be happy now to answer questions that some of you have relative to my remarks.
If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. As previously highlighted, please limit your questions to two. There will be a brief pause while we compile the Q&A roster. Your first question comes from Bill Greene with Morgan Stanley. Please go ahead.
Yeah. Hi, good afternoon, Hunter. Hunter, can I ask you a little bit about the broader question of M&A? Do you feel like M&A is important enough that sort of any sort of M&A is important? In other words, if a US and a US rail got together, is that as important as CP being involved? I'm trying to sort of get a sense for, do you feel like this is a broader industry statement you're making, or if it's really important for CP?
Well, Bill, let me, let me answer it this way. Number one, in Canada, we're blessed that we don't have Chicagos right now. Clearly, the biggest issue right now, in the U.S. deals with Chicago and some of these other pinch points and service issues that, that I hear about. Look, do other carriers have some other responses that can solve some of these problems, non-M&A? Maybe, and, you know, more power to them. We feel like that we have a pretty good model here, that we have some, pretty good routes, that we could, we could make... We thought we could have potentially done some type of transaction with CSX, and as I said, it had the shareholder value, improved service, helped Chicago, and that's all good.
Now, I don't and I don't think that that necessarily causes someone else to say, "Well, if they're gonna do it, we're gonna do it, too." I mean, it depends on the market. So, you know, I'm talking more today about CP Rail. I'm not trying to be some industry spokesman. This is something that we think can work for us. My responsibility is to try to enhance shareholder value here at CP, and what other carriers do or their reaction, I just—Part of my big message today is it's certainly in the realm of possibility with the STB, and it's certainly, in our case at least, can have some positive impacts, contrary to other press, I mean, press reports or media reports.
Okay. And then, as a second question, do you feel you can enhance shareholder value if you're either a seller or a buyer? Or do you feel that given your size... and your network size, that is, you need more to be a seller. I mean, how do you think about how a transaction most accretes value to CP?
Well, Bill, I think, you know, one side might work a little better than the other, but both work. And I think the reason why they both work is because we've had some level of success. This is a pretty strong team that we are still putting together here. The track record is pretty good. I think this team, and I'm talking post-Harrison, could certainly have a positive impact on another carrier if they got together with them. So I think there might be a lot of carriers out there that would like to have some of our talent. So I, we have a powerful franchise.
We have pretty good infrastructure, which is getting better, and I just think that people would like to have a strong partner, and I think we've got a pretty good case for that, whether we're, whichever side of the transaction we're on.
Yeah, it's clearly a successful model. All right. Thank you for the time, Hunter.
Thanks, Bill.
Your next question comes from Brandon Oglenski from Barclays. Your line is now open.
Well, good afternoon again, Hunter. Thanks for hosting this call. You know, you kind of touched on this in your prepared remarks right at the end, but I think, you know, you've obviously kicked up a lot of conversation, at least amongst investors, about M&A in the past week. And I think a lot of people can see the potential for service improvement in the long run. But a common thread of concern that we've definitely heard, and I think has been espoused in other conference calls, is the idea that if you look at some of the big U.S. mergers from the '90s, you know, those did result in a lot of transitory service issues. That's definitely a big concern in the merger guidelines that the STB has out there, since, you know, we've enhanced the procedure.
Can you talk to how the infrastructure and how the industry has changed in the last 15 years that, you know, maybe looking at the analogy of a 1990s railroad merger is somewhat antiquated at this stage?
Well, just a couple of comments. I think if you look back at the past and if you look back at some of the mergers in the '90s, they weren't planned or executed very well. Now, I don't care whether it's a merger or not, if you don't plan and execute very well, you're not gonna improve the service. I guess the thing that's a little distressing to me. I'm not trying to encourage, as I said, mergers with others, but if service is not good now, if it's not satisfactory to the customers, what's gonna improve it? What new is out there to fix this issue? Now, you know, CNIC merged in the '90s. That went very smooth. I mean, I was... I'm trying to remember the STB requirements.
They had oversight for, it's been five years, and as they reviewed it after about three years, they stepped back and said, "We're, we're very satisfied with the transaction." So I, I, I think to make an assumption with a broad brush and to say any merger that's created out there is gonna set service back, it is just the wrong assumption. Now, people that say, "Well, you can do it through partnerships or trackage rights or haulage," well, if you can do that and be successful and have service, I don't know why you couldn't do a merger. Now, once again, if people have a response, and there's other ways to, quote, "fix some of these issues," that's, that's fine. Works for them, it's good for me. I'm not, I'm not trying to create two railroads in North America. That's not the objective.
Well, well, thanks for that. And I guess, you know, part of the STB's guidelines are also, can you achieve the benefits proposed in a potential merger via non-merger modes or, or means? And I think you've even suggested, at least at your analyst meeting, that you've reached out to the folks in Chicago with a potential solution, but you, you're not able to get a lot of traction. Can you speak to that a little bit more?
Well, yeah. I think there is some indication there that the tide might be turning a little bit in Chicago. People have heard enough about it. You know, if you look at CREATE, which I was not a huge advocate of, although we're a member of it, it's been going on for over a decade now. I think I'm accurate there. There's been, like, 70 projects, and in 10 years, 23 of them are done. It started off with a budget of somewhere around $600 million-$700 million. Now, the price tag is $3 billion-plus of taxpayer and railroad money. I don't...
You know, look, anything that's gonna take 10 more years, I don't know what we know about the markets and what, but there is some encouraging signs that that some very responsible leaders in the industry are starting to take a different look at Chicago and are, I think, saying to themselves, "What we've created in the past hasn't helped." Now, maybe it's helped to a degree, but it's certainly not the solution, with due respect to those groups. But, you know, I don't think the AAR-... Chicago Operating Committee or Create or the Belt Railway, you know, and I think, and maybe I'm guilty here, maybe the Belt Railway's got some undue criticism.
I think part of the learning curve there is that, you know, the Belt is effectively a corral, where everybody comes in and brings everything into the corral, and then they take what's theirs and leave the rest of it. Well, the railroads bring business into the Belt Railroad, but some don't pull it out like they should. If they don't pull it out, it limits the capacity of the Belt, and then to some degree, the Belt gets criticism. Somehow, we've got to develop, in my view, a mechanism within the industry that addresses those issues. Because I hear people talking about, you know, hiring a lot of people or buying a lot of locomotives. I don't think that's the solution. You can hire a lot more people in Chicago, you can buy a lot more locomotives, and it's not going to help Chicago.
I can tell you that, that's not the issue.
Your next question comes from Chris Wetherbee with Citi. Please go ahead.
Great, thanks, Hunter. You know, I guess maybe my question is a little bit about sort of any specifics maybe you can share with us in your sort of vision of a merger with CSX and maybe sort of what made CSX stand out relative to, you know, its eastern peer. Obviously, some, maybe some of the interchange points that you mentioned before, but just want to get a rough sense if there's any of the details you can share with us and maybe sort of what their response was to your, to your thoughts.
Chris, I appreciate your question. I'm hesitant to try to speak for CSX and what their position on the other side of the ledger. I don't know if it's fair to them. I think you could, to some degree, you can listen to what my views, our views are, and you can start to say, well, maybe somebody else was on the other side of the transaction, but I think it's a sensitivity issue. You know, I think, you know, where you come down on whether it's it can pass STB muster. That's a legitimate question. I don't think the analysis that we've done and I can't say too much more about this, but there was not a great deal of difference from a transaction standpoint between the two eastern carriers.
There was some issues that pushed one a little bit ahead of the other, but it was a fine line there. You know, I think you can... You know, Chris, we—I, I guess one of the places that we differ a little bit is that we think we got a pretty good model here, and it produces pretty good results from operating metrics. You know, if we just say, look, if we took our operating metrics and placed them over whoever's numbers, if we can execute that, you get some pretty powerful numbers there.
Sure.
Now, if you think we can't execute, you discount all that. So that's where you get kind of the swings in views and all, but I don't want to specifically speak to them. I think I imagine they will be responding at some point and giving their views of the tran-- which is perfect. I mean, look, we tried, and then once again, there were just some issues where we just didn't see the world the same.
Okay. No, that, that's helpful. Is it fair to say that given, you know, the, the regulatory hurdles, whether they're insurmountable or not, you know, we tend to agree with you that there could be some solutions here. Is it fair to say that you do, though, need sort of willing parties on both sides of a transaction to really make it work in this environment?
Yeah, I think that's fair. Now, other people would argue with me about that, but I mean, you know, times change. But as we speak today, you know, our internal thoughts are that whatever we might do, whenever in the future or, or it might never come about, would need to be with a cooperative partner, that we see things exact, you know, the same, that we don't have infighting and who's gonna get this job and that job. That we've got to, we've got to look at both participants, both carriers, and say: Look, we need to take the best talent from both sides, and, and whoever's the best, put them in these positions and take advantage of, of these opportunities. So, I don't think. I cannot...
Now, I've learned never say never, but I can't contemplate any kind of hostile activity or anything between any carriers. Now, maybe I'm wrong, but I just—we need, you're right. We need that cooperation and pulling together and, you know, and we lose some of these things. I'll mention one thing, this goes back to my previous employer, but we pushed a model called routing protocol. And basically what it said was, to haul the traffic, the most efficient way it can be hauled from a shipper standpoint, without regard to which carrier is doing it initially. And then let the carriers decide all the opportunities that it eliminates by additional miles, it provides better service, which will all create a better pot at the end of the rainbow. And then we can debate about how to split it up.
But now we've got a place we don't have any pie we're creating, because of various, you know, long-haul division mentality. You know, we've got to look at the world differently. The world has changed on us. God, we've been deregulated now for 30 years, and we're still operating to some degree in some old-fashioned models like we're still regulated.
Understood. Thanks for the comments. Appreciate it.
Your next question comes from Tom Waderwitz from UBS. Please go ahead.
Yeah, great. Thank you. It's really interesting to hear your, your views and really helpful to hear your perspective on the issue, Hunter. So, thanks also for doing the call. What, what is the feedback you have, or what's the assessment you have from the other rail CEOs on this topic, aside from CSX? So they, you know, it sounds like they had a different view on the ability to get a deal approved. Do you have a read from other CEOs? Do you think there's CSX is representative of where the other rail CEOs are in terms of quite a bit of skepticism and reluctance?
Or do you think there are some other CEOs out there in the major rails that are starting to think of it maybe in a similar fashion to the way you've presented it?
Let me emphasize what I think, okay? Number one, I hadn't talked to any of them other than CSX about this, so, I want to make that perfectly clear. My sense is, and I hope I'm not giving the wrong impression, is that some of them clearly share some of the views of the past, that don't think this agenda is the right one. But I do think, and I've sensed some cracks in the armor, that people are saying: "Well, wait a minute, if, if we don't try that mousetrap, what do we do if we've got the business in this country growing?" If we got to my earlier comments, if we got pressure on reducing speed, we got more onerous regulations, we got pinch points like Chicago, you don't want to build any more railroad infrastructure. So what do we do?
I don't know. Once again, I'm not trying to promote this to other other CEOs. You know, that's not my agenda, to try to convince them that M&A and activity, whether it's with us or not, is the right thing to do. I just think that, not unlike the little bit of a different view of Chicago, I think some people are maybe reviewing their past positions and posturing and so forth.
And, I think that there's some reality setting in that says, "Well, if we don't use this, and if I'm right about my facts and summation here, what is the response?" So I think that there's a potential for some smart, hardworking people to put their heads together, and I'm not talking about with CP, and do a deal that works for both of them. And if they do, more power to them. You're not going to hear us sitting back saying, "Oh, we're opposed to that merger," and that type of thing. I think it's selfishness. And I think it's a little too bad that people run under the umbrella of, "Well, it's the wrong timing.
You can't get the STB, and you really kind of start to try to penetrate through and say, "Why?" You know, Look, I'm happy. You know, we had some issues last year that were very complex related to grain in the U.S., in North Dakota and so forth. But with that exception, I think Keith and his operating team are doing a pretty good job continually improving service with our customer base. I just think some of these things are ghosts, that people that really look into them. I don't get any cards and letters from customers identifying themselves, saying, "This whole industry is broke and everything is bad." I just think that, I think we ought to take a little more positive attitude to look at it.
Do you think there's skepticism, but, you know, maybe that's starting to change a bit from other rail CEOs?
Yeah, I think that's fair. I think it's a... You know, look, mergers are difficult at best, okay? I used to have an old leader say they're hell at best, because people wake up to the fact that generally, if you put two groups together, there's only going to be one CEO, there's only going to be one CFO, and you start to get social issues and egos and all those things involved... to tell you the truth, sometimes those get in the way of shareholder value. Now, I think if somebody would hang up their egos at the door and start thinking about shareholder value and service to the customer, that different things would happen.
Okay. And then the second question, you talked about, you said, okay, it's hard to do a hostile deal, but I suppose that, you know, whether it's hostile or not, or whether there's resistance or not, might depend on the price. So if you said to Brand X: Say, I'd like to buy you guys for $35 a share, then maybe there'd be a lot of resistance. But if you said to Brand X: I'd like to buy you at $50 a share, and I can think I can find a way to make that transaction work, then maybe it wouldn't be hostile. Maybe there'd be a lot of, you know, a lot more receptiveness. So I guess, you know, is it reasonable to think that you could pay a premium and with that approach, you might get more receptiveness?
Or when you say, we don't want to do hostile, are you also saying: Well, I don't really want to pay a premium, and it's got to be kind of a, you know, we both agree we're merging, nobody's paying a premium?
Look, money talks. I understand that. And, you know, whether the size of the premium or the structure of the deal, I mean, you know, we all have some fiduciary responsibility that if we get some offer to take it to the shareholders, and certainly the price and the structure of the deal is gonna have a, you know, gonna have a lot to do with it. I hope, and I think I'm driven much more as a shareholder than I am a CEO, okay? I can give you a number that if somebody came to us and said, "I'll give you a X% premium for your franchise," they just bought them one, because that's in the interest of the shareholder.
When we start looking at the other things, I think, I think it's a little bit inappropriate, and I think given the activities of boards, I think are changing in North America, maybe not fast enough, but I think a lot of these issues will cause people to rethink what their positions of the past potentially have been.
Your next question comes from Scott Group with Wolfe Research. Please go ahead.
Thanks. Afternoon, guys. So Hunter, what are your next steps? You don't strike us as someone who just waits around hoping that someone comes to you. I'm wondering, do you think about approaching another rail or whatever your next steps may be? And have the events over the past couple of weeks changed your ultimate view of that you laid out a few years ago, that you think M&A is gonna happen over the next three or four years?
Now, look, we're happy. We got a franchise that's going well, it's humming, it's producing results. It's created a hell of a lot of shareholder value. It's throwing off cash. It's doing all the things we want to do. I will not, in my role as CEO, as long as I've got that role, allow us to fall in love with some deal and cause some deterioration of shareholder value of people that are here. Look, we got runway. I'm happy to do this. This is not, as I said earlier, this is not some obsession with me. Now, this call was an opportunity to lay out where we stand and maybe some different views. Are we focusing on something else because this didn't seem to work? No.
But if somebody picks up the phone and calls us and said: Would you like to explore some opportunities? Yeah, I'll listen to them, certainly. And back to the previous question, a lot of it's gonna have to do with what the price is and what it produces for the shareholder, which I happen to think we overlook too far and too much. I ain't heard very little talk about in this, from the last week or 10 days, much about shareholder value, which ought to be the first concern as far as I'm concerned. But no, look, this works either way. If something else comes along, that's a beautiful thing, we'll take a look at it. If we've got CP Railroad to run, that's a beautiful thing. So both of them work.
Okay, that's helpful. And just second question, you answered earlier that when you were running numbers of CSX and Norfolk, it was awfully... It was close. Just wondering, if in your mind, there's anything structural that prevents an eastern rail from getting to that low 60, 60 operating ratio? And then if your idea behind a merger of fixing Chicago or some of the other advantages, could that still apply to a western rail or a Mexican rail or a short line rail, as other options, alternatives for you?
Now, the second part of your question, I don't think so, if I understood it right, Scott. The structural issues are no. You know, the structural issues are... I'll just give you a little history here and let you be the judge. When my former employer did the IPO in 1995, very smart man that was CFO at the time, Michael Sabia, who's now heading up the Caisse, said, "Don't expect Canadian railroads to reach the standards of the US. It's just not in the cards, it's not structurally possible." And we took the model from the US to Canada, and that company turned around and ran by the US ORs and other metrics. And then guess what the US said? "Don't expect us to get to any numbers like Canada.
It's just not in the cards." Well, if you take it, my view, and you peel it back, I've run railroads in both countries, and it's about a wash. Look, you got some fringe benefits, advantages in Canada, but I can tell you, I'd rather railroad in Jacksonville than I would Winnipeg in the winter. And you put all that in the blender, and it's about the same. You can achieve either one. If you execute correctly, you can produce similar results. So no, I do not believe in this so complicated eastern roads and the spaghetti bowl and all that. If you got too much spaghetti, get rid of some of it.
That, that's great. Just to clarify the, my second question that you answered first. You're saying you don't think a merger could make or a deal could make sense with you and one of the Western rails or with you and one of the Mexican rails?
Okay. Yes. Yeah, well, let me... I misunderstood your question. I guess, yeah, the same type of, you know, situation applies, like I talked about earlier. I guess when you place a little reality on it, and you start thinking about the likelihood, I think the likelihood, in my view, I could be wrong, is much lower, with the two Western big boys. Now, you know, there's always been speculation about, KCS, and we got it within. We had pens in hand one day to sign that in about mid-1990s, but that didn't work. And I don't love the Mexico play, so you can draw whatever conclusions you want to there. And KCS is very expensive, which is good. I mean, you know, they've done a good job there.
Your next question comes from Eric Atkins with Globe and Mail. Please go ahead.
Thanks for taking my call. Not merging, what would that do to the growth targets that you've set out for CP Rail?
Oh, it doesn't. Any transaction was not, at all, in the four-year plan. If something had come about, you know, that would all be additive to the four-year plan performance.
For the company itself, what do you see as the biggest downside of not consolidating?
Just missed opportunity with shareholder value. It's only $several billion. Not enough to worry about.
Thanks.
Your next question comes from Allison Landry from Credit Suisse. Please go ahead.
Thanks for taking my question.
Sure.
Sorry, did you receive any unsolicited feedback from shippers? I know, you know, somebody else asked about whether you've heard from the other class ones, but maybe, you know, what shippers have said and, you know, have any short line rails provided you any feedback? Just wanted to sort of gauge where those constituents sort of fall on this issue.
You mean relative to M&A activity?
Yep.
Well, I haven't talked to any shippers recently in the last couple of weeks relevant to this, these rumors and the rebuff and so forth. But I have talked to many shippers before. That goes back to the previous employer and the attempt to do a deal with BN, that talked about bottleneck, that talked about access, that talked about some of the, quote, "was viewed as traditional rail positions," which they're opposed to, but our positions, they, they were very excited about. So I... You know, it kind of depends. I have not, once again, I've not had any recent conversations or have gotten no calls from, from shippers that would have been involved here. I guess, with a couple of exceptions, that shippers that on CP that were excited about maybe opportunities that would help them.
Mm-hmm. Okay, that makes sense. And then maybe if, just if there were a transaction, you know, that, let's say, either, you know, let's say CSX were to go through or if it's something else in the future, could you talk about some of the potential ways that it could be financed? You know, specifically, you know, you've talked about, you know, you're comfortable with a leverage ratio of 2-2.5 times. So, if a deal were to present itself, what would you be comfortable with in terms of, levering up? And within that context, how would, you know, how do you think about your ability to continue buying back stock and balancing the two of those in terms of getting back to your whole point, which is shareholder value?
We're in a good position. Bart happens to be here with me, and I might ask him to comment on this, too, but we're in a pretty strong position, balance sheet-wise, cash-wise, credit rating-wise. You know, I have had calls from bankers, I know you probably, that said, "Look, don't worry about the financing. We got all you want." I don't think that's an issue. If some opportunity presents itself, this organization is gonna be nimble enough, with our cash, that we can do what's appropriate for the shareholder without putting ourself in some-extending ourself too far in the market.
But-
So far, I said I did a pretty good job, so leave it at that.
Okay, thank you.
Your next question comes from Keith Schoonmaker from Morningstar. Please go ahead.
Thanks. Hunter, a simple question on the mechanism of how a combination with an Eastern Rail would improve congestion. Looking at my map, which may lack adequate resolution, CSX doesn't seem to provide a path around Chicago like the J did. What, maybe you can elaborate on how a combination would practically relieve Chicago congestion, please?
So take, Keith, take an example of Western traffic coming out of Western Canada that wants to go to the East Coast or the Southeast. You would come over the lakes. You would never go down to Minneapolis, St. Paul, into the U.S. You would loop the lakes through Toronto into Buffalo, for one example. The other example, if it's extreme East Coast, Northeast, you'd bring traffic out of Western Canada or Northeast Canada and come over, Albany, New York, with the CSX and make a connection there. That's just two examples that would, you know, would take a, you know, a substantial amount of business out of the, Chicago gateway, and those aren't the only two.
Okay, so we're talking about more going through Windsor, Buffalo, Montreal, type of intersections rather than Chicago?
Yes.
To follow up on that, is a potential benefit, though, additional ownership of the Belt Railway, where you might have opportunity to manage that asset a little more efficiently?
Well, you know, I think that, Keith, in fairness, to the Belt, I have been, as an owner, we have been pretty hard on the Belt recently. And we've done some work with the Belt, hopefully motivation, suggestions, trying to provide other help. I'm not so sure that if the Class I do some of the things that we need to do, each one of us, that, number one, there would be some positive, indicators and help for the Belt just there. And then with some other efficiencies and some further better planning, you know, I can see the sun shining in Chicago.
Thanks, Hunter.
Your next question comes from Benoit Poirier, from Desjardins Capital. Please go ahead.
Hey, thanks for hosting this call, Hunter. Just looking back at the potential transaction with CSX, how much of the M&A benefits would come from a larger network, economies of scale, rather than putting a strong operator and reducing the OR?
Well, Benoit, it's hard to say, but I think it was, if we looked at it, it was more efficiency driven. You know, and once again, that's our numbers, not theirs. I, you know, I'm not saying that they would necessarily agree with this. I don't know. But our look at it was more from an operating efficiency standpoint, certainly some market extension, certainly some improved service, which hopefully would come with some increased revenue, quality revenue. But the mix would be dominated initially by operating synergies.
Okay. And when you look at all the potential transaction in the past, what should we consider in terms of revenue and cost synergies that we can typically assume in a potential M&A transaction, Hunter?
Oh, God, I don't know how I'd do that, Benoit. I would say this. Let me be sure I understood your question. Help me again with it.
Yeah. Okay. So I was just wondering whether we can see not only cost synergies, but if there's also revenue synergies on top of that, and what can typically be the magnitude of?
Well, you know, to speak to that would cause a lot of churning. Our view is that there could be a lot of wealth creation for shareholders. To your earlier question, the operating synergies, the market extensions and the marketing synergies, improvements and market share gains with the highway and organic growth. You know, typically, the first thing people look at with some kind of M&A activity is kind of what I call back shop headquarters stuff. Well, in, in my view, that's a drop in the bucket. Really a drop in the bucket to what we're talking about opportunities here.
... Okay. And just in terms of assuming the STB supports your view about consolidation and potentially strengthen the rules, what would you be willing to accept and not willing to accept in terms of potential rules that could come out from the STB?
Well, I think, I think the rules have changed. If you go back 25, 30 years ago, or you go back to the transactions that were mentioned earlier in the early 1990s, if you're going to merge, then everybody else came to you with a handout saying: "Well, you got to build me a bridge or agree to do this." And the STB kind of erased those things. They should have been erased. And each transaction stands on its own merits. And as long as you can meet, you know, the law, and now that there was additional regs put in this last time that said you have to enhance competition.
So as long as you can enhance competition by giving better service, and meet the other criteria that the STB has spelled out, I think that reasonable people can look at the law and say, you know, that passes the test. And I don't think that it... You know, and we think we're outliers here. Bottleneck is no problem with us. Access is no problem with us. That creates competition, that's no problem with us. But you got to have confidence in your plan and confidence in your ability to execute. And given that, I think that reasonable people on the STB would look at the transaction and say, we, you know, passed the test with the law, then we'll get the transaction approved, if there ever comes another one.
Okay. And just last question, if I may. In terms of interswitching, obviously, they increased their radius here into the provinces from 30 kilometers to 160. Now, in the U.S., there, there's nothing. Just wondering whether an interswitching rule in the U.S. would allow to remove some congestion and service issues?
No, I think our model of access would be, would be a much better model than some kind of imposed interswitching or reciprocal switching or what. I mean, I think, I think that we've seen the interswitching put in and expanded, and I don't think we've seen much happen at all. It's been a non-event. It just was articles in the paper and something for politicians to talk about. And then to extend into the US and think that, that somehow Canada is going to send grain to the US to be moved, the US can't move what they got. So I, I think that is the... I think bilaterally, railroads getting together can solve this problem a whole lot easier than, than politicians and regulators and bureaucrats that don't understand the issues.
Your next question comes from Laura Stevens from The Wall Street Journal. Please go ahead.
Yes, hi. I was hoping you could possibly explain what you meant when you said that you're quickly approaching a time where none of this works and that railroads can't continue to go down the road that you're going down. Can you tell me, I mean, what do you think is going to happen to the network system, or can you explain a little bit more about what you mean with that statement?
Yeah, sure. Let's assume for a moment that there's going to be no more railroads built, and we've just gone through a period since 2008 of not the most robust economy in the world. And in fact, ton-mile numbers and railroads market shares are just coming back to those kind of numbers. But as I read and look at the crystal ball going forward, I think there's going to be a desire to put more tonnage on the rails. At the same time, governments are saying: "But we want to slow you down because of hazmat and crude, so now you're going to slow down." There's no more infrastructure. Nobody wants the railroad to run through their backyard or their city. I've been doing this 50 years, and I don't have you do that.
So what I'm concerned about is that we come grinding to a halt in North America and have some big gridlock, and then we have to go through major cleansing, if you will, to fix this issue that we've got. We've got an opportunity to start addressing now ahead of the fact.
Okay, great. And then can you give me a few more details on what exactly you'd like to do in Chicago or your solution to the problem there?
Well, first of all, you know, there's several components there, moving parts. You know, the Belt Railroad needs to operate effectively and efficiently, and they need to probably, and I'm being pretty critical here, but they need to improve their productivity. Railroads need to pull cars out of the Belt Railroad like they've committed to, because if they don't pull them out, the Belt can't take others in, and then it starts to have a domino effect, holding 15-17 trains between Minneapolis and Chicago because we couldn't get in. People have to do what they say they're gonna do. And if railroads or others don't behave correctly, we've got to find a mechanism to make them behave. And if that mechanism is fines or whatever, you know, there's an infrastructure in Chicago that if executed correctly, we could handle traffic.
It's not gonna take us through the century, obviously, but we can buy some time. But when you get six railroads that own one entity, that to some degree are all competitors, and they've got different views of the world and are driven by different bottom lines, you don't get necessarily the most efficient behavior for a gateway. So that's what I'd like to see in Chicago, is people do what they say they're gonna do, live up to their commitments, and think a little more, more about the overall rail impact than just their internal bottom line.
Thank you.
Hunter, please go ahead.
Hello?
Hello.
Hi, Hunter. It's Ken Hoexter. I'm sorry, I didn't hear her announce my name. So just on the... What was the sticking point, just revisiting the CSX, in, in terms of the discussions? Was it fear of open access in the U.S.? Was it the impact to the, the shareholder value you talked about before? Was it regulatory, or after you said 3, 4 meetings, did it just come down to price to get that far? Or was it still in the preliminary, we're never getting past the regulatory fears?
Ken, I think it would be fair to everyone if you'd ask them that, okay?
Yeah.
Because I don't like to be a spokesman for them, and they don't like me to be a spokesman for them. And I think clearly, they can quickly answer the questions for you and know exactly what they meant. And some of this, you know, wasn't really explained in any level of detail. So in fairness to them, I just think it's probably time for me to shut up for once.
Okay. And then just you mentioned earlier that it really was close between the Eastern rails, but you know, certain things led you towards CSX. Why, if in terms of when you went through this, if you felt like it wasn't going to progress, what were the stumbling blocks, or why didn't you jump on the other Eastern carrier? What made this a one-shot deal, given the synergies and benefits you're talking about, and you started out some of the parameters that this was a kind of a close balance between the two?
Well, I don't-- I wouldn't call it a one-shot deal, but look, a lot of us have been in the business for a long time and worked with these, all these various carriers for a long time. We know a little bit about their culture, about their corporate personality, if you will, their strengths, their weaknesses, their markets. And, you know, could we have done either one? Yeah. Would both of them probably have been similar? Would one of them compellingly different from a, from a cash bottom line standpoint? No, but there are other issues that come into play besides that, that I'd prefer not to discuss.
Yeah. Okay, and then you mentioned... Well, actually, let me just throw in, on the STB, if it goes down a member at the end of this year, is that a delay point in you think anything progressing in terms of approaching the STB? Or is that, you know, hey, they've got to deal with whatever membership stands there?
Well, it could be, Ken. You know, I hate that, but, you know, I—if I'm understanding everything correctly, term limits run out on the chairman. And then, you know, we've got this issue in Congress where sometimes it's a little difficult to get things passed through, and people go through the hearings to get, there's talk of, you know, expanding the size of the board. So could some of those things be an obstacle? Sure. You know, that's more pure politics, not the law. So I don't have a great deal of insight there. It'll probably be impacted by midterm elections, and forward over, it'll be the next election, and, you know, who's gonna be appointed, and is it gonna be a Republican or Democrat?
Look, I have a little faith in the system that the law is the law, is the law, and reasonable people can read the law and decide whether we pass or don't pass. I hope that we don't get so tied up in Washington bureaucracy and all in politics, that we can't get the things done that need to be done for the country.
If I could just wrap up on service. Looking back, you mentioned kind of some of the service issues that really hit some of the prior mid to late nineties mergers hard. Was that more because they were forced at that end of the stick you were talking about when they needed to merge as opposed to doing things on their own, as you've had success at Illinois Central and CSX, CP Rail and Great Lakes, you know, all the other M&A you've been involved in? I guess just stepping back, what service issues? Is it just having the time and being able to work through them ahead of time, or what are the other obstacles you've seen, you know, as you lead into some of those mergers?
Well, I mean, some of it's timing. Some of it's, you know, time to develop a plan. Look, a lot of us in the industry, I'll just give you one example, knew, or at least we would bet everything in our pocket, that as soon as BNSF merged in 1995, I believe it was, that the next one was UPSP, okay? For a lot of reasons, and they'll have to tell you what the reasons were, but we happened to be right. Now, they went through that, and for whatever reason, I think they would tell you it wasn't real successful from an execution standpoint, and we went through gridlock twice. So I guess my point is, to make an assumption that a merger does X is wrong.
If you don't execute it right, if you don't have the correct planning, if you make the wrong assumptions, you can, you can mess it up. At the same time, if you do those appropriate things and deal with a lot of the things that cause problems, and a lot of these things are not numbers. They're anxiety with people. Where am I gonna be? Am I gonna have a job? Where's headquarters gonna be? All those things that start to come into play that impact performance and productivity and those things, people kind of discount. And those are the, the real nuts and bolts of what you need to be sensitive to, besides just doing traffic studies and flows and that type of thing. And I just think some people have done it before, and hadn't been very successful in execution.
Truly helpful. Appreciate the time. Thank you, Hunter.
Thanks, Ken.
Our next question comes from the line of Jason Seidel from Cowen. Your line is open.
Thank you, and thank you, Hunter, for taking the time. Two quick questions. One, if a potential deal were to eventually go through with you and a counterpart, would that change any of your plans to divest any of the properties that you currently have, including the D&H, or no?
No. You know, not that we know of today. I mean, you know, if you go back to our plan at the time of the proxy contest, we said we're gonna take a hard look at the D&H, and we did. And then we sold Tracy West, you know, and at one time, people were thinking a whole lot about Powder River Basin. You hardly hear the term mentioned anymore. We said we're gonna take a hard look at the D&H. We have, and, I think we're close to a deal, which then would take regulatory approval. So, it would, that'd probably put us into mid-2015. But I think if I look at the rest of the franchise, particularly from a U.S. standpoint...
Well, I shouldn't say particularly, I mean, I think the rest of the franchise is pretty solid. We've got a different set of rules and regs, for example, for abandonments in Canada. No, I wouldn't see the franchise changing because I think all you gotta do is look at a map effectively, and if you rule CN out, that ain't gonna happen, I can tell you that one. I'm that smart. That's not gonna happen. Any other transaction we would do would effectively be end to end. So there's not gonna be a lot of overlap, a little bit more with one than the other, but effectively, there's not gonna be any big line segments that somebody's gonna rationalize and close up or sell or do something different.
Okay, thank you. And for my second question, could a lot of these benefits from a potential merger be solved by working together closer with some of the railroads? Like, i.e., if you would go with CSX, could you guys make it more efficient through some joint ventures?
I don't believe so. I've seen those things, and I've seen them not work. You know, and I'm not—I'm just giving you a hypothetical. You sit down with carrier X, and you agree to do a run-through train, and you're gonna block the train this way, and here's what you're gonna do for the customer, and you sign that up in October, and then Thanksgiving comes, and they say, "Well, we're closing down 4 days for Thanksgiving." What? Well, we don't close down. We work 365. People see the world differently, and it's extremely, extremely hard. You know, if it's your bottom line, it's yours. You know, if you start to make, quote, "deals," you gotta be sure, hopefully, that the, the other carriers are gonna do what you say they're gonna do.
And if they get six months into it, and they say, "Ah, this is not working. Let's do something else." And look, set CSX aside, just take a railroad X. Our metrics are at the top of the heap, and CN is also doing... I'll give them a little plug, is doing an excellent job. But I think generally speaking, so it's powerful if you say, well, why can one railroad do it and another one can't? When you got the same kind of locomotives, the same kind of cars, the same affected markets, the same gauge, why does one execute better than the other? Well, it always comes back to me, to people and execution.
So if you took, just simply took key operating metrics and overlaid them on railroad X, that's at a 71 or 72 or 73 OR as opposed to. It's in the math, it's powerful. And, you know, guess who's been bringing it to my attention for about 5 years? You folks. Why don't you do X? Why don't you do Y? And then I do it, and they say, "Oh, STB is not going to approve that." Well, quit worrying me about it then.
Well, thank you, Hunter.
Sure.
Once again, John Larkin from Stifel, please go ahead.
Thank you, operator, and thanks, Hunter, for taking the questions today.
Sure.
It seems to me that logic would dictate that the shippers would get comfortable with your philosophy here, because service would get better. Management may come around if they get a little pressure from their shareholders, who in many cases are your shareholders.
Yes.
The question is, how do you deal with labor? Headcount reduction is such a big part of your philosophy and your strategy. Do you have to work closely with them to work out some sort of an agreement in advance? Would the STB perhaps listen to the labor unions, maybe on the negative side of approval, if your plan included cutting headcount significantly?
Well, John, you know, that's one of the reasons the agreement, for an example, that we have out with the running trades in the U.S. now, and I guess it's just the conductor UTU side right now. We think the engineers will quickly follow. But that's a different mousetrap than the other carriers. Every one of those people has job security. Now, there's not many people on other railroads and rail lists that can tell you, "I got job security." But we sat down with them in good faith and said, "You do this for us, we'll do this for you. It's our job to manage this." I think I saw some numbers the other day that about 91% of the reductions at CP have been through attrition, natural attrition. So...
And I would also add this, in this hourly transaction that's out now for ratification, they came to us with our model. We didn't knock on their door; they knocked on ours. So we're getting close to doing something right with people. So I think that labor, as opposed to dealing with another rail, with the STB or with others, is the easiest one in the world for us to be able to deal with.
Got it. Thanks for that answer. Just, maybe another question on a different topic.
Sure.
Back in the old days, 10, 20, 25 years ago, when the focus was on East-West U.S. mergers, you, you probably remember that, there were some revenue synergies associated with putting an eastern carrier together with a western carrier. Because of the focus on revenue splits on some of the shorter haul traffic that would connect in the middle third of the country, people were not moving it by rail because no one could ever agree on a, on a price and a revenue split, strategy. But if you put the two railroads together, it would give the combined railroad maybe twice the revenue, that they would otherwise be getting and all of the profits.
When you looked at a merger with an Eastern U.S. railroad, did you see any similar revenue synergies, or was your focus mostly on efficiency and cost reduction?
No, you've got the same revenue synergies, different little... You know, you look at Chicago and some rail people, the first words they learned was the Chicago division and the long haul. Well, you don't have to worry about that, to your point, John, when, when this. If you add one carrier instead of two, you don't have to worry about how you're going to cut up the pie. You just got to worry that there's a competitor over there. You can allow the competitor in, so there's going to be competition, and you're going to be a more powerful competitor with the highway. And the issue is this: the challenge is how do you deal with the growth? And that's what needs to be addressed. And that's why it's such a tough question, nobody wants to address it, okay?
Thanks very much.
There's one Class I today in a major gateway, okay, that has a bridge over a major waterway that can't get any more trains over it in the next two years. That's it. That's all the capacity for the bridge. What do you do? Now, you know, if you're going to build another bridge on a major waterway, you got the Corps of Engineers, you got environmental studies. And I'm not criticizing any of that process, I'm just saying it's fact. But nobody wants to deal with it because it's pretty controversial.
Got it. Thanks very much.
... Your next question comes from the line of Walter Spracklin from RBC. Please go ahead.
Thank you. Hunter, when you look at the regulatory guidelines as they exist today, there's a view out there that a merger, if proposed, could take anywhere from 2, and I've heard upwards of 3 years. Is that your view or your read on the guidelines? And if so, is a merger even possible, if that's the timeline, when we get all the I's dotted and the T's crossed here?
Well, I think, once again, Walter, it's, it's how you execute that. Now, there's certain statutory time limits, whether it's a major merger, and, you know, most of them would be, that we're speaking of, would be in a merger. But I, I think that if you do your job and if you do it correctly, you know, you can certainly not 3 years, you could get... If I had to guess a number, I would say 18 months, probably best, somewhere between 18 months and 2 years. And, and depending on the structure of the deal, if there ever was one done, I'm not talking there is one. You get too long into that, and you get this dead money issue, and then it takes some of the enthusiasm away.
But I think it is certainly the key is this, I think, is how you deal with the constituents. If you're able to go to the customer base and make a case that what you're saying is reasonable and they buy into it, and you know, and you're able to, to John's question earlier, be able to deal with labor, and you can get those things done in an effective way and go to the STB and say, "Everybody agrees. What do you think?" You probably got a deal that'll go pretty quickly. If you had a lot of opposition, if the customer base is thoroughly against it, and labor and so forth, then it could be into three years you're suggesting.
Second question would be on, on the political side. I think you mentioned CN, and I'm really referring to the options that you might have open to you now that now that you've kind of at least for now closed the door on or the door's been closed on CSX. I think, as you mentioned, CN's not an option. I agree with you there. And even the Western Rails, I think you alluded that they're probably not an option. I think Ottawa would have some issues with that.
Is it fair to say then there's only, you know, in a large, from a large camp, it's only Norfolk Southern and CSX, or Norfolk Southern and KCS, and potentially CSX, if they were to come back to the table, but is that the framework we're looking at?
Well, you did a pretty good job of capitalizing.
Okay. All right. Thank you very much.
Your next question comes from the line of Jeff Kaufman from Buckingham Research. Please go ahead.
Hunter, thank you for this whiteboard session on M&A here in the 2010s. And I think your explanation goes a long way in answering, I think, the natural questions the regulators would have. I guess my question is: If we think about it beyond what's best for the shareholders and assume any transaction you do, you find a way to make it a good return for shareholders. Ideally, what kind of franchise extension in a perfect world makes the most sense for CP? You talked about your feelings on Mexico. What about the eastern rails would be a better fit for CP?
I understand the end-to-end part, but is there kind of a natural fit for CP, in your view, if we take the managements out of it, and we take the price discussions out of it, and you can pick and choose your theoretical rail partner?
Yeah, that's probably, you know, once again, Jeff, it's not just such a compelling argument. You'd never look the other direction.
Mm-hmm.
But if you look at the most natural fit, if you look at some realism that, you know, the guys in the west are a whole lot bigger than the guys in the east about doing a transaction. Yeah, I think that would be the, if I had to paint, you know, the ideal picture, and I could do all this myself without any approval. Yeah, that's a good assumption.
Okay, you know, all my other questions have been answered. This has been a great call. Thank you.
Thanks, Jeff.
Our next question comes from David Vernon from Bernstein. Please go ahead.
Great, thanks for taking the question. Hunter, earlier, you addressed the idea that the industry is going to be facing some capacity or congestion issues if we don't sort of get towards some further consolidation in the sector, and presumably that's going to be capital and cleaning all that stuff is going to be capital intensive. Could you talk a little bit about why a merger is a more efficient way, the use of capital, than the railroads each individually spending on their own?
Well, I think the first obvious answer is this: You know, if you put two together, in my view, you automatically create capacity there. Just by better coordination with one carrier, you gain X amount of capacity with that alone. So instead of somebody else having to go out and build new infrastructure, tracks, sidings or what, you can take what you've got by one management instead of two, and it can create more capacity. So, would that cut down on the capital exposure?
... Okay, and then I guess as you think about, you know, how that plays out and shippers being more anxious about capacity or rail service, you know, how receptive do you think they're gonna be to the potential for a merger? And what do you think the alternative would be for them in sort of three to five years?
Well, I guess, I guess I kind of put myself in their position. I've tried to a little bit and say, things don't look very rosy right now, if I'm reading their press clippings correctly. And they-- I don't hear any proposed changes going on, except hiring people and maybe putting more locomotives. What's gonna get better? What's gonna cause my service to get better? And if somebody else presents a different model, that's gonna, if you're involved with bottlenecks, gonna open up bottlenecks. We don't argue about that. If you don't like our service, you call in brand X. I don't know what else they can hardly wish for. Better service, which to some degree, we're open to contractual commitments on service or whatever. I just take the right people in and talk to them.
All right, appreciate you taking the question. Thanks again.
Bye.
Our last question comes from the line of Allison Martell from Reuters. Please go ahead.
Thanks. So you've said that you're not afraid of open access, but to be crystal clear in the context of consolidation here, if the STB says you can buy, say, Norfolk Southern, but you have to implement open access, not everyone, just you, would you say yes? And do you have any reason to believe that they would impose that kind of condition?
Well, I wish this wasn't the last question. First of all, Allison, let me, I didn't, I didn't use the term open access. I said access.
Okay.
'Cause that's got a different connotation to certain people. But we're not scared of access. You know, look, I'm all for competition. So if, just hypothetically, if the STB said, you know, you can merge with carrier Y, if you open it up to access and it's reciprocal, yeah, let's do it. Because then what you're gonna have is the strong, effective, efficient, productive are gonna be the winners, which is the way it ought to be. Why create competition if you're not gonna have any value creation? Yeah, we'd do that in a minute.
But it would have to be reciprocal.
Yeah, I would think that's fair. You know, I mean, I don't know why you would say, you know... Once again, I think we're past those old days of the STB or the Interstate Commerce Commission saying, "Well, you gotta do this, but you gotta pay some dues." That doesn't apply to the other carriers. But, and then at the same time, it precludes certain shippers, like mine, from being able to take advantage of what I've given the opposition shippers. You know, we make this thing a little more complicated than it is. But look, if somebody wanted to open it up, I'm happy to open it up.
You know, I have made the suggestion, I wouldn't, this wasn't part of my remarks, but I've had a couple of shippers say to me in casual conversations, you know, "This is an easy job, and we ought to be able to make all the money in the world and do things right," and so forth. So I said, "Look, how would, how would you like to go in the railroad business? I'll, I'll rent you some track, buy you some locomotives, and buy you some cars and haul your own grain." Well, they don't think that's a very good proposition.
Thanks.
Thank you. So, hopefully, I've—we've been able to meet some of our objectives, which was to better, hopefully, explain our position as it relates to these most recent issues. And, we certainly appreciate you taking time out. A lot of you have taken almost the whole morning out and, and, and you've certainly shown your interest, and that we are very appreciative of. And, keep the faith in all my comments. This is gonna get better. Trust me.
Thank you, Lita. Thank you, everyone.
This concludes today's conference call. You may now disconnect.