Afternoon, and thank you for joining us for the CP Investor Day. Welcome. Sorry for the delay. We had some flight issues coming out of Montreal and Toronto, so we thought it'd be appropriate just to delay to get some additional people that were expected to come in. So, so apologize for that, 15 minutes. For those listening on the web and watching the videocast, a warm welcome to you as well. I trust you've all seen the press release we issued, what, 40 minutes ago. As an IR guy, I gotta tell you, it's kinda like Christmas. Getting cash flow $6 billion over the next four years, cumulative, $10 billion of revenue, and more than doubling EPS kinda makes my job fairly easy. But anyways, excited about the next couple of days. We've got a great event ahead of us.
So before I get into that, I, I'll do a little bit of my IR job here. I think it'd be appropriate to remind you that the presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties, and other factors that could influence actual results are described on the following few slides in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on slide four. Prior to starting the formal program, I'd like to call upon our Senior Vice President of System Operations, Scott McDonald, to provide us a safety briefing. Scott.
Okay. Good afternoon. Safety at CP is extremely important. It's my task here this afternoon to walk us through the procedures we'll follow if we happen to have an emergency situation. So if an emergency takes place, the hotel staff are well-trained in emergency response, and they'll provide the appropriate assistance and direction. We also have two CP employees in the room, Breanne and Maeghan. They have their hands up. Breanne's over there. Maeghan, we're oh, there's Maeghan. So they, they can also provide assistance, and they'll be your first point of contact over the next two days if there's anything else that you require here during the Investor Day. If the need arises, as you walked in, you would have noticed there's hotel courtesy phones throughout the convention center.
If you require emergency assistance, you can pick the phone up and dial 5858, and that will direct you or put you in direct contact with emergency assistance personnel. If there's a medical emergency, any of the security staff at the hotel can provide assistance and will direct the appropriate medical or fire staff as appropriate. Now, if by some chance we have to evacuate, we'll take direction from the hotel staff. It'll be announced over the public address system. Unless we hear otherwise, we'll stay in the room, but if they tell us to evacuate, we'll, in a calm and orderly manner, we'll go out through the rear doors, follow the well-marked exit signs, and we'll take any further direction from the hotel staff. With that, thank you for your attention, and Nadeem, back to you.
Thanks, Scott. What I find works pretty well is just follow Hunter. You get to where you need to be pretty quick. So the team is very excited. I think, and I'm excited for you to spend some time with the team over the next couple of days. So please take the time, those here, to engage and get to know them and get a feel for why we think they're the best railroading team in the world. To set the scene for the evening, we'd like to play a short video that will highlight some part of CP's journey to date. And then following that, our CEO, Hunter, will share with you his opening address, which, let's face it, we're all here to see. So with that, enjoy. Thank you.
Every day at CP, we are driven by the power of asking why. A word that has not only transformed a company but a culture. Three letters that compel our people to ask day in and day out, "How can we deliver better customer service? Can we be more mindful of how we spend money? Are we getting the most out of our assets? Can we be safer, and can we do more for our people?" Our people are the most important. They're the engines that turn these questions into answers to improve service for our customers and create ongoing value for our shareholders. It starts with everyone sharing the same attitude, an attitude that's passionate about railroading. No matter what our title, we look out our office, and we know what business we're in.
We understand we're an operating company whose success depends on keeping things moving to help our customers' business grow. On being known for providing the most efficient and reliable rail service in North America, that's why we question everything. We sweat the small stuff because railroading excellence demands it. We believe a little detail can translate into a big difference. Our leadership, who came aboard in 2012, put in place a simple roadmap: do better, do more. And we've done what we said we would do. The power of asking why has driven continuous, rapid improvement across all platforms. We're operating more efficiently with less. We're more agile. We're faster. We're creating more service offerings in areas we're now competitive in, and we're giving back more to communities. But more importantly, we've restored a key ingredient in our company and people: pride.
More than a century ago, the visionary railroaders at CP helped build a country. Over the years, we've served as a backbone of North America's growing economy. Today, we're not only a stronger company that is building on our historic legacy, we're creating a future that is just now unfolding for our shareholders and customers. It's an introduction to a new, iconic CP. We're no longer catching up but setting the pace. Being in front means having the best vantage point for seizing opportunities first. Entering new markets. Changing the expectations of what it means to be great railroaders. Building a stronger, more successful company for the long term. Our stubborn focus on being better will not just make us the best. We will redefine what that word means each year. That's because every day at CP, we are driven by the power of asking why.
Welcome to the new CP.
I think it's my cue. They told me there'd be another one, but welcome. Nice to have you here today. Those of you that have concerns about security, just relax, okay? Because we have a noted member here of the formerly with the Secret Service. I know you've read in the press the last two or three days about our Secret Service organization and how solid they are. So I'm sure it would give you great comfort in knowing that one of the members is here. Now, he's in disguise, but he's among us if we need him. You know, I reflected last night a little bit about the last two, two and a half years, and it's hard for me, it's hard for me to comprehend what's happened and what's taken place in such a relatively short period of time.
It's obviously been a nice run, been a successful run. It's far from over. And I guess some of you're wondering, well, you know, was there urgency in having this meeting the time when you had it? A little bit of urgency 'cause I'm running out of time. This is probably gonna be my last plan, my last cut at the apple. So I'm very engaged to be sure that this is another step in the right direction. I looked out here in the audience, and some there's a couple of two or three people I should recognize that are normally not present. Paul Hilal from Pershing Square, who led this file in the proxy fight and did a hell of a job.
I spent a great deal of time with him on the road trying to convince investors that this was, was the thing to do. I saw his associate, Brian Welch, somewhere. Paul, stand up and just wave at the group there. I know you love recognition, so, Brian, where are you? Here. Here's Brian. He's, he's in and Mr. Ackman was supposed to be here. He's not here, is he? He's never here when the recognition is being thrown out, okay? So he's a very low-key, kinda under-the-radar guy. But let me, let me reflect on, on why we're here.
You know, some of you that I have worked with for some period of years have always asked the question we've been, as a team, and the teams I've participated in, in this business, have always been asked, from an operating ratio that we were obsessed with operating ratio, how low can you go? I've always answered sincerely—I'm not sure that people bought this totally—that this is, this is not always about an obsession with operating ratio and how low can you go from that standpoint. It's much more about the bottom line, particularly when you're dealing with the high fixed cost, capital-intensive business.
And very frankly, I have had a little bit of success in this industry, but I've never been put in the position of saying, "We're just about there," and that magic point where you gotta think about looking at cost differently relative to growth. We can clearly see, I hope you can also. We can clearly see low 60s. You know, and some of you are gonna put some bait out there in a minute and say, "Could you go lower than that?" And so before we get into that I mean, we're where we need to be from a cost structure standpoint, but that story's not over. So I think it brought us to start thinking about what were the next steps here? And I think you have to think about it in the context of where we have, as a group, come from.
A lot of us have come from different backgrounds, different organizations, some internal with the glue that's held the organization together. Been a lot of turnover, a lot of change, a lot of players from other railroads. But we have, we have been pretty successful in molding a team of, of railroaders that get it, that understand what needs to be done, and are ready to deal with it. And as I was thinking about this, with due respect, all the wisdom we had in this room, I thought we would maybe reflect back to what, others thought about this transaction as we move forward. Gosh. You know, we have a magic marker here that I could take and run over this white strip, and your name would appear. I'm not gonna expose you to that again, okay?
But I think it gives you a clear indication of where a group of railroaders understood it and the market didn't. And that's the two forces that we have to bring together. CP needs 50% more locomotives than CN to move the same amount of tonnage. We heard all about the structural issues. Hadn't heard the term since, about structural issues. As a hedge fund, do I wanna be longing this stock for the next three to six months? No, I want out. And probably got out. Mr. Harrison has no detailed plan to improve CP's operating performance. The share price move out of the gate yesterday was, in our view, without merit. Now, you gotta think about it - and I'm going back in time a little bit - at about that time, the market cap was about CAD 7 billion-CAD 8 billion.
Yesterday, I think we closed at right at CAD 40. Now, there's been a lot of noise today. But I think it goes to show you, to some degree, that we've been able to really do what we said we were gonna do. If you go back to December, if you look at the CAGR on revenue growth, 4%-7%, mid-60s operating ratio, about 2016 - this is 2014 - cash flow, CAD 900 million. But really, what has been done? 8% revenue CAGR, mid-60s OR, cash flow before dividends of CAD 1 billion. And I would hasten to add - and I'm not generally, hopefully, an excuse maker - but when I was doing my calculations that I was accused of not having any plan - and I'll tell you a little bit about the market, some degree, a little bit about analysts, some analysts, okay?
They said, "What's your plan?" And I said, "Well, it's, you know, it's pretty complex. How long you got?" And I'll sit down and explain it to you. "You got about 10 minutes." "Can't understand the plan in 10 minutes. Give me something." "Well, you like headcount?" "Oh, I love headcount." "How about 5,000?" "Oh, it's bye." Next day, okay? It's pretty simple. No complex plan. "Give me 40." I think it was 4,500, actually, okay? And there's where we got. Now, to think about where we were, not only numerically, okay, but qualitatively, as a group, attitudinally, morale-wise, a lack of esprit de corps, but a group of underlying individuals who were tired of being called the worst, who thought they had more to offer and more to give, given some leadership and a chance.
Now, we got a pretty good and we've had a pretty good track record with an operating plan, with an architect of this Precision Scheduled Railroading. And it sounds good, and we sold a couple of books. And I was at a charity event Saturday night, and a lady came up to me and said well, I'll tell you the whole truth. She said, "You ever got anybody maybe think about writing a book about you?" And I said, "No, I won't allow that." She said, "Why?" And I said, "Because they said they had to tell the truth, and I can't bear it, okay? There's years." But she said, "Where can I get a copy of the books?" And I said, "Well, I understand they're on eBay. I don't necessarily recommend them." "Why wouldn't you recommend it?" "'Cause it's $1,000 a copy, you know." She said, "Really? $1,000?
I'll have to take it under advisement." But the point is this: we got a plan. We do pretty good with X's and O's, okay? We're pretty good architects, okay? But this business, it's all about execution, okay? We think we're the best. We think we're gonna get even better. And people say, "Well, why? What's so different? What's so different about the, quote, 'new CP'?" We just simply, this team of leaders we have, execute day in and day out better than the competition and others. And that's just too simple for some to follow. Now, let's look at a little bit and reflect on a few issues of where we're going. I wanna highlight a few, few points here that hadn't been brought out that will key play a key role in my bottom line in a few minutes.
But some of these have not made, I think, until this slide goes up, have hadn't been made public. The D&H, I'm happy to tell you we have a, agreement of understanding on a sale with the D&H. I cannot reveal who the other side is. That's something that was in the original plan that some of our team has worked very hard at that's coming together. Don't forget this increased velocity. That's what this is gonna be all be about. But this, today, we initialed, subject to ratification, an agreement with our employees in the U.S., the operating crafts, for an hourly rated agreement, which could be big. That's not in the bucket. Now, the reason why it couldn't be big is 'cause it's only a step to another step.
You know, I think our labor Peter Edwards has led our labor group, and they've been doing a hell of a job. We have signed five agreements, in the last 6-8 months. Every one of them is 5+ years , 5-6 years, unprecedented in the rail industry. The last one - and think about this, reflect on this a minute with the Teamsters, okay? - was ratified 94%. 94% of the people ratified that vote. That is the same organization led by the Teamsters that we can't even get to the table in Canada. But this will be a step. We've got Unifor next, which is, which is effectively what you would have talked about a year or two ago, is the CAW, which is basically our shopcrafts. We have, I think it's safe to say we've had a very, very good dialogue with them.
I think we'll get them signed up early. So we'll have everything put aside with the exception of the T&E operating people in Canada. This issue with the U.S. West will be big in taking a step in the right direction there. Now, I trust that you have seen the press release on what we expect to accomplish through 2018. Now, I have to be careful what I say when chances are I'm not gonna be here in 2018, in fairness to the rest of the team. But they're gonna have to do a good job to do this. This is not a stretch, okay? This is not something that cannot be achieved and accomplished, of effectively $10 million kicker operating ratio, call it what you want, low 60s. Could it ever go below? Yes. Will it be seasonality somehow?
Yes, but in the 60 range. And cumulatively, over that four-year plan, free cash flow of $6 billion. Now, I knew today the challenge was gonna be. And by the way, the real, the real guts of this presentation's gonna be tomorrow when you hear all these railroaders that are gonna have to produce this, Keith and his team and others, share with you how this is gonna be done, how. We know why, how it's gonna be done. I thought I'd take you and give you a little insight, in my view, and hopefully, the influence that I'm gonna have on this organization going forward. And it's all about one thing. It's all built around effectively one thing, and that's velocity. Now, I'm looking out beyond four years into the future of movement of freight in North America.
But let's think about, and some of you that have been along for this ride with me, okay? These are not just new thoughts and ideas. When we first started and wrote what was gonna be the first little pamphlet on how we work and why - and you heard about how important we talk about why is - and then we evolved, that evolved into a book. And then it evolved into another book of changed leadership, mode, and why, and the hourly agreements. And below all this ties together, okay? There's a method to this so-called madness. And let me just give you a little insight as to potentially what I think this might do. And I think I would describe this probably as the new CP or railroading of the future, the ones that get it.
So let's think about a minute in this context, velocity, and what it does for us. Well, it improves productivity clearly in ways that you don't imagine. What is the difference, those of you that have not grown up in this business, in an hourly agreement and a mileage agreement? You know, in a mileage agreement, we spend $ millions improving infrastructure to raise the speed to 60 or 70 mi an hour for a crew to run over the territory in six instead of nine, and guess where they go? Home. And guess what we get out of it? Nothing. But if we're willing to pay more and be on an hourly basis, what the hourly agreement says today is if they get there in six hours, they work four more for that 10-hour day 'cause it's a 10-hour day. There's no overtime after 8:00.
There's no overtime after 40 hours. You know, it was the answer to a question that a group asked me one day, and they said, "Isn't there something else but this? Argue all the time in this adversarial, confrontational relationship with labor." I said, "Yeah, there is. Great question." The answer is this: I'll make you the highest-paid railroad in the world. I did. We did. You gotta be the most productive. An engineer today in my former employer, Baton Rouge, Mississippi—I mean, Louisiana. God, I'm sorry. I could be struck dead for that in the south, okay? They work a 60-hour week, straight time, one day off. They chose that in a menu arrangement. They paid by the hour, and they're paid generously. But they work very hard.
And our rationale was, "It's much better to pay two to do what three can do given the cost of fringe benefits." And so their compensation and some of you are sitting there saying, "God, six days a week, 10 hours a day, that sounds like a sweatshop." Look, folks, if any have been to the south, those folks love money, okay? They're into security. And it worked for them. So that's what one of the things it'll do for us. It'll improve productivity. It'll lower cost. Now, what does it do then with asset turns? It improves asset turns. It lowers capital exposure. You turn locomotives quicker. You turn railcars quicker. And if you turn those assets quicker, what happens to service? It improves.
If your service and velocity improve, you can expect - I'll show you an example in a minute - that you can improve your quality of revenue and probably gain market share. It has to improve capacity. We all know in the business, the faster you run the trains, the more capacity you got. You got a 40-mile-an-hour railroad, you can put so many on there a day. You got a 60-mile-an-hour railroad, just that speed, just that quality of that infrastructure raises the capacity that much. So it helps your capacity, things that Keith is gonna spend a lot of time with you in much more detail tomorrow. So you get better service. You can grow the business with less capital exposure, improve productivity. What's wrong with the model?
Now, some of you are probably sitting there saying, "Yeah, but those folks in Washington now are talking about restricting speed. And the folks in Ottawa are doing the same thing." They're nuts. They really are, and I've told them that. I mean, how do you think, folks, in the U.S. particularly, we're gonna get back to 2006 volumes? The infrastructure won't handle it, trust me. Chicago, Illinois will not handle it. Bad weather or not, just a normal winter. Now, this company, mark it down, has made an offer to buy the Belt Railroad. We've made an offer to buy the IHB Railroad. We've made an offer to lease the railroads. We've made an offer I mean, we've made an offer to do a management agreement to improve velocity through Chicago.
Because to say we're gonna slow the trains down because of the crude, well, we're gonna move more crude and more grain, it doesn't work. It doesn't work. That's Washington talk. And we've gotta sit down and understand what we wanna do, both in Canada and the U.S. here. I am convinced that this industry will be able to convince the regulators and legislators that we can do this safely. We're not, we have never quibbled. We were the first company that came out and said, "Get rid of the tank cars." 25 years ago, people said they were unsafe. And 25 years later, we're still having hearings in Washington about it. That's somebody we will be able to convince, I'm convinced, the regulators, legislators, that there's a better way to do this.
If we do this, velocity, not at the expense of safety, to increase safe operation will be the key to this industry going forward. It'll have huge impacts on this economy and jobs and all the stuff that's good. Now, let me give you the last. I'm gonna let you cheat on the test a little bit, okay? Here's what velocity's gonna say to you. It's gonna cause us. It is causing us to revisit the way we think and to look at train revenue as opposed to car revenue. Why would I say that? Because what we've learned, what we are learning, is a slot on that train is very important and expensive. And we have advantages over the airline. They can't take seats out. They got a fixed consist in that plane, hopefully. We can impact that.
Let me tell you some numbers I ran, just back of the envelope. I'm not a very complex guy. You read that, okay? We do a pretty good job and are gonna do a better job in what I call capacity management. We're gonna do a better job than we do today in this company, and Keith has really led some efforts here of coordinating our efforts between market, sales, operating, and the marketplace. Now, that's why getting to this number that, by the way, is not etched in stone. Can that number change? Sure, it can change. But we're gonna get to a point I looked at some numbers, and I said, "Here, we got a train out there running. It's got 150 cars, slots, potential slots." But we're only running 100 cars on it 'cause that's all there is in the market.
You say, "Well, why is there 150 slots?" Well, the people are the same whether you run 100 cars or whether you run 150 cars. And the locomotives are almost the same. And you know why? Because every railroad in the country besides us that says, "Bigger's better." Well, when you get bigger's better, when you got a little too much for that one 6,000 locomotive and all you got left is another 6,000, you overpower trains because you cannot incrementally slice up that horsepower to match the needs. So just follow me. You got 150 cars, potential capacity on the train, and you run 100. Let's say the rates: $1,000 a car. You got a $100,000 revenue train. And you say, "You know what? I gotta get this train full." Well, that's the market won't allow it. Maybe the prices won't allow it. But what do they allow?
God forbid if I ever use this term, okay? Some of you are gonna shoot me and roll over in your grave if I ever said discount. But I'm a bottom-line guy. And if you said, "You know, if they'd let me, if I'm the marketing chief, I can discount this train by day of the week or for the week 3%, and I can move the capacity up to 135 cars instead of 100 with 3% less revenue on every car." Let's say they're all widgets. Guess what that does to the net, net bottom line of the train? It raises it 8%. So you say, "Well, that seems awful easy. Why aren't people doing that?" 'Cause they think it's too hard to get there from here. But we can get a running start, the new CP, okay, on getting that done. And you know what?
I get to talking about this, and I'll be damned at 10 starts to get to be 11, and 11 starts to it's untold. It's untapped, the potential of what can be done. So what's gonna happen? Sure, we're gonna gain market share. We'll gain it organically. We'll gain it in new markets. We'll take it from the highway. We'll take it from the competition, okay? And it's huge opportunity at the best margins they can. So my the reason for this passion plea is to tell you there's just a lot more to get out there, okay? Maybe it's the second season of low-hanging fruit. Call it what you'd like, okay? I know you go through learning curves with organizations. And you're there a year or two, and you think you've seen it all, okay?
Year four, you see things you didn't see year two, and opportunities open up themselves. So let me add that at this point, given that we got a little late start, and by the way, I think the agenda for tomorrow is 8:00 A.M. here, right? Keith's gonna lead off and lead the day with, with his team. Bart's gonna finish up with the bottom line, but he's gonna do the first finish. I'm gonna do the second finish at the farm with you, okay? The only other participation I will have is they might let me sit on the panel asking questions if there is one. We got a few minutes here before cocktail hour, if there's questions of me, of the plan, or my heritage, or whatever, I'm happy to answer. Yeah, Tom.
I just wonder if you could give us some thoughts on how you would frame the market opportunity from faster train speed. You know, if you ran average train speed at 30 mi an hour, you know, how large is presumably the truck market or the broader market you could access if there's any way to frame that? And then I'll throw in a second one. It seems like there is more noise around regulation. You give us a view that you'll be successful or the industry will be successful in pushing back. But do you think as profitability rises, if you did go into the 50s with OR, is there some risk that there's a further stepping up of, you know, regulators getting into your business, you know, aside from just grain? So thank you.
Yeah. Tom, the first question is almost, it's almost untapped. You know, if you look at the percent of freight bill in North America that the railroads collect out of all the opportunities, it's, and I'm talking from memory here, but it's in the 8%-10% range or less at that total tab. So there's a whole lot for us to do before we start looking and saying, "We're gonna be tapped out here. There's nothing else to haul." On the point of regulation, well, I'd say this.
If they start to do that, and I'm on the bench, retired, you got a free consultant that will come and give an emotional presentation to Congress saying, "I know you're not very bright now, but if you do this, you're really not bright." Look, I went through the 1960s and 1970s of regulation, which was effectively the end of the first 100 years, 110 years of railroads. We didn't know how to act then. But I'm telling you, if people think something is not going right today and they match it up with the 1960s or 1970s, they would never go back to that. Now, think about something. Most of the rhetoric that I hear now about, quote, "railroads," whether it's not hauling enough grain or what, is, "When's the last time you heard about enough grain being hauled?" I can't remember.
15, 20 years ago when people were saying, "We got grain that you can't haul." Now, why would you think that an aberration like that pops up in 2013, 2014 season? Now, is it ironic that Canada had the worst winter in 75 years? Did that have anything to do with it? Or that the Midwest was like this? You know, and we got farmers, with due respect, I love them most of the time, that's saying, "I'm not going out there 30 below and load grain." What do you think our people are doing? You know, our people work 365, 24/7. I'm not worried about regulation. I just don't think that and what let me qualify. What I hear is what you don't wanna hear, which says things like, I gotta get my name on this bill, but I'm really not for it.
Politically, I gotta be a co- and, you know, I really don't appreciate that kinda dialogue. But the bottom line of it is, I think we're gonna do better and better as an industry. There's a couple of us not gonna do well and might fail and, you know? But look, I used to say this the whole time growing up. I hate to get spanked for something my sister did, okay? So if I do wrong, fine me, put me in jail or whatever, but because railroad X, Y, Z doesn't do right, don't start, you know, changing the rules and regs on me, hopefully. Yeah, Bill. Mark, you be the timekeeper, okay?
Thanks, Hunter. So, first question is on what you outlined from a revenue standpoint. The great thing about the CP story for so many years was we knew you were gonna cut costs. There was no doubt about that. And now we've got a story that's a lot more focused on revenue. So can you talk about the market size, but can you talk about your confidence in your ability to hit that, whether it's economic assumptions or, you know, maybe some of this discounting that you referred to, so to speak? Maybe that gives you a much greater confidence that you'll hit these numbers no matter what. But sort of talk about the confidence there. And then the second question's just on labor. What does it take for Canadian labor to change its view? Because you weren't successful at the former employer in getting that through.
Will you be successful here? Will they come round? And what would it take? Thanks.
Yeah. I, I think, second question first, I think they will. I mean, I think it's just it's so compelling that you can't keep turning it down. You know, it's kinda like cutting your nose, it spites your face. It's just nobody really argues on the merits of it. It's the right thing from quality of life. It's the right it's more comp. It's more this. You know, it's just the issue that people think that manage labor is not supposed to agree with management. You know, and I went and sat with one of the organizations in Canada, and we had this wonderful meeting. And we shook hands, and, and we were on the same page, and everything was lovely.
And so in the next day, he gets a question from a reporter, just calls him out of the blue and says, "What do you think about rail safety?" And you know what he does? He reaches in his file and says, "Rail safety, railroads." And it's all the stuff that headquarters has furnished him to say about how bad rails are. So I called him up, and I said, "Sam, was that you I met with yesterday?" "Yeah, but, you know, that's the party line." "Well, I'm not doing that deal, okay? You're gonna b you know, I'm gonna fire back at you like you've never been fired at. And I'm gonna make you look awful stupid and that," he said. "Well, you don't have to do that. Well, you just made me look stupid.
You just called me a liar three times." "Well, I know, but that's what they said to say. We gotta get beyond that. We gotta get beyond the party lines and what." Bill, I think that as you bring out and as I kinda said is this, railroads hadn't had a lot of experience with growing business. I mean, boom, the crude hits, and we're gonna grow, or we have a record grain crop. But just organi. I think, though, I've had some recent conversations that people that really get it that say, "Look, if you can bring us better service on a consistent basis, you're gonna pick up business." Now, we're not gonna see it in grain like what we've talked about here. What are we gonna see in grain? I think what I read and what the experts tell me is they're getting more yield.
If they're getting more yield, they're probably gonna plant more. And normal weather years, there's gonna be more grain for us to handle. It's not gonna be big just planting coal. It's not gonna be big in potash or the commodities that we've got 10-year contracts on. But intermodal, domestically, all the what I call merchandise business, the stuff that railroads were built on that we've lost to the highway, it can be gangbusters. And I make a prediction to you. You know, we're doing this in the face of cleaning the book up, so to speak, of some real bad marginal traffic, you know? And it's hard in the face of thinking you're gonna try to grow the business to say, "I'm gonna let that business walk." But you gotta develop some discipline. There's gotta be a place.
You know, one of the things I said at my former employer, they said, "What was the best thing you accomplished?" If you had to judge yourself, what's the best thing? I taught people to say no and live up with it and stand for it. So I am convinced if we and other railroads do our job, if we do the velocity, if we do the consistency, if we do those things, we will be rewarded. One final thing. How many of you heard early on at the other spot about scheduled railroading and so forth? They despised me and they didn't like me because I made them run the trains on schedule, and I wouldn't wait for them. How now, I'm getting rewarded for that. Run a disciplined operation over there.
How in the hell are you gonna run a disciplined railroad and say this guy says, "I wanna go at 4:00." Nope, nope, nope. "I wanna go at midnight." Well, where are you gonna go? That's our job and responsibility. So I think what's happened a little bit in Canada, both sides of the coin, is people are not looking at railroads not as many people are looking at railroads as, quote, "utilities." So but I think that once we break through and make a big step forward, it'll almost be hard to shut the doors. Yeah, Scott.
Thanks. So, Hunter, in the past, we've talked about you get the service, and then eventually, you get the pricing later. Is that story changing? Do you still get price, or now you're gonna discount, and it's really just about incremental margin to volume?
No, I think.
Or do you think you can get both?
Well, I think you get both. You know, I think it's just like the airlines. You know, if they're gonna run a damn plane, and there's 150 seats, and they only got 50 of them sold, maybe they ought to get something for the gas money. You know, I mean, there's times when organizations go through in times of recession and whatever. And if you look at your numbers internally and say, "Does that qualify marginal or what?" No. But if you don't, you know, somebody's gotta play the light gas and water. So I think that's as you know, and you know, I was talking about widgets. We're talking to some degree about what the market will allow and demand. I'm a believer in this, okay? We don't create the price. The marketplace does. We decide whether we wanna play.
And so I don't want anybody to get anybody to get the impression to walk out of here and say, "Well, they're through with increases." I mean, I'm a hog, okay? I will not allow my service to be commoditized, okay? But at the same time, hopefully, I'm smart enough, in spite of my operating tendencies, to say, "Look, if we're operating in net quarter, and we gotta go once a day, and, you know, we effectively, to my example, got this capacity, but we're only running 100, and you look at the net, net bottom line, are you gonna do this, or are you gonna do that?" I'm gonna do the bottom line thing. So I think it's hard to generalize that. But, I mean, in this plan, it ain't all about 3% discounts. I, God, I'll be sorry I ever said that, but, that-that's not what it's about.
The example you gave of going from 100 cars to 130 cars, is that theoretical, or have you spoken with the customer yet, or do you feel like you're starting to get that market share? When do you think you start to get that, and what are the customers saying?
Well, I think it's all the above. It, yes, my exercise to some degree is theoretical, okay? But if you start to say and once again, we have to be careful with this in this, quote, kind of environment of a utility. You know, "Look, we're gonna run the train now like a streetcar." You can't call a streetcar like you do a taxi and say, "Pick me up at 2:00 A.M." You know, "Look, we've canvassed the market. We've done all the market intelligence, and this is the time we're gonna run the streetcar, the train, or whatever." And hopefully, we have developed and understand the intelligence of the market enough, what they're willing to pay, and what trains they'll get on, and what they won't get on. And, you know, look, there's we have to really be careful of understanding if we really understand our business.
You know, the first thing we got into was, why are we running intermodal trains 60 mi an hour across the country to be there fourth morning, and they pick up every fifth day on average? They sit there five days. So you gotta think about that. So should we run and you gotta balance this with assets and turns and all that. Should we go six days a week and make that balance with assets and deadheads and, and all that? But that's part of our job. The bottom line of this is this. This will be a much more dynamic exercise. This will not this will be moving away from annual plan or what. This will be more of a marketing, operating what are we gonna do this week? We got snow this deep. We got grain here. We got my favorite story.
We got the University of North Dakota just did a study that said we cost the farmers $67 million. And then the head of the department said, "I don't know anything about the study. Should have taken two years, and it took two weeks." It was just a political ploy, but I just wanted to get that needle in a little bit.
Hi, Hunter.
Hi, Hunter. Tom Kim over at Goldman. I wanted to ask you.
Where are you?
H-hi.
Here. I got you.
Okay. I just wanted to ask a following question to the earlier comment or question on revenue growth. Can you contextualize for us how you're envisioning the volume growth versus pricing? You know, two years ago, you gave us a pretty good explicit breakdown in terms of your rough approximation of what kind of mix you were looking at. And it'd be helpful for us to try to understand that in the context of, you know, how velocity's gonna improve your overall revenue stream going forward.
Yeah. I think every market's gonna be a little bit different. I think intermodal's gonna be one animal. You know, I think grain's gonna be totally something else. So I think it kinda, quote, "depends." Now, look, think about something. Grain hadn't had any problems. As I understand it, I'm new at the new CP. Hadn't had any problems for 20 years moving grain out of North Dakota. This year, we allegedly shut the state down. Now, what happened? What happened different? Well, the only thing I know different is the facts that I read said that it was a normal crop. Our normal market share of that crop, 21% or 22%, and there's only one other player, so he's pretty dominant. And you couldn't guess who that might be, okay?
But the only things I know that happened is their velocity went down pretty significantly, 20%-30%. I'm not being critical, just being factual whether a lot of things had it to do with it. And grain was being trucked from Canada to North Dakota to go west because people thought that that was the best way to go. Now, I think people have learned today that, look, if they can get on somebody and ride and get a good trip and be consistent, that's the place to be. And just to be beating carriers over the head about low price doesn't always work. I still think, in the stage we're in, that and year one's gonna be different from year four. I mean, I would describe this and I don't wanna get ahead of James tomorrow.
But number one, we're gonna have to go through a little transitionary period. But to my points earlier, 8% carrier, I remember when that was a Grand Slam. And now, people don't register unless it's double-digit. So if we could stay at that level, we're pretty good. I still think that during this cutover phase, it'll be more price-driven. As this model shapes up, we polish it off. And towards the back end, and the back end is normally what we don't wanna talk about because we can't see it. But I can feel it, that if you do these things, it's gonna be there. Towards the back end of the plan, I think it'll be more volume-oriented, non-price.
Yep. Hunter? Okay. Benoit Poirier from Desjardins?
Yes.
Yes. Okay. You mentioned, Hunter, that.
You're from Memphis, aren't you?
Sorry?
That's a joke.
No, no. You mentioned that M&A's something that will happen, obviously, because of capacity issues. Obviously, CAD 6 billion of free cash by the end of 2018 is something quite sizable. You also gave a pretty good tip a few hours ago with the increase of the share buyback. So just wondering, where do you see CP's future on the M&A side? And also, what are the catalysts that will stimulate the M&A activity? Will it be another tough winter or a downturn or, or maybe something else?
Next question. I think, look, Benoit, you know, I certainly can't comment on specific impacts to CP at this point. I'll say this. I still think all the forces are there that say M&A makes sense in the U.S. You know, we know, I know it might be debated that if you put two carriers together east/west, there's gonna be better, there's gonna be capacity created. It's gonna be smoother. It won't, it'll take pressure off Chicago. And so it's, you know, it's the old story. It makes too much sense. Would we ever consider anything, as I've said publicly before? Sure. But you gotta have somebody to dance with. And I don't know anybody who wants to dance now.
And there's a lot of reasons for that because when you get into those kinda issues my experience in the past, and I've had too much of it, it's more about social and egos than it is true bottom line value to the shareholder or creating so I think it's gonna happen two years, five years. I'm an outlier. Nobody else believes it. So I just we'll see. But I mean, we're in a it's always nice to have a problem of sitting on cash and what to do with it. Okay. So let me just take a couple from the back 'cause I think the front got dominated this. And you can do this. You can answer a question from the back, or we can drink. I don't care. Doctor's got me off alcohol, so y'all.
Hey, Bascome Majors over at Susquehanna. You talked a lot about taking share from the highway in both the intermodal and merchandise business as part of your growth strategy. How does rail-to-rail competition factor in? And perhaps, you know, what opportunities could you see there?
Rail-to-rail?
Yes.
You know, I think that we've got some competition out there. I really don't think about it as competition as such because on a relative basis, it's just not. If you go back to the proxy contest and some of my statements and tell you how bad people can be off, one of us, Fred said something to the effect that 75% or 80% of the business that we both shared was competitive. And, and I said 25, so you think somebody's missing it somewhere. But I really think if you look at our markets, for an example, in Canada, you know, we've got the south route. CN has got north route. We have advantages to Chicago. They have advantages to Edmonton. Calgary's a CP town. Edmonton so unless you screw it up, there's only about 15%-20% of what I would call jump ball business railwise.
Now, look, that's not to sneeze at. And that's something that we will, you know, we'll certainly go after and see what we can do. But that's not the real focus of what the big opportunities are. So two more in the back, and we'll be done. And Ken, somebody up here had their hand up, so.
Sorry.
When I went over liquor, I'm impressed, I'll say.
Question on velocity. It makes intuitively more sense because, as velocity improves, your cost goes down and your service goes up. It's a slam-dunk proposition. But how much of it is within your control? How much can you improve velocity without the rest of the industry and the value chain itself supporting it? For example, you're connecting at Chicago where you're dependent on other carriers. Ports, you know, the delays in the ports are inevitable and how you form the unit trains. So how much is more externally driven versus how much is internally in your control?
Well, you know, if you look at the percent of business of ours that is, quote, "local," meaning it originates and terminates on CN as opposed to interline forwarded or received traffic that comes from the connections. Obviously, the local traffic, we can have much bigger impact on. We're limited to what we can do going to Dallas, Texas, depending on who our partner is, whether it's Chicago or Kansas City. We're no better. I've always said than they are or vice versa. So that's a weakness. But local traffic, velocity can be big both from a service, and asset turns and, and, and that occasion. And, you know, it's got a big impact that some of you are kinda maybe overlooking, for an example, on locomotives. We got 75 locomotives leased out right now, big ones, 4,400 horsepower. And we're gonna grow the business.
But there's a compelling case at the same time that we can almost do this almost without acquiring locomotives, without acquiring, certainly, any one-for-one of what you would have thought of. So you make a good point. If it's related to the port, other people that control part of the pipeline, or offline, there's limitations there, which speaks to the M&A issue, again. Or, you know, this company would be open, you know, we'd buy grain elevators, origin, termination, any infrastructure that's there that would make financial sense that would help us control more of the pipeline, we would certainly have an interest in. Now, that gets other people's attention. But that's the way it is. It should be that way. So Ken and.
Thank you. Ken Hoexter from BofA Merrill. If on your slide, you mentioned a range of 58-63 on the operating ratio. So I'm take the big picture but kinda drill it down to some numbers. You noted in the press release kinda mid-60s. I don't know if that was your the two-year target was the mid-60s?
Two-year. Yeah.
Okay. So just wanna think about upside. You know, what gets you to your upside? Is it the agreements, the hourly agreements, maybe even something in the future in Canada? Does that take you beyond that to buybacks? Or are they in the doubling of the EPS that you put out there? So just wanna understand where your upside is. And then what makes you nervous still? Is it getting wrapped up in a price war with the concept of the discounts? And does that start there? Is it Chicago congestion, I guess? So where's your upside, maybe downside, within that big picture?
Well, you know, one of the things that I would hasten to point out is there's a lot of moving parts in operating ratio. When I did my so-called back-of-the-envelope calculation, I didn't discount it for mark-to-market with options with management salaries. Now, for example, if you took that out and somebody will correct me here if I'm wrong. But if you took that out of fourth quarter, okay, and a couple of other issues that were clearly one-timers, you get to 61, boom. So it depends on what's in there and how you're gonna look at it. And I am more and more, in fact, I was talking to someone earlier that was bringing to my attention today the issue at Coke about options. And I'm becoming less and less and less and less and less and less an advocate of options for management comp.
I just – it starts not to make a lot of sense. But those are the kinda things that if you look at what we kinda look at and we're not trying to advertise anything to break some record and all. But if you look at what we look at, and we call it our core issue, which is what we can, you know, we discount both plus and minus land sales, and we discount this mark-to-market. And that works both ways. Stock goes up, you know, the cost goes way up. Stock comes down. The cost – when we discount those, we get to a real number. Number that's bare, low 60s. Now, are there some other things that you can do if all you wanted to do was get that number to 59?
But if you weigh that against the growth over here and net-net it, it says that more times, we should be going this way. I sleep pretty good. I don't think there's gonna be re-regulation. I think some of this is gonna turn on the regulators, the legislators, both Washington and Ottawa. Look, I just picked up an article and read the other day. And I understand a little bit about politics. Thank God I don't understand too much. I wouldn't be in very good shape. But the prime minister said that free trade was extremely important to Canada, that Canada was fully capitalistic, okay, was pro-business and all this stuff. And I said, "Well, wait a minute. You're telling me what I can charge for the product, that if I don't deliver it, I get penalized, okay? How many assets I'm supposed to put towards it?
That doesn't sound pro-business to me." Now, in my view, that's a totally political decision, which will come back in the long run and backfire. I think to some degree, some of the same stuff's going on. I mean, how long has Rockefeller been on this deal, okay? I mean, come on. And his whole agenda is West Virginia coal. Now, forget that, senator. That, that's the market's passed you up. But he's not on West Virginia coal, so now he wants to do a little grain in North Dakota. I don't think he's ever been there, okay? So, now, having said that, it's not something I just totally disregard. I just think that the likelihood of those type things happening is not likely. A price war scare me? No.
If I'm the low-cost carrier with the best service, you wanna get in the price war? Come on, bud. Let's do this, okay? And we get through, I'll tell you who's gonna be standing. And so I don't think anybody wants that. And, and we're not looking for that either. You know, I'm just looking to be compensated for my now, I do think there's points that, we can't just totally misbehave in either country. You know, and I look up and see some of our friendly associates standing there taking a 17% increase, and I'm saying and pounding their chest, and I'm saying, it's not the right time, please," you know, 'cause from a PR standpoint, we could do a little better job than that. So I would hope that we would, you know, think better about that.
And I guess the best example that we got going right now is the crude deal. I mean, just think about something: horrific accident in Quebec, okay? I mean, 47 people killed and literally a town wiped out. Why? Well, I think most people that know will tell you it was behavior, not on one person, more than one. To park a train on the side of a hill overnight while a crew gets rest, number one, is not very good railroading. Number two, for the one engineer, one person only now, look, if other people wanna run with one-person crews, so be it. We're not on that page. But they got an exemption from the CTA to operate the only railroad that I'm aware of in Canada that had an exemption to operate with one person. He didn't set the brakes.
He went to bed at a motel. Now, I don't care what you do about all these regs. If they don't set the brakes, it's gonna roll down the hill and kill somebody. It's about human behavior. But we've got all this rules and regs and rhetoric and stuff going on and people really overlooking this issue. Final thought. We have a case in Canada as we speak. And I'm rather proud of what our management team did here to some degree. We had an employee, a locomotive engineer that operates a train, caught by us twice hot on cocaine, okay, twice, plus other ventures with his recreational drugs that he can go to Colorado and do all he wants, okay? And I wish he was in Colorado. And guess what? We dismissed him because of his behavior.
And guess what a neutral in all his wisdom an arbitrator said in Canada? Put him back to work. He's only had two strikes. What do you want? Do you wanna lay another Lac-Mégantic with 47 people? What do you want us to lay out in front of you? So we said, "Nope." And people told me internally, "We can't do that. Watch us." He ain't running a locomotive on my watch. Now, I might go to jail. Hopefully, some of y'all will protest for me, let me out. Okay. He not running a locomotive on my watch. And guess where we went? We went to the courts in Quebec, right, Paul? Quebec. And the judge says, "This arbitrator is nuts." And all of a sudden, this whole system in Canada for years and years has not been challenged is being challenged.
People are saying, "Do you mean there's people running trains out there that are hot on cocaine?" So that's a disease, okay? I'm sorry. So they're addicts. I'm sorry. Put them up and don't let them kill anybody. We can give them all they need, okay? But the message here is this: if we, as railroaders, as citizens, or whatever, don't stand up for people doing the right thing, it ain't gonna change. And we're trying to encourage people to do the right thing. So it's been a stimulating afternoon. We'll enjoy a cocktail now and an evening meal, and then we'll see you bright and early in the morning. Thank you.
Good morning and welcome to day two of CP Investor Day. Very glad to have you here, packed house here, and exciting day of presentations, a little more meat on the bone as Hunter described today. So it should be an excellent day. If you don't get a chance, we're gonna have Q&A after each presenter, depending on time. We wanna make sure we stay on schedule. So if you don't get your question in after each section, don't worry. We'll have a full panel of Q&A at the end of the session today. I know the lawyers are more worried about the forward-looking statement before Hunter speaks, but I'll do one again today. The actual results may differ materially from the presentations. The presentations do contain forward-looking information.
The risks, uncertainties, and other factors that could influence actual results are described on the following few slides in the press release and in the MD&A filed with Canadian and U.S. regulators. The presentation also contains non-GAAP measures as outlined in slide 4. At this point, I'm very pleased, very excited to introduce our President and Chief Operating Officer, Keith Creel.
Thanks, Nadeem. Does it sound okay? Good.
All right. Good morning. Welcome to day two. I trust last night, everyone had a nice evening, had an opportunity to spend time with the quality folks that make up this leadership team for this railway. I'm sure that if you had any time to engage in conversation, you understand the depth of their knowledge, their professionalism, their commitment, their passion. There's a common theme that you're gonna see at this railroad, and it's about commitment. It's about passion. It's about a sense of urgency. It's about making things happen. It's about doing what we say we're gonna do. That's what this team is about. Hunter mentioned yesterday, he laid out a pretty aggressive, pretty compelling, pretty exciting plan for this company as we continue to drive shareholder value over the next four years. So we're gonna spend time today providing color to how we're gonna do that.
We're gonna talk about the pillars of the foundation that allow it to happen, and we're gonna talk about, at the end of the day, Bart, the exciting part's gonna bring it all down to the bottom line for us. Let's recap. Highlights of the plan that Hunter laid out last night: $10 billion of revenue by 2018, over $6 billion of cumulative pre-dividend cash flow, and double your EPS. Again, very compelling. Now, I can tell you if I go back not quite two years ago, almost two years ago, I was on the sideline. I didn't work for Canadian Pacific. I worked for another unnamed railway. I watched with interest, keen interest, of what was going on at Canadian Pacific. I, knowing Hunter, I knew that he was brought there to drive change, and he was gonna do that.
The plan that was laid out the last Investor Day, I thought, was pretty compelling as well. I thought it was challenging. Given my experience in having gone through this before on a couple of other occasions, it does not just happen. It's not easy. But at the same time, I knew the talent that Hunter had. I believed in the plan. And I knew it was gonna happen. What I didn't know at the time is how fast it was gonna happen. And I'm sure in this room, some of the naysayers that we read yesterday, a lot of you, I'm sure, are not naysayers anymore. You're believers. But at the same time, you couldn't have expected that we would achieve what we've achieved in quite such a short time frame. We exceeded our own expectations in this company.
Even Hunter, with 50 years of experience, couldn't have predicted the opportunity that was here. You just don't know what you don't know. Once you get into the railway and we start looking at and we'll talk about some of the things we still have to optimize and fix today, those opportunities laying on the ground, things start to happen fast. If you take that and you leverage it with a team of talented railroaders - and there's over 14,000 of us at this company - that are committed, that have passion, and a sense of urgency with the physical plant that we have, that's how you start producing this progress and how you start creating this success. That's exactly why I feel so strongly about our ability to deliver.
Our objective will be to exceed what we laid out for the team and for each of you yesterday. We've got the talent on the team to do it. We've got the operating Precision Scheduled Railroading, that we execute day in and day out. And we got the physical plant that gives us advantages, advantages, not disadvantages, advantages. You're not gonna hear this team talk about the challenges that we face with our physical plant. To me, they're opportunities. I never heard anyone tell me when I was at CN from CP that their routes were shorter than our routes. I never really understood how we beat CP to the market until I came here and understood the operating plan, and then I saw the strengths, not the weaknesses. I heard about the mountains all my career before I came here.
The mountains are just it's a bump in the road as far as I'm concerned. The puts and the takes that are in this franchise, these are strengths. These are strategic strengths and advantages that we're gonna capitalize on. Now, the other piece I think that's very unique to CP, and I think it gives us another step up on our competition and the ability to convert this, is a very unique organizational strength. That's found in my position. Hunter and the board has granted me the privilege and the honor to lead both marketing and operations. When you do that and you create a team that's nimble of operating and marketing officers, you can effectively make decision-making in what used to take weeks or days, months, you could do it in a day. You could do it in a phone call.
And you create a team that's cohesive, that works together because we're developing the product together, operations and marketing. At the same time, the marketing team is learning the operation. They understand the operation. They know how to go out and convert it in the marketplace. And then the other beauty of it is the operating guys and gals; they're not criticizing the marketing team because they helped develop the product. So they have ownership. They own the product. It's a team event. It's a team effort. And it's a team success. It's a very powerful model. And it eliminates tons of bureaucracy and age-old resistance that normally stands in the way of making progress occur in large corporations. Operating-centric, service-driven. There's a mantra that I use, and I've used it a long time in my career, of people that have worked with me.
It's called, "Together, we can do more." Working together as a team, we're gonna accomplish more than working individually as individual parts. And again, speaking to the strength of our organization, the way we have operations and marketing together, it allows us to do that. These are the list of the key players. You met them last night. Effectively, with the exception of Guido and with Scott, as you realize, that entire team is a new team reporting to me since the last Investor Day, responsible for network operations, sales and marketing, and day-to-day regional operations. Okay. Let's talk about people. This is something Hunter taught me a long time ago, and I know each of you know that. An organization is only strong as the people that make it up. So if you get it right, you're gonna have a strong organization.
If you don't have the right people, you're gonna have an organization that's, that's weak, that's ineffective, and that doesn't succeed. We're focused on creating and building, and we have, a deep talent bench of officers that can sustain not only produce success today but sustain it on a go-forward basis. How do you do that again? Teamwork, commitment, loyalty, sense of family, sense of a common vision. That's what we have in this company. That's a chemistry that's critically important if you're gonna really produce success, long-term success. And then the next piece, you gotta sustain it. So how do you sustain it? You gotta create a culture, a culture of success where people demand and command and expect success. They taste success. They don't like to taste failure.
There's a tremendous amount of pride that we've tapped into this company that it's paying off and stays for us, that this model is driving for us. The other piece, from a development standpoint, some of the things that we're doing, I highlight a couple: CEO Award of Excellence. It's something that we implemented this past year, and effectively, it's to recognize across the five pillars of our operation employees, be it officers, be it craft employees, that demonstrate and create some beyond-the-normal-expectations success in their field of work, be it something that drives service, turns assets, a safety accomplishment, a cost-control accomplishment. So again, it creates an internal competition and an internal demand and drive to create excellence. Then we recognize it. It's almost like it's like the Oscars of railroading. One night a year, we don't do it where it's cold. We go where it's warm.
We do it in the winter so people get a little mental break. This past year, we went down to a hotel in Naples, and it was the first one CP's had. And I can tell you the pride and the feedback when you bring an employee in that's going above and beyond day in and day out and producing in a key piece of our success, a key contribution, and you let them bring their spouse with them and you treat them the way they deserve to be treated, like kings and queens, with value. You drive commitment. You drive creation. When they go back into the workforce and they talk about, "Okay. What's this CEO Award of His Excellence? What did you guys do?" Well, they hear about it. Well, it spreads like wildfire. "You know what?
Next February, I don't wanna be where it's 40 below freezing. I wanna be down in Florida, and I wanna be recognized as CEO of Excellence Award winner." Things like that drive the kind of commitment that I'm talking about within this company. Some of the other things we're working on were camps, leadership camps. You've heard Hunter talk about them in the past. Hunter camps, Keith camps, whatever you wanna call them. Camps where we bring in Hunter and I. Hunter does them. I've done them. And now our senior officers are doing them. We bring our teams in for 2-3 days of, "Roll your sleeves up. Let's talk about the business. Let's do whiteboard sessions. Let's talk about leadership. Let's talk about opportunities.
Let's talk about safety performance." You build cohesion again, and you create an ability to weave through the DNA of these employees how we work and why. 'Cause again, they don't know what they don't know. A lot of these employees in this company have never been exposed to and lived and operated in this kind of operating world in an operating-centric fashion the way we do. When you do that, and you do that across the property, and then when these officers that are inspired and motivated in these sessions come back and start to do the same thing, you start to multiply and again, you're weaving into the DNA of this company now on a go-forward basis, how we're gonna run this railway and how we're gonna produce success. So those are all very powerful tools that we'll use. That's the other piece.
I said this a minute ago. Success breeds success. The success that we've created and will continue to create retains employees and it attracts employees. Some of the talent we've got in this company and some of the talent that wants to come to work for this company, it's tied to the success we're creating. I'm sure back in the day when CP was not producing so much success, I don't know if their phone was ringing quite as often as ours does today, with people that want to produce, that are high performers, that have high talent, that have expertise and experience in the industry, that wanna be part of this team. They wanna be part of something great. So that in and of itself is a key success enabler and a sustained position for us.
So if we can now, let me. I'm gonna call on Peter Edwards. We've got a lot going on the labor side. You've heard Hunter talk about an hourly deal in the States that we've got out for ratification. We'll know the answer to that ratification vote at the end of October. But there are several other key successes that Peter and his team are driving. So let me call Peter up. I'm gonna turn the mic over to him. He'll briefly update you on the labor front.
Thank you, Keith. It's good to be back two years later talking about the ongoing transformation at CP and the ongoing transformation of labor relations at CP. Labor relations, whether it be at our company or this industry or other companies or other industries, does not transform easily. The weight of history and the weight of those relationships over time stultifies the whole thing, makes it essentially kabuki theater. People come in, and they play roles. They read scripts, and they behave in ways that have been set out hundreds of years before. Brand new people can walk in, and within one year, you think they've been there for 30. And their way of thinking and their way of approaching problems is locked in, and it won't change. It's very hard to break that. But you have to 'cause otherwise, you get stuck in the past.
We have conversations now using language that was put in our agreements in the age of steam, ladies and gentlemen. A person doesn't get an hour's pay. They get 12.5 mi. Why do they get 12.5 mi? 'Cause a long time ago, a locomotive could go 100 mi in a day. Why could it only go 100 mi? It had to stop and get coal. It had to get water. So why not go 12.5 mi an hour? We still think like that. We still talk like that. So how do we get to a new future if that's the way we're thinking all the time? It's pretty frustrating. It's not very inspiring. I can tell you, it's not a way you can lead a company to great things for its people and for that company.
But what if we could do it differently? What if we could say, "We don't have to do it like that anymore. We don't have to get caught in these traps and these perceptions of how labor relations should be"? Well, you think that when you'd say that and you'd open your arms, the people would come running and say, "My God. I was just waiting for this opportunity." It doesn't go like that. But you have to start somewhere, and you have to keep trying. And I think you have to be consistent in what you say and persistent in your approach. A long time ago, at one of the camps, Hunter was talking about how patience is a virtue. And then he stopped and said, "You know something? I don't believe that." He said, "Patience is not a virtue. Patience is an excuse for not getting things done.
Patience is an excuse for putting things off. I prefer persistence, the people that really keep at it, keep at it, and keep at it until they break through." That's what we decided to do. We sat one evening in Gulf Canada Square, just a little over two years ago, and we talked about the labor strategy. There were no charts. There were no graphs. There were no presentations. Just talking. I had, you know, music in my ears from what he was saying. I got up, and I went to go to the office. Hunter says as he says a lot of times, "Just don't screw it up." Got my mission. We sat with one of our unions and said, "What about if it could be different? Why don't we meet in a hotel? Just bring one or two of your people.
Don't bring the big 10-person bargaining team or the 20-person bargaining team. Don't bring me a deck with 100 demands 'cause you never got them in the past. You'll never get them in the future. And I'm not I'm not gonna bring my 100 either. Tell me the three or four things that really mean something to you. I'll tell you the three or four things that really mean something to me too, and we'll see what we can do. And if this works out, this little meeting of ours, then the meeting happened. And if it doesn't work out, the meeting never happened." So we met in a hotel room. A day and a half later, we had an agreement. Then my team finished up the language, and we went forward. And the people, the union I was working with, was concerned.
They didn't want it to get out to their even meeting with us. Why? 'Cause are they cooperating with management? Are they selling out? Well, they didn't wanna be seen that way. But they had a good deal. They got it ratified. They were worried if that it would pass. 90% in favor. Then the next one fell. The next one went. The next one went. The highest was 97.5. In my career, in three different industries and four different companies, I've never had ratification of 97.5. I've never known anybody to tell me that they had one that high either. So in that period of two years, we've settled; we've had five open collective agreements. We've settled all five on record terms. 20 records were set, four for each contract. First of all, they're all the fastest negotiations those unions ever had.
It was a matter of days. Sometimes it was days spread over a couple of weeks, day here, day and a half there, day there. But it wasn't months or years which characterize typical negotiations, the fastest negotiations, every one of those unions. It was, "What do you what's your for? What's our for? Great. What can we do?" The other thing was, it's the fastest. They were all done before expiry. You're always told that it can only be done at 11:59 with one second to go. That's the only way you can get a decent contract on either side. I said, "No. Why do we need to do that? I'll give you my best deal today. You can try me out. You wanna give it today? You can start it today. You can start your contract today with your new increase.
Or we can wait months, and you can put it, and then you're gonna get the same deal." Remember how I said consistent and persistent? When you deliver and you tell and we show people, "If you wait, you don't get any more," then they can trust you 'cause they have to be able to trust you, that you're not gonna give somebody else more by waiting or doing something goofy. It's all about, as Keith was talking about, consequence leadership. Are you delivering positive consequences for the right behavior? And are you dealing with people that don't do the right thing? And you gotta do that through all of your relationships in your organization. We delivered there. Shortest time, all before expiry. Everyone was a record length.
Without exception, everyone came in and said, "I know what you've done with the others, but I can't do a four-year deal or a five-year deal or a six-year deal." And they've all been 5s or 6s. "Maybe I can do a three. Probably can do a two." We said, "Yeah. But here. Do this. Get this. Do this. Get this. We use flip charts. We use whiteboards. Look at this is what you get. I don't have to write it down on a lot of paper. This is what you can have. Tell me what you want." And then there's a lot of back and forth. And we had 5s, and we got 6s. Were these records? Yes, for those unions, for this company. And something you don't see in a lot of industries.
You certainly don't see a company that's got the last 5 of its freely negotiated agreements, every one of them, with a record length. How did the people feel about them? Well, even up to the last one, the fifth one, the rail traffic controllers we just did, they were worried. They said, "We've never done a six-year deal. This is the longest deal in the company. No one's ever done this." They were worried. I said, "You know something? I'm not worried. Myron's my labor guy with me, Myron thinks it's gonna be 80. I think Myron's a pessimist. It's gonna be above 90. They're hoping for above 60. We got 94." And when you walk around that rail traffic control center now, people, you can talk to Mike Foran who's here today. People are smiling, and they're happy. And they feel valued by the company.
Now, you're saying, "Well, you throw money at anything. You can get away with anything." It wasn't it. In every one of these negotiations, we had big issues, pension transformation issues, so that our pension would stop doing this to our organizational balance sheet. We had to take on those issues. We worked with our unions. We explained what was needed. We listened to what they needed. And we set record deals with record support in record time before expiry. We take some measure of satisfaction out of that, but absolutely no complacency. We've got two more deals to go in Canada, Unifor. And Unifor is a new name for you. Unifor is a combination of the old CAW, the Canadian Auto Workers, and the CEP. The CEP itself is a combination of big unions, the Communications, Energy, and Paperworkers from a long time ago.
They're mashed together in one huge union. It's Canada's largest private sector union, headed up by a guy named Jerry Dias. Smart guy. Very smart guy. Very driven guy. We've had the opportunity to spend a lot of time with him and talk about what they're looking for as a union, how to grow jobs, how to add to the workforce as opposed to watching it contract, how to create new business. And of course, what he wants to do is build a quality of life and build the wages of his membership. We can live with that. That makes sense. So we're working with Jerry at this time. We're talking about opportunities to bring work in that we've never done before, opportunities to bring work in that we haven't done in a long time, use facilities that have gone silent, and bring them back into productive use.
We'll see where we go there. Now, our next union is a Teamsters union called the TCRC, Teamsters Canada Rail Conference. That's basically our engineers and our conductors. They're in one union in Canada. Now, we already have two Teamsters agreements. One was the 97.5%. That was our maintenance of way. The second was our rail traffic controllers, the 94%. So now we're negotiating with this group. It's a challenge. It's a challenge for this group to engage as the others have. It's a big group. It covers the country. It's got a lot of viewpoints. It's got its own share of politics. It's been subject to a lot of change. Change has been hard for them because we've asked a lot. We've asked higher standards in their performance, higher standards all across the board in a lot of categories. It hasn't been easy.
Some old bad practices that crept into the organization over time and became part of the fabric had to be taken away. Some "plumb assignments" where somebody might work, you know, eight or nine hours and get paid for 14, those had to go away. You got paid for what you worked for. Keith and his team had to go through a lot of this to reset the organization so that we could provide service, do it in a cost-controlled fashion, sweat our assets, do it safely, and do it through our people. To do that took a lot of change. So we got a lot. We have issues there. But we've been willing to meet with him for a long time now. Last Christmas, I sent him an email saying, "Christmas is a pretty quiet time.
If you guys wanna get together, I'd like to have Christmas Day off. But other than that, I'm pretty much good. Do you wanna meet?" And they couldn't meet. Throughout the year, we've sent them letters inviting them and saying, "Look, we'll put the wages in place as soon as we sign 'cause we'll trust you to ratify it." Well, we haven't gotten. We've started meeting now, but we could have met earlier. And we're proceeding forward. And I can tell you what was in our demands. Our first demand to this union was, "We think that everybody in your union deserves a wage increase. The company's doing well. You guys have been working hard. Everybody gets a wage increase." Our second demand was, "We think we should get rid of that waiting period for benefits for new employees.
Making it hard to hire doesn't make a lot of sense." Third one was, "You know the dental plan? We should go to the current schedule. Life insurance should go up a little bit." So our first five or six demands were about what we think needed to be done for our employees. Then when we got into "the company demands," it was, "We think we need to look at the way we schedule differently. We can work at different schedules, different lengths of day, different ways of providing a better quality of life, more predictable time off for employees, and higher wages, and at the same time meeting all our five goals, providing service controlling costs, sweating our assets, doing it safely, and doing it through people." Meeting all those goals. Well, we put it in front of them.
We took them through it, and they said, "We need a break 'cause they said, 'We didn't expect to see this.'" So we gave them a break. There's a long road ahead of us there. But what we're trying to do is do it differently. Normally, in the traditional kabuki theater of negotiations, they'd say 10. We'd say - 5. We'd settle at three. And we had to go through all that nonsense. And all we did was, in the minds of the people, was say, "They truly are jerks. They don't even wanna give us an increase, and they're doing very well as a company. Why not go in and say, 'You know something? It can be different.'" And that's the approach we're trying to take. And we will continue to take 'cause we're gonna be consistent, and we'll be persistent. What about the U.S.?
Lots going on in the U.S. this year. We got a lot of smaller contracts coming up. We've gone to all of them, and we said, "You know something? Why don't we sit down now? Why don't we do like we just did with the rail traffic controllers that I was talking about? You know when their contract begins? We signed it July 18th. It starts January 1." That's how far ahead we got that of that ball. We said, "Why don't we talk about yours now? We can sign today. Let's get our labor people engaged with your labor people and just change the way we do things." You know, some have expressed real interest, and we're pretty excited about that.
Some are kinda standing back and watching it and saying, "What's this all about?" And it will take time 'cause you're gonna have to be consistent in your behavior, and you're gonna have to do it for a long time against odds and against setbacks and failures. And but you're gonna have to do it consistently and persistently, and you will make that change, like the hourly rate. This has been a dream of this industry, is to get an hourly rate. And when you hear what an hourly rate is, you kinda say, "Well, that just makes sense." But when you put it against, you know, 150 years of railway history in North America, it's a radical change. What we're saying to people is, "If you come to work tomorrow, we'd like you to work James, your schedule is 10 hours. We will pay you this much per hour.
It's a lot more than you're making now. Cool. Matthew, your shift is eight hours. We'll pay you this much an hour, but we need you here all eight hours." Kinda radical, isn't it? Sorry. It just doesn't get it. There's no more to it than that. Now, what's it like today? James comes in, gets on a locomotive. How long do you think we have James? Do we have him eight hours, or do we have him 10 hours? We don't know 'cause James doesn't have to tell us till his fifth hour of work. So he said, "Third hour of work. How's it going, James?" "How's it going, James?" "I think I wanna be off at 8:00." So how do we schedule Matthew when we don't even know when James is gonna get off?
And how do we schedule Mark when we don't know when James is gonna get off and Matthew's gonna get off and that? And it just produces a very poor quality of life, very difficult for us to plan, very difficult for us to run our operations. And this is what's happening in every railway in this industry. But if you get hourly rate, that changes. If you get hourly rate and a train fails, you know, 50 mi out, we can send a crew that's gonna be taking that train out and bring it through, go by the yard, and go on their merry way. Now, we can't do that. It's gonna help us with service. And when we have better service, we know we have better cost. And when we have that, we know we have better asset utilization.
And we can do this all in a very safe fashion. And it will be better 'cause people have more consistent and predictable time off. They're not going to work now. No, once they're going home, they're going home. It's a better quality of life. Now, they should be running to us and embracing it. It's hard. Why? 'Cause the guy that started at the bottom of the ladder is now at the top. And he says, "I worked all that time. I wanna be able to choose where I work, when I work, and how I work, what run I do, and what time I work. I finally worked my way to the top of the ladder." He's gonna have to give a little up. But for the vast majority, it's more money, better quality of life. What's in it for us?
Better service, better control of costs, ability to attract and retain new employees, ability to go out there and say, "We have a really strong value proposition. We have a really compelling offer for you, great wages, predictable lifestyle. And you can't just can't get jobs like this anywhere in North America except for this company." So that's something we're working on. It's a challenge because, like any organization, unions or companies, there's internal dynamics to them. There's people that are standing back and saying, "It's gotta be a trick." There's something there that we don't see that happened at that other company, at Brand X, when it was put in there. But we put in a escape clause to say, "If you don't like it, get out. Give us six months' notice. We can go back to the old way." That's what we're offering here as well.
If you don't like it, get out. Go back to the old way. Can't hurt to try. Now, even then, they're still kinda looking at it sideways. So this will take time. And Keith says, "We're, we're, we're feeling pretty good about it. But what happens if you didn't ratify in 30 days?" Well, we're persistent. We're coming back. And we're gonna keep coming back and coming back and coming back to the day when it's signed and it's ratified, and we have it in place. And we're just doing a better job as a railway because we have it. These are very exciting times for this railway. This is transformative. Now, we're gonna have some bumps in the road. We will even have probably a few setbacks. But we've got a vision of where we wanna go.
When we got these seven signed agreements in Canada and they're long-term, as we get those last two put away to join all the other record-setting long-term agreements. When we get those put away, job's not over there. That's just to start working with our people to do what we can do as a group to achieve the level of greatness we're capable of. We've already shown you a bit of them. We got lots more to show you. And in the United States, to work on that hourly rate to, again, give people a better quality of life, an opportunity to earn more, and to work for a company that's progressive and is getting better year after year. These are just waypoints to our next destination and the future that's even brighter than today. Thank you for your time. It's a key word, persistence.
It's not gonna happen overnight. I don't know if we'll get it done this time, but I do know that we'll get it done. It makes too much sense. Demographics are changing. And I've always said to me that's the shift of demographics is what gives you the leverage to do this. To Peter's point, those that the high earners, so to speak, in this traditional mileage environment are the guys and the gals that have the most seniority. They can use the mechanisms within the collective agreement to get their time off, to still earn a high wage, and have a good quality of life. But the other 85% of the employees can't. So at some point, you get to where the masses are not the employees that have 20 and 30 years' service.
With our demographics, the masses, the majority, the vote that carries the vote are people that are gonna benefit. They're gonna get a 20%-25% wage increase in exchange for giving us work rule relief, which allows us to convert on the productivity front. The scheduling, quality of life. People make more money. Railroad can schedule and provide service. It's a powerful, powerful mechanism that allows you to drive superior service and control the cost straight to the bottom line. So we're gonna get there sometime. I don't know if it's gonna be now, but it's, it's gonna happen. We will be persistent. All right. Now, let's talk about taking it to the next level. What in the world? Here we go. Okay. So as I've said, this transformation has been dramatic, but there's a lot more to do. Hunter talked about it last night. Velocity is the cornerstone.
And when I say velocity, I'm not talking about just getting a train faster from point A to point B. So if you look at our metrics and you see train speed goes up one mile an hour, that's not what I'm talking about. That's part of it. But velocity applies to any process in any department. I don't care if it's the mechanical department. I don't care if it's the clerical functions, the network services. I don't care if it's in the dispatch office. Any process that we can accelerate that drives and enables locomotives, cars, and people to move faster. That's what velocity's all about. And that's what the mandate is across the departments. I'll, I'll give you a case in point. Grain cars. We need grain cars. We've, we've got a very streamlined fleet. There's a lot of grain out there to move.
So every car I've got available that I can get a locomotive and a crew to, I can fill that car up and export it or ship it to market. So I've got a fleet. If I've got a percentage of that fleet sitting in the shop, and I've got 10 here and 10 there, if you start adding up the shops across the network and I've got 100 cars there, well, you know what? It matters if those cars sit there a day or if they sit there for three days. So by enabling and establishing and creating a culture of accountability and expectation that says, "If that grain car is bad ordered, you need to figure out a way to get it out there." That's a revenue waiting to happen. That's a revenue load waiting to happen. So you turn that car in 24 hours.
That's the expectation. It no longer are the days gonna exist where nobody asked you, and those cars could sit up, and you wake up, and you say, "You know what? I got 50 grain cars here that, on average, have been here for 5 days." That's not acceptable at the new CP. Things like that, successes like that, drive velocity. And if you do that across the company, it starts to make a tremendous difference. It allows you, when you create velocity, to improve your service, to put a service out in the marketplace that, instead of apologizing for service, the marketing team can convert value. It allows you to avoid capital expense. It means to move the same amount of business. I'm not having to buy as many cars and locomotives. Excellent case in point, our coal fleet. We run 152 car sets on the coal side.
If you go back two years ago, three years ago, today, we're moving more tonnage than we ever have. And we run, depends on the way the supply chain's working if we get a little congested in Vancouver. But plus or minus, it's somewhere between 21 and 23 sets. Two, two and a half years ago, that was 28 sets. And it wasn't 152 cars. There might have been some 125s in there. It was like a mixed bag. It depended on where it was going. It was not homogeneous. You couldn't drive velocity. You had way too much assets, too many cars, too many locomotives in the pipeline, congested, and you prohibited your success. You didn't enable success. That's what velocity does for you. Think about the saved locomotives. Think about the saved cars that we're not having to buy.
Think about when you speed trains up through the investments I'm gonna elaborate on, what you do to create capacity, what you do to create capacity not only on the number of trains you can run but on cars I don't have to purchase, on crews that I don't have to train, on locomotives I don't have to buy, and I don't have to maintain. That's the power of velocity. And a lot of companies don't get that. This is a heavily asset-intensive industry. Every one of those locomotives, you're talking $2 million, almost $3 million now. They're a lot of money, a lot of money. Those cars, on average, $100,000 apiece. So if you start doing the math and you talk about percentages of difference, it starts to become extremely compelling. It's a key theme that's gonna help us achieve this four-year plan.
And I'll tell you how, in a few moments, how we're spending money in our yards, on the main line, modernize our terminals, make them more efficient so that we can move more with less. We can switch more cars. We can move them more efficiently through the terminal in and out with fewer people, fewer locomotives, fewer assets to be able to do it, lower operating costs. And at the same time, on the network and you'll see this railroad, from a position of weakness, is my view, did not invest in this physical plant the way they should have invested in the physical plant. And that's what happens. When a company gets in trouble financially, you start robbing Peter to pay Paul. But someday, the power bills do, right? You gotta pay.
Now, with the success that we're creating, we're benefiting from an opportunity to take this cash and reinvest it in the physical plant to create not only an efficient railroad that you can run and drive velocity but also a safe railroad, a railroad that, given our growth, given our commodity mix, given the crude that we haul, given the grain that we haul, given the potash, the chemicals, the diversity that we're enabled to move in this company, allows you to do that in a much more efficient, velocity, safe manner. Again, something that's key to success. Now, let's talk about a few minutes. I guess this is gonna fill up. Okay. Pretty fancy here. Let's talk about some of the highlights of what velocity has enabled at CP since 2012. These are the high points. I'll talk about it from a coal standpoint.
I'll talk about it from a service standpoint. Scrap sales, locomotive improvements, $30 million annual lease charges that we've done away with, 10,000 less cars. Think about a network that had 10,000 cars out there, the same network, how much more congested it would be if you're in the middle of winter and it's 40 below and you can't get air in a train. I would much rather be operating a railroad that's more fluid with fewer cars than I had with one that's not. It's the difference between getting through the winter, surviving the winter, and being buried by the winter. Train weights increased 20%. Longer, heavier trains. Why does that matter? That means more fuel efficiency on your locomotives. That means fewer train starts. That means you drive a need for fewer cars.
You drive a need for fewer locomotives, a need for fewer crews, crews. So across the board, it's very powerful. On the service side, this is something we've talked about. Matthew's gonna elaborate on it. It's something I'm extremely pleased about. We took 20 hours, 20 hours out of our domestic intermodal product that we put in the marketplace. Pre-CP, we were enamored with and focused on international intermodal. Well, if you understand the intermodal business, the margins on the international are about like this. You don't make a lot of money. You don't control the ports. You deal with their inefficiencies. The shipping lines, as they bring their ships over and they're trying to save operating costs, they slow steam. And instead of all getting there the way they should on schedule, the one that's supposed to be there on Monday gets there. The one on Tuesday gets there.
The reality of it is you'll get none on Monday, none on Tuesday. You'll get four on Wednesday. So you've got synergies that are sapped away and velocity and capacity that's consumed and cost that's driven up in international intermodal. So you don't make a lot of money. But conversely, domestic intermodal, you got a different profile mix in your customers. The product needs to get to the shelves. If the product doesn't get to the shelf in a timely fashion, they lose sales. So if you're the transportation manager for a particular company and you're gonna use domestic intermodal, which getting a container across the country, a domestic intermodal train versus a single truck driver, there's probably about a 30%-40% price difference. It's huge.
So if you can attract that business off the streets and you can get it on your railway because you've created a service that's truck competitive, it's compelling. It's compelling from a growth standpoint. It's compelling from a profit standpoint, from a contribution standpoint because the margins on domestic intermodal are quite, quite a bit different than they are on international intermodal. So over the past, when you saw CP walk away from some of these international contracts, that's why. It. We looked at it and said, "Wait a second. Why are we gonna beat ourselves to death for the sake of international intermodal revenue for customers that want us to effectively do it for free?" We're not gonna do that. Now, do we care about our international customers? Yes. We absolutely do. And we provide value. They're, they're getting value. Our business is growing.
If you ex out and Jonathan Wahba can tell you more about this, if you take out the OOCL contract, our international intermodal's double-digit growth because of the service that we put out there. But on the domestic side, where we took 20 hours out of the schedule and the most, the highest growth in what I call the most lucrative intermodal domestic market in Canada between Toronto and Calgary, where the population centers are, we've experienced almost 30% growth year-over-year, 30% profitable growth year-over-year. Back when we did this and I can tell you, Jonathan Wahba was a little bit nervous 'cause he was new in the job. Jane was still here.
You know, I, I remember we walked in and sat down with Hunter, and they tell me, "If we don't cut the rate and if we don't do this, we're gonna lose this multi-million dollar contract." I said, "Well, we can't afford to keep the contract. We can't afford to keep it." And I started to think about it. I said, "Well, wait a minute. Just say it goes away. It doesn't exist anymore. Our margins are gonna be better. We're gonna be making more money on the bottom line. The revenue's gonna go away. But how long before we can replace that revenue with higher quality domestic intermodal?" The number I got in this was July of last year was, "Oh, we'll do it probably by the end of 2015." We lapped that revenue three months ago.
That's how powerful this service is and how powerful, when you convert it in the marketplace, how it's a game changer for this company. We've got the best franchise. Our competitor in that corridor and in the other corridors - and Jonathan Wahba will share this with you - on average, between Toronto and Calgary, they're, they have to run 220-some-odd mi further than we do. So just think about the physics of it. They've got the same gauge, the same track speed. The distance is further. How are they gonna beat us to our own backyard? But forever, they did. That's changed. We've got a product now in the marketplace that can leave Toronto Monday night. Gate cutoff time can, can be the same as our competitor.
And I could have it on the street at 6:00 A.M. on Thursday morning, going to the distribution centers, going to the customer to get the product on the shelves. Our competitor can't do that. That's a meaningful difference if you're into inventory. And as we go forward and as you see the changes in laws with truckers and as you see that workforce tighten up and as you see the trucking companies raise their rates, then the value proposition on the railroad's even more compelling. And there's an opportunity for us to take market share. There's an opportunity for us to take price and for us to share in the success of our customers. They grow. We grow. It's a pretty simple proposition. It's a very powerful one for this company.
And it is a key piece of this growth that we're talking about on a go-forward basis. And again, Matthew will provide some color on that in a few minutes. Now, let's talk about our investments. You know, focus on, since we've started this in 2012, cost control, asset utilization. It's unleashed significant capacity in this company. Some of the things we talked about, some of the yards, the hump yards that we used to operate and have to pay to operate, which are very high costs that we thought we had to have. We have one left, one left. And those that are still existing, those terminals, they effectively, in simplest terms, switch the cars for the communities they're in.
If I talk about Toronto, the simple principle is if a car has to go to Toronto to serve a customer served out of Toronto, then I'll switch in that yard. Otherwise, I'm not stopping it in Toronto. That was a hump yard where every day, forever, for the history of this company until two years ago, 2,000 cars a day. If you think about it and understand the business, tell me, what's the number of actual 2,250 cars that really need to come to Toronto? You had 2,000 of them going there to dwell. 2,000 you had to switch. 2,000 you had to maintain track. 2,000 you had to have signal maintainers.
Think about the work center that was created just for the sake of, "We think we need it," instead of understanding what you need and actually changing and driving and building the model based on what you need, not what you think you need. It's pretty powerful. So as we go forward, our capital investment is gonna be focused on essentially supporting this foundation of driving this revenue velocity. Our capital, order of magnitude, operations capital through this plan is about CAD 1.2 billion. And that's broken down between basic capital, which keeps your railroad safe, ties, rail, ballast, those kind of things, CAD 720 million. The balance is gonna be what we call productivity capital.
So it's effectively optimizing our network to be able to run longer trains, to be able to make more effective track meets, to be able to drive velocity, create train speed, create faster asset turns, create faster locomotive turns. So that's productivity capital. And the last bucket that's in this 1.2 is called growth capital. So it's to bring on this additional business. It's to, to put physical plant in to handle the additional crew growth, the additional grain opportunities we have that, that, John will elaborate on in a few minutes, the sand opportunities that we have that Tommy will elaborate on in a few minutes. So those three areas, that's what you can expect in this plan to drive this velocity, to drive this service plan. And at the same time, surprise, we're worried about cost control too.
So it's not just build this physical plant (and I'm gonna lay out what we're gonna do here at a high level for you in a moment), it's also to optimize and rationalize what's left over. When you build sidings that handle 10,000, 12,000 ft trains in a traditional railroad, that means you've got sidings out there that are 6,000, 7,000 feet that sort of become redundant. They're not gonna be used. So we have an opportunity we've identified in this plan over the next four years that there's a total of (and this, this number is the first run). I haven't personally given my sign of validation yet. I'm sure that I'll probably I'm good for a few more. But right now, the teams came up with 84 sidings that we'll eliminate, 84. It's 84 times 2, at least, on switches. So you're talking 160-some-odd switches.
Some of these sidings have backtracks in them. So add two more switches to it. Think about the capital avoidance when you eliminate this, these additional sidings 'cause what we're gonna put in and what we're gonna take out, we're positive on the taken-out part. So we've got fewer switches to maintain. We've got fewer switches to replace. We've got a safer railroad because every time you have a switch and a track, that's a place that a potential derailment can occur. That's a moving component that can fail under the load of a train, and you can have a derailment. So there's a safety issue, and there's a safety benefit as a result of this investment as well. All right. Let's talk about the actual efficiency side of it, what we're gonna do. This essentially is gonna support this volume growth that we're talking about.
So we've got productivity and growth capital opportunities. All these little dots that you see out here are enhancements to the infrastructure or velocity so that we can drive train speed, take train starts out. This represents order magnitude. I think there's 10 terminal projects. I'll give you an example of a terminal project up in Saskatoon or Sutherland Yard, which is the first major crew change point centered and clustered around where our potash comes from and just so happens to be it's gonna be where a lot of crude oil's going through as well. We're gonna spend some money to build physical infrastructure so that we can bring a large train into the terminal and do our maintenance inspections on it there. So we'll have carman there. It'll be like a, like a speedway. Think about a racetrack. Train comes in, stops. We got a track.
We're not blocking the main line. It's gonna be there for 2-three hours. They drop the flags, and it's off to the races again. And we dispatch trains, again, velocity through that investment. If I go to the east, these hump yards that we shut down, when we shut them down, very scientific, spike the switches, stop using them. So you've got yards that are not; they were hump facilities. And a hump facility versus a normal switching lead, they're two different beasts. We haven't spent a lot of money to take what's left of these hump yards that we're switching in to optimize them. So there's lead configurations that we're gonna make.
There are things that we're able to do to invest within these physical plants that allow us to do more with less, that allow us, after we make these investments, to switch the same amount of cars or more with fewer assets, with fewer people, with fewer crews, with fewer locomotives. That's the power of these investments. So there are 10 of those type projects in our terminals. There's a total of, rough number, Scott, help me if I'm wrong, 81 siding extensions, siding additions, growth capital, productivity capital across the system. These dots indicate, and you'll see a tremendous amount of this investment is being made on this North Line. This North Line, to me, is a piece of railroad that, again, maybe because of a position of financial weakness, we didn't invest in. It's a jewel.
It's a jewel because it's the shortest route in a lot of the locations. I'll elaborate on that. It's also a jewel because this is where a lot of the growth is originating. So what a perfect combination to be able to create a main line, a very fluid operation so that you can convert this growth and bring it to the bottom line. Now, this is about sweating our assets too. I'm gonna use this as an example. I talked about these redundant sidings that we've identified. This is one that I have given my seal of approval. Guido and I personally went through this. If you go to Calgary, which is the big blue dot here, to the West Coast of Vancouver, this, this is how Guido knows his territory.
I, I say, "Guido, what's the mileage?" Well, normally, you say, you know, you're thinking, "Oh, it's 130 mi. It's 600 mi." He says, "It's 641.4 mi." Now, I gotta test him on that to make sure he's telling me the truth. But he's convinced it's 641.4. In that 641 mi, we've identified 13 sidings that, as we invest the blue dots indicate the investment, we're putting three in, extending or adding three sidings. We've identified 13. We're pulling out. Now, if you understand this territory, this is mountainous terrain. This is high-maintenance cost railroad, a lot of curvature, a lot of hills, not an excuse. It's the reality. To maintain and to keep it safe, it costs a considerable amount of money to be able to do it.
So if I can eliminate those 13 sidings, think about, number one, the improvement I get in safety 'cause go back to what I've said. I've eliminated an opportunity for a train to derail by doing that. And guess what else I've done? I don't need as many employees to maintain the switches that remain in that 641 mi. I've got a safer physical plant that's built for growth. I've increased capacity. I'm increasing velocity, and I'm lowering my operating costs. It's like the gift that keeps on giving. It's very, very powerful. So that's just one piece. If you replicate that in all the other territories, that's what's baked into this plan as we go forward. Now, these investments, order of magnitude, represent close to $900 million over the next four years. If not for what we're doing, it would be a lot more.
I say that because, as we remove these, we get all the benefits of the removal, but we get to cascade these switches as well. We get to cascade this track. So it offsets or mitigates or minimizes that capital spend to add all these other productivity and growth initiatives in, in locations in the railroad. Order magnitude, simple numbers. If I can cascade one siding's materials to help defer the cost of a future siding that I'm gonna build, it's about $1 million savings. It's about a 20% discount you'd get by cascading materials. And if the material is beyond its useful life or if it's antiquated and it's something that we don't wanna put in our new main line high-speed railroad, we can sell it for scrap. So we generate cash for the company as well.
So again, it's a powerful, powerful model that it's not just about investing. It's about being good stewards of our shareholders' money. It's about driving a disciplined organization where you ask why, and you justify the money you spend, and you justify the investments, and you mitigate, and you turn assets, and you control your cost. It all weaves together. It's a beautiful thing in how we work and why. Okay. CTC. That's an area, again, this company was way behind the industry. CTC, for those of you that don't know, it's called Centralized Traffic Control. It effectively equates to creating one big electrical circuit on the railroad, and you've got red lights. Now, there are a couple of things it does for you. That's the most advanced train control system in the industry.
Previous to that, in a lot of these territories, we call it dark territory. It means you got a dispatcher that's on a radio given a train authority to move between point A and point B. And then when they get to point B, they give them authority to move to point C. And they get to C, they give them the authority to move to point D. So there, there's a lot of verbal communication. There's a lot of coordination. There's a lot of discussion that's involved. With CTC, you create capacity and velocity just by eliminating that. So effectively, you've got a dispatcher that sits at a screen. And by the way, it takes fewer dispatchers in CTC than it does because of the workload. Think about it. They're not on the radio hopscotching every train.
They're sitting there talking on the radio when they need to but lining switches and lining routes for trains as they move across their board, so to speak. So by doing this, this company, lowest amount in the industry, 47% of our railroad's CTC now. That's the lowest in Class I. This plan involves about CAD 300 million of that CAD 900 million of investment over this time period to get us to about 70%. And the beauty of it is those locations that we're investing in, and it's, it's marked by the blue track here we have, again, it's in the growth corridors. So we're moving the business there now. This is gonna drive velocity. It's gonna drive throughput. It's gonna turn assets. It's gonna lower our costs. And then the other piece, this broken rail, that's a big piece of this as well.
With an electrical circuit, if you have a broken rail, then the dispatcher automatically it's caught a red block. It goes up, and they know there's a problem. So before a train finds a broken rail, they can dispatch maintenance forces to go out and find the broken rail and repair it before a derailment finds it. In dark territory, you don't have that benefit. So that's the pickup on the safety side. Again, we're removing a lot of these materials, crude oil, where we certainly understand the emphasis and the focus on doing that safely. So again, this is something that we get multiple benefits across the company for. All right. Let's talk about the North Line. This is another one of my compelling finds when I first came to CP. As I said, the North Line, it was an unrealized franchise strength for this company.
And I'll take you to Saskatoon here in the middle. As I've said, all the potash, the majority of the potash in Canada comes from this area. Well, when I got here because I had a little experience in the past understanding cycle times, competing for a particular contract that now I gotta live that we lost part of with Canpotex, I understood how fast our competitor took cars and turned them to the, to the West Coast versus how fast CP was doing it. What I didn't understand is how theirs was so much dramatically better versus what ours is. So one of the first things I did, I had Mike Foran. I had a group of people with a whiteboard, surprised again, and I said, "Draw the, draw the potash mines up here. Draw the whole network for me. Show me how you run the trains.
Let's walk through it from A to Z." Well, it took me about five minutes to figure out. I said, "Wait a second. We both serve the same mine out of Saskatoon, both railroads. They come in one side. I come in the other side. But yet, it's 220-something mi further for me to go to the West Coast than it is for my competitor. How do you compete?" That, that's significant. That's 2, 2 crew runs. Think about all the additional crew costs. Think about the locomotive costs. Think about the car costs that are associated with that. How do I compete with that? And why do you do it that way? I don't understand. Well, you know, we haven't spent any money up here. This is 85-pound, pointed track, 10 mi an hour, 25 mi an hour. We haven't invested money.
So we run it east past Saskatoon, and then we come down what's called the Lanigan Sub down to the main line near Regina. We hang a right, and we go to Vancouver. For every grain train, all the potash trains, think about a bulk railroad that runs everything 200-something mi on average out of route. Doesn't make a lot of sense. But again, because of the strength of what we're doing, producing some cash, the board gave us the support last year. We said, "No more. We're not gonna do it that way anymore." And initially, we said, "Start running them west. We're gonna run the shortest route." Well, I think it was the first or the second potash train, we derailed it. And of course, that alarmed me. I'm like, "What do you mean we derailed it?" So I sent my chief engineer up there.
I said, "You go there now. You get there. You call me. You send me pictures. I wanna see the tie condition. I wanna see the rail condition." And the pictures he sent me scared me. I mean, I'm talking wooden axle, antiquated, no way in the world we should be running heavy tonnage over it kind of railroad. So immediately, we went to the board, and we said, "We need CAD 100 million. We gotta put rail in. We gotta put ballast in. We gotta put ties in." So we started on that venture last year. We ended the year. We eliminated several hundred mi of jointed track. We've got 115-pound CWR up there, continuously welded rail. We've got a physical plant that, as we go forward, and part of this plan is gonna be CTC. A year ago, it was 10, 25 mi an hour. Today, it's 40.
It's the shortest route to Vancouver. So all those assets turns are turning faster. Our operating cost is being driven lower. And it's established the foundation that once we CTC this railroad, it's not a 10- or 25-mile-an-hour railroad. That's a 60-mile-an-hour railroad. So we'll get another incremental step in this plan in velocity turns and asset turns and controlling costs and driving revenue and moving more with less. It's a common theme. It fits well. It works well. And we get additional train load capacity. If you go and you look at the line between Winnipeg and Glenwood, that line has heavy crude moving on it now. So if I'm coming out of Hardisty and I'm gonna go to the East Coast or I'm gonna go to the Louisiana Gulf, that's the route the traffic's gonna move over.
These investments are gonna allow us to double the capacity of that line over this four-year plan. So as this crude grows and as grain grows, it's an opportunity to move it the shortest route, the fastest route, the most efficient route. Again, a success story. And the last piece, Moose Jaw to Glenwood, that's the core route down to St. Paul, Minneapolis. This is an area we're investing in that will allow us to increase capacity and throughput here 35%-40%. It's meaningful. It's powerful. And again, that's where that line is the same line where your Bakken crude originates. That line is where we talk about this grain in North Dakota, where it originates, where the Pacific Northwest grain, the preponderance of it, originates. So again, across all those business segments, we're gonna get asset turn improvements. We're gonna get profitability improvements.
We're gonna drive superior service that's gonna drive the top line to help us get to that $10 billion and beyond. Twin Cities, this is a little pinch point for us, has been. We've talked about it on some of our calls. We've had some challenges there. This is a very capacity-constrained area. So again, last year, one of our field trips, Hunter and I, I went a couple of days to St. Paul Yard. You see it down on the bottom right side. The unique thing about St. Paul Yard, that's our only hump facility. The challenge is we don't control access into or out of it. The main line, the dispatchers that control it are in Fort Worth, Texas. So we essentially are partners with BN in St. Paul, Minneapolis. So we all know BN's got growth. They've got business. There's demand. UP's there as well.
CP's got growth, business. There's demand. It's become a pinch point of sorts. But what we found out, if you look at this route historically, this blue route, this is all the way up from CP University. This is BN's major hump yard. But from this location all the way down to our yard, it is the shortest route on the blue line. It's 12 mi. We pay trackage rights. We have access to it. That's the way historically CP has ran traffic forever. Well, as business has grown, think about it. When you're trying to weave your trains in between their trains and everybody's trying to get along, it takes a lot of capacity. And if somebody has a problem, either we have a train crew that dies or have a mechanical issue, or they have a train crew that dies that has a mechanical issue.
With the number of trains that go through this double-track territory, we're talking between the three railroads, the movements through there, it's about 100 a day. It's a lot. So if you lose a couple of hours of capacity because you have a train problem, there's a ripple effect that's pretty profound. So what we decided to do and looked at, I realized that we've got this red railroad, this track here. This is called Soo Junction. And this is from the former Soo Railroad that goes to Cardigan Junction. It comes back to the same location. The beauty of this at CP University is we're grade separated from the BN. So there's no conflict here. We can take a train and go straight across with our dispatchers. The problem we had or the challenge we had is this was a hand-throw switch. And.
Their crossings, communities that are all through this. And it was dark territory. So we decided last summer, not knowing what was gonna happen in the winter, not knowing how challenging capacity was gonna be, just because it was the right way to control our own destiny, and smartest for us, even in a perfect world, to stop paying trackage rights, to use our own route. It's 5 mi further, 17 mi. But if I can get across that railroad in 45 minutes on average instead of two hours on average, then I'm money ahead. Again, I'm creating velocity. So over the past year, we worked with BN. We spent $several million. We've CTC'd this territory now. So again, we get the safety benefits. We get speed increases. And this is now a power switch. That was about a $3 million investment.
But what that's done, what it's allowed us to do is every one of our westbound trains now, they run from St. Paul Yard to Soo Line Junction for 3 mi. So they're on the BN for 3 mi to get to our route, and we take them to Canada from there instead of on the BN for 12 mi. So you don't have to run through the gauntlet that we had to run through, or you don't have to be exposed to the potential repercussions if a train dies. And it creates capacity for the industry as well because our trains are off that railroad. So BN can run better, and our eastbound trains that currently move still on that route can run better. Now, that's phase one.
Phase two, we're working with our counterparts as well to develop alternate routes for eastbound trains to create additional capacity in St. Paul. So no silver bullets, but singles and doubles, and we're moving in the right direction. And again, it's gonna create velocity. It's gonna allow us to control costs and improve our service for our customers. I'll tell you this, the foundation of the company, if you don't get this right, if you don't run the railway safely, you're not gonna succeed, especially with this operating model. It's our moral obligation. It's something that I personally, every day when I go to bed, I look in that mirror. Have I done all I can do as a leader?
I call it the mirror test to ensure that I provide a safe work environment to minimize the chance that our employees get hurt or we derail a train or we do anything adversely to affect a community we operate in and through. It's our moral obligation. I'm happy to say this is somewhere we're producing success as well. Our year-to-date accident ratio, and it's called an FSI, your Frequency Severity Index, our accidents per million train mile is the best in the industry. And it's the best it's ever been at this company. Year-to-date, we're 30% better than last year. And we finished last year for the eighth year in a row, number one in the industry. That's not enough.
I firmly believe, although I know this is a challenge, and I know it's gonna be tough to realize this, every accident in some shape, form, or fashion is preventable. This is something this company is focused on. You approach it three ways. You gotta have the right investment. You gotta have the physical plant that's robust, that handles the tenor you put over it. I talked about it on the North Line. That's a case in point. If you don't, what's gonna happen? So we're gonna invest CAD 720 million a year to keep the railroad safe. And then you gotta have the right culture. And it's not a culture of fear the way some try to present it. It's a culture of accountability. It's a culture of respect.
When employees come out on the railroad, they understand that our expectations are that they work safely and productively, that they follow the rules, that they don't cut corners, that they're out there when they're operating a train doing roll-by inspections, that they're out there when they're operating a train calling out signals, that they're working as a team, and they're jointly accountable for the safe operation of that train. Same approach in the car department, same approach in the engineering department. It's called a culture of accountability. I'm not gonna apologize for running a safe railroad. I'm not gonna apologize because so many years before, we didn't really do this the way we should. We didn't state expectations. We allowed employees to sort of manage themselves. When you do that, they're human beings. I'm not being critical. I'm one too.
People will do what you allow them to do. The level of performance or the level of excellence you receive is what you demonstrate you're willing to accept. We're all wired the same way. This is an area I'm not gonna demonstrate I'm gonna accept anything less than excellence, nor will this team. I'm not gonna have, without doing all that I possibly can, ever have an accident like, like Magenta capping on my watch. I'm not saying that it will not, but I'm gonna tell you that I'll do everything within my power to create a culture where people understand expectations and consequences, and you manage that way, and you lead that way to provide the safest work environment possible for our employees, for our customers, for our shareholders, and for the communities we operate in and through. It's foundational. More to come. This is the head sheet.
So I've talked about what we've done previously. This is what we have to do. This is what's on the board for us to convert over the next four years. Drive train lengths up 15%, train speed 20%, locomotive productivity, and fuel. Train weight, it's about taking this physical plant that we're gonna invest in to be able to run longer trains, heavier trains, DP-powered trains. Again, what it means, it means you create capacity on your main line. It means you have fewer train starts. It means you turn assets faster. Train speed, same thing. When you create speed, when you run that railroad faster, you're creating locomotives.
If you look at this and our plans with this 20%, if we did nothing and we didn't drive these numbers here, what you're talking about is CAD 600 million more capital we'd have to invest to be able to handle this level of business. If I bring it to a locomotive term, that means 60 less locomotives that I need because I'm gonna drive train speed up 20% to convert this plant. 60 less locomotives that cost now, after 2015, with the new emissions things that are coming into play with the government, those locomotives are gonna be close to CAD 3 million apiece. It's a pretty compelling reason to pay focus to and to convert this velocity piece. CAD 250 million of expense savings. Fuel alone, so far year to date, we're at about 10%.
We've taken fuel productivity from back of the pack, maybe middle of the pack, to we're knocking on the door best in class. That's the way it should be. We're still not done. Through our investments over the next several years, there are technologies that we haven't deployed on this railroad that will help us save additional fuel. There's a technology called Wi-Tronix that we're in a five-year plan equipping our locomotives with. I've got a lot of experience with it from a previous job that I used to have that drove a lot of success over there. Once you get Wi-Tronix on those locomotives, it's an ability to almost be in the cab with a crew.
So you have an ability to affect their behavior because they know that if they don't handle the train properly, those Wi-Tronix can be programmed so we get immediate, real-time alerts. We know if somebody's out there cowboying, what we call cowboying, throttling a train aggressively or braking a train aggressively, putting themselves not paying attention the way they should, and putting us in a position where we might have a derailment. It also gives you an ability to optimize horsepower to the tonnage of a train. Hunter talked about that yesterday. Talked about that yesterday. You've got these high-horsepower locomotives. You don't always have a perfect mix of tonnage available versus the locomotive horsepower that's there. And again, human beings, locomotive engineers, they want to get from point A to B as fast as they can. And normally, what they do, it's wide open.
So it's like hurry up and wait. It's almost like dragging from the red light to the red light. Think about the fuel that's wasted. With Wi-Tronix, you can implement something like horsepower to the tonnage. And you can tell the crew when they come on duty, "Okay, your tonnage profile is this. You only need the horsepower that you'll generate from throttle 9 to 7 to get the train over the road and maintain your schedule. So run it at throttle 7." Well, again, human beings, some do, but there's always a big percentage that don't. Without this technology, you really don't know. You don't know real-time. You don't have an ability to get on the radio and say, "Okay, train 101, you're supposed to be in throttle 7. Why are you running in throttle 8? Is there something I don't know about? Are you running into wind?
What's going on?" Well, you affect the behavior of the crew on 101, and guess what happens with all the other trains that hear you asking the question? Again, people do what you allow them to do. This is an excellent tool to help drive the right behavior, the right culture that supports all the initiatives in this company. And again, velocity, the key. Without it, we're not gonna be able to achieve any of this. It's the foundation of this. We've got the team. We've got the physical plant. Operating-centric, we're aligned, we're focused, we're creating a culture of excellence and execution. We're demonstrating what we're willing to accept. And it's nothing short of excellence. So again, I'll close with this comment. We've laid this thing out for you.
You're gonna hear more color from John, from Jonathan, from Tommy about the revenue opportunities to let you get your teeth into that, so to speak, to understand it better than Bart is gonna bring it all home for us this afternoon and bring it to the bottom line. You've got the team of the best railroaders in this industry. This is a world-class team getting better every day. We've accomplished a lot, rest assured. We're not complacent. That's a key word that Peter used a minute ago. We're persistent. We're gonna demand, we're gonna command, and we're gonna produce excellence. So with that said, let me we've got a few minutes here. I'll open it up for questions. As Nadeem said, if we don't get questions done with me to stay on time, we're gonna have an opportunity to do all this up at the end of the day.
Go ahead, Chris.
Great. Thanks. Chris Wetherbee from Citi. Can you talk a little bit about sort of the headcount needs as you think about this plan over the course of the next four years? Can you continue to see some of that attrition flowing over those four years? And when you think about some of the union contracts that are still pending out there, does it make sense to continue to go for those five and six years type of agreements, or maybe do you go a little bit longer if you don't get everything you want? Thank you.
I would say this. We're still in the process of right-sizing. I think our headcount number versus 2012, we're at 49 now. Is that right, Peter? And we've given guidance it's 52 order of magnitude into this year. So there's more to produce on that side, which will offset. But on the running trade side, we've got it to a point where, except for these monumental, if we get these deals, it's pretty much a steady state of where we're at. We've attrited out and absorbed all the additional and surplus that we've had. We're not paying any guarantees. So if we get a monumental breakthrough in a collective agreement, then yeah, we'll get some headcount savings. Otherwise, as business goes up, you'll see an incremental change. It's not gonna be one-for-one.
I don't know what the exact number is until we convert all this, but you'll see some headcount increase. Running trades only is the only place that I've anticipated that we'll be adding employees. And again, to your point, Chris, if we get a breakthrough agreement, then it's gonna mitigate that. So we're gonna be very careful. I mean, right now, we're trying to negotiate this breakthrough agreement in the U.S.. The collective agreement's set up for negotiation right now. This is something that we're doing off-cycle to try to create so we have some time to adjust to this if we need to adjust to it. Oh, I'm sorry.
Hey, Keith. Donald Broughton, Avondale Partners. You laid out some very specific things you're gonna do with the Western Corridor, removing sidings, adding some CTC, rebuilding the North Line. Perhaps I missed it. Can you give us some timelines as to is this over the next three years? Is this over the next 12 months?
Yes. Effectively, you've got orders of magnitude larger. So we would be very irresponsible to try to assess and size up to try to get it all done in the first year or two years. So it's spread out to cascade and to align with the business as it comes on. So the expansion that we're gonna get in crude, the expansion we're gonna get in sand, as grain grows, we've got it strategically laid out over the four years. So we've sort of eaten the elephant one bite at a time instead of trying to, and the benefit of that as well is if things change, if the world changes around us, we haven't sunk all this money. So it's on the out years as well as on the beginning years. It's not front-end loaded.
Hi, Keith. So I just wanted to go back to this, the hourly wages agreement. So how many people in the U.S. would be affected by this, and how many workers in Canada would be ultimately affected by this if you were to be successful? And maybe if you can give us what do you think the bottom line impact would be on that success rate, if you want to put it in OR term or EPS term or million-dollar terms, whichever it is.
All right. So Peter, I'm gonna call on you. The running trades headcount in the States, order of magnitude?
2,000-2,000 in Canada.
Yeah. So about 1,500-1,600 in the U.S., and then about 3,000 in Canada. The thing about this in the U.S. right now, we're negotiating with, and the agreement that is out for ratification is actually with the conductors. So that's only one of the two that run the locomotive. So if this and when this is successful, be it now, be it later, then we've got to negotiate the same similar deal with the locomotive engineers to get that full net effect. Rule of thumb, it's about a 30% adjustment. And it's not when we do this, the beauty of this, a lot of employees don't understand that we don't protect the unborn. But in these deals before, these employees that sign up for this, we give them job protection. So if you work there today, the deal is signed, you're gonna get job protection.
That doesn't mean if you hire five years from now or six years from now, you're gonna get it. We can't do that. But this isn't about taking money out of people's pockets and about putting people on the street. This is about being more productive. And it just offsets as we grow and as attrition works for us, additional hiring that we otherwise would have to make. So it's very compelling. But again, we can't put the cart before the horse. It's a big, significant change. It's an emotional change. You do it sort of one step at a time. If we get this done, and when we get this done with the conductors, the engineers are gonna see the quality of life benefits that are riding the same locomotive with them. They're gonna see the pay benefits. And they're smart folks. They're gonna want the same thing.
And then as this happens, and it's not this big conspiracy theory, and everyone's not so scared of it, and they understand we don't have any ulterior motives other than to provide service, control costs, and create job security, not cut jobs, then you can cascade it across the other property. He's good.
Keith, good morning. It's Brandon Oglenski from Barclays.
Morning.
I want to come back to the Western Corridor. So you talked about taking 13 sidings out and I think expanding three or four and at the same time expanding capacity. So I'm not a railroader. I think a lot of people in this room probably live in Excel and spreadsheets. How is this possible going from 13 to 4? Is this just indicative across the network, or is this unique to that territory?
No, it's not unique because we're effectively, in these territories that we're gonna invest, we've identified 84 we're gonna take out. Traditionally, the way a railroad was built, on average, most railroads, you've got a siding every 10 mi, and it's about 6,000-7,000 feet long. That's the age-old way of doing it, and the yards match the 6,000-7,000 ft tracks. So once you create a railroad that's optimized for running long trains, and in this corridor, we're gonna be running trains that are 10,000-12,000 feet long, you can't fit it in a 6,000 ft siding. So those 13 sidings are short sidings, or in this particular territory, there's 155 mi of what we call co-pro territory to the Fraser Canyon Valley that we run with CN, our competitor. So westbound going into Vancouver for this 150-some-odd mi, we share CN's railroad.
Eastbound coming out, CN shares CP's railroad. That's been that way for probably a decade. We did that deal in our previous lives. It's been good for CP. It's been good for CN. It's increased capacity. You can fleet trains. You can run them as long as you want to. What we failed to do, or what we haven't converted in this company so far, is taken those redundant sidings that don't get used at all in that 155 mi out. So that's part of that 13 as well.
But maybe to a little different scale, but essentially across the entire railroad, as you invest through these 81 productivity and growth initiatives, you're gonna be creating opportunities to take track out, to take switches out, to create a safer physical plant, a more robust physical plant, a physical plant that costs less money to maintain, that gives you velocity gains, and that's safer. It's a powerful, powerful model for this company.
Yeah. So if you look at it as a high-level impact to capacity and you say, "Well, our capacity of the railroad was X," after these projects, and you gave us a great layout of the specific lines and the magnitude, what's the overall capacity increase for the railroad four years out? And then I guess the second one would just be along lines of you're addressing some of the BNSF issues in Minneapolis. How much residual reliances are on other railroads in key parts of the system? Thanks.
Let me start with the last question first. Chicago, there's a whole lot of reliance. Chicago is the other location that is heavily relied on by your partners and your interchange carriers. So if Chicago runs well in that corridor, in Chicago, CP will run well. If it's not, we're gonna be challenged. I can't change that. There's not any investment I can make. I can't yet buy a railroad in Chicago. Like Hunter said, we've offered to buy the Belt. We've offered to buy the Harbor. I don't know that they're ever gonna sell it to us. We're shareholders and owners in the Belt, just like the other railroads are. We take that responsibility seriously. We're being very active in that responsibility. If we can't buy that railroad, we know there's untapped potential.
We know that there's a lot more cars, a lot of meat on the bone left that they can process in that terminal for the benefit of the industry. So we're being very vocal. We're being very upfront. We're being leaders and demanding that the management team that we employ at the Belt runs the terminal more efficiently for the benefit of the industry, for the benefit, of course, CP, but for the benefit of the U.S. economy and the Canadian economy. It's our fiduciary responsibility. That hasn't happened in the past. And we're starting to see some encouraging signs as a result of that. Now, is it fixed yet? No, it won't happen overnight, but it's something that we've bitten into, and we're not gonna let go of it until we get it right, even if we can't buy it.
The other point you asked about the additional capacity, we've modeled - and these are not perfect models - with these investments, just in train speed alone, we're probably talking in some of these corridors, it's about a 10% improvement, but overall for the network, it's about a one or two-mile-an-hour improvement in total network train speed. So you multiply that across locomotives. You multiply that across capacity created on the main line. People, I mean, it's pretty compelling for us. But again, you'd have to look at each territory. Some are double the capacity. Some are 35% more. It creates a network where we're fluid, where we can maintain velocity, where we can control costs. And except for Chicago and St.
Paul, to the degree that the things that we don't get done that we haven't done already, other than those two locations, this investment's gonna give us a physical plant that's gonna be true to this railroad and be great for our shareholders and customers for a long time. Very, very solid physical franchise and plant optimizing what's out there and taking advantage and leveraging those shortest routes with the high-speed territories and the greatest velocity in those key lanes. Yes, sir.
Hi, Keith. Yeah. Just, am I right to think back on the hourly service again of these 4,500 folks or so that if they're currently doing 100 mi per run, working four hours, if we can get them to maybe double that? 200, I think we do 250 U.S. on CN. So if we're doubling the productivity, is it reasonable to think then maybe we need maybe half those folks? Obviously, this is not an overnight thing. And lastly, is that incremental to, I'm assuming it's incremental to all the numbers we've seen.
Yeah. Your thinking is correct, except what you've got to recognize is the mainline operation is only part of the workforce, right? So you still have terminals. You still have yards. You still have a large group of workforce that's needed to process and switch those cars. So it's not half. It's probably, again, back to that 30% number, that's probably a pretty good number. The beauty of this thing, though, that you can't measure from a service standpoint is reliability. We talk about things that happen in the railroad day in and day out. If a train dies and I'll go to St. Paul. I'm on the BN's railroad. I've got a crew that's working in from Glenwood coming east into St. Paul. They're four mi away. If that train dies, it's blocking the mainline. I can't get westbounds out. I can't get eastbounds in.
It's backing up the BN as well. Unless I call a crew, a whole separate crew, to go 3 mi out and grab that train and bring it in, a road crew, then I'm dead in the water. Often, these things happen unexpectedly. So it's not just the train sitting there. I've got to wait on the crew two hours before they come to work. So it's not an hour delay. It's a two-hour delay. In an hourly world, when I don't have all these workroom restrictions, I've already got that outbound train on duty to take that train handoff and take it to Chicago. I can take that crew, and I can send them that 3 mi and go grab the train and operate it straight through. So it's lower cost. I've saved the additional train crew I would have called otherwise.
But the compounding effect of that, not blocking the mainline, not affecting all the other train movements in an area where you're running 100 trains, it's profound. There's so much sunk and hidden cost in an operation because of these impediments that it's even hard to imagine and convert. I was on the IC and the CN when we did the first hourly deal. And mentally, just to get your head around, when you've worked through all these work restrictions all your life, it took a lot to train people. "Wait a minute, guys. You can't let a guy that we're paying $30-something an hour for 10-hour day come in like he normally would after six hours and go home. There's work he can do. Well, we don't have another train to run. Well, you know what? There's a rip track that needs to be switched.
There's a cut of cars that's sitting in track six. They could get it on a set of engines, a switch engine, and go switch it out." All that work they do is offsetting the need for additional employees. It's not sort of a two-for-one, but that one crew can do his normal work that he would have done in a traditional day plus about 30% of another job. You start putting all that together in these major work centers, and that's how you start dropping headcount, improving reliability, and reducing costs. That's how you can afford to pay these employees more money. They're the most productive. They deserve to make the most money. It's a pretty simple principle.
Fine. Final question.
The question was how many people we have. I gave general round numbers, and the why is because we are bringing on people for training now due to our demographics. So you want the exact number on page 101, but is that a precise number? Well, the top number's 7 lower on Monday. I knew that. It's got 3,289. It was 3,282 on Monday. So they go up, and they get down depending on how many people we have on training. In the past, we may not have counted the people that are on training. Now we do. So you have to take that into your calculations as well.
Kim?
Hello.
Hi, Keith. It's David Newman from Crossmark. Just a question on through the negotiations that you had on the five contracts. Obviously, the pension issue was something that CP faced in the past. What did you do during the negotiations to sort of immunize yourself from that interest rate risk, or did you come up with amended DB, DC plans, or maybe just talk about that a little bit?
Yeah. I'll let Peter elaborate on that. He was the master of this.
We had to do a lot. So we started with the staff side, and we put in a DC plan and eliminated entry into the DB plan for all future staff. We raised the pensionable age from minimum 55 to minimum 57 beyond a certain point. In the unionized side, and we changed some of the benefits, and we increased the contribution levels of management. On the unionized side, we put in a cap in all the new programs, a cap for existing employees and a new lower cap for all new employees that represents what's more typified in the industry. Before, it was an uncapped plan. It went up automatically every year. So by the process of doing those changes for management and doing those changes for union, we significantly reduced the volatility and the impact on our balance sheet. So does that give you enough detail?
What's the sense of the analysis on the interest rate that's set on DC by the buyer?
That's why I have one of those. That's why I have a great CFO, so. Yeah. I'll let him handle that this afternoon.
Okay. I've got time for one more to keep us on track. If I could, Ken, I'll go ahead and get Bart.
I was going to cover that off this afternoon, but every 10 basis points, backpocket number for you. Change on interest rates, it's about CAD 13 million in change in the cost.
Thank you, Bart. Okay. One last one, Ken.
Thanks, Keith. Ken Hoexter from Bank of America Merrill Lynch. You've talked a lot about eliminating the humps and you kind of just talked about it before. Another rail just had a conference and talked about how they doubled capacity. I just want to understand, how do you switch and block and avoid the need for the humps? What is structurally different in terms of the network to avoid what they've done? And then the second, I just want to understand the Wi-Tronix. Did you get pushback in negotiations or anything else in terms of overly controlling what they're doing or anything like that? Is that an issue at all?
Wi-Tronix, no. I mean, I've had no pushback from it. You treat people fairly. It's a technology that we convert. I just have not had any issues with it. As long as you don't abuse people and you're fair to them, it's not a vent. As far as the other question we were talking about, I've got a hump yards. Okay. Effectively, how you do that, historically, the way they were set up, every couple hundred mi, we had a hump yard.
But if you look at a hump yard, it's as simple as looking at all the traffic that's coming into it, and you figure out the destination of the traffic, and you create train destination density, block density, so that you can advance the traffic as far as possible and get it as close to destination to where it gets to make sense to where let's just say if I'm going to Winnipeg, between Winnipeg and Calgary, before I go to Winnipeg, I'd hump the car, and I'd send some to Moose Jaw, and I'd make a block for Calgary, and I'd make a block for Swift Current. Well, if I want to get through Winnipeg, I look at that traffic. How much am I blocking now in Winnipeg and Winnipeg for other locations? And I found out, well, wait a second.
If I send a large portion of this business to Moose Jaw, I've gone right through Winnipeg, and at Moose Jaw, they can make the Swift Current block. They can make the Calgary block. And it just so happens to be a location that traffic is coming up from the States. They can combine that and fold it in. And then I've taken workload out of Swift Current. I've taken workload out of Calgary. So that's an oversimplified example, but that's about what it is. It's just understanding the flows of business, creating mass density, and driving it as close to destination as makes sense, and then switching it. So instead of it all happening in one terminal, you spread the workload across all these other terminals that you've got to run anyway. Let this place take 10% of the work. Let that place take 20% of the work.
You speed the cars up. You eliminate the hump facilities. You cascade the track. You convert the land. It's a pretty compelling case. hump yards are extremely, extremely expensive, a lot of people and a lot of maintenance. So unless you really need them, you better not have them in place. Okay. We're going to take a 15-minute break. After we come back, if you can be timely, we'll start into the marketing presentation. You'll get a little color on how we're going to what this revenue looks like and where it's all at. So thank you very much. So I'm not the main attraction here. These gentlemen to my left, you're going to get to spend some time listening to them talk about the business they're passionate about. But I can tell you this. This company is not the same CP that it used to be.
Without a doubt, we're a different railroad. We're not the sleepy bulk giant that couldn't provide service. We sold price. We're the very progressive, aggressive, persistent, high-velocity-driven railroad that's going to create new standards in the industry, lowest-cost structure, and we're going to drive the top line. Each of these guys are going to go through their business units. They're going to tell you about, provide some color to get this to work here. Maybe they cut it off so I couldn't. That's yours, huh? They're going to provide some color. The first one we're going to come up is Tommy Browning. As I said last night, Tommy and I have worked together now for almost two decades. He and I both were operating officers together. We had some very heated discussions over our lives about railroading, about football, about everything. But Tommy is a very talented railroader.
He understands customers working in marketing for quite some time at his previous employer as well as with us. He understands operations. He understands what it takes to move a train. He understands the challenges that we deal with. He appreciates and understands that these things don't just happen, that creating this service is worth extracting value for it, and he understands how to present it to the customer so that they see the value and the service. And he understands how to lead people, which is critically important. So his challenge in a business unit that over the past year has grown 20% is to convert his team to be that same passionate, sales-oriented, value conversion, able to sell service, not sell price, bring in business with this company, long-term, sustainable, profitable growth. So I'm going to call Tommy up.
He'll spend some time talking about how he's going to do it. And then after that, consecutively, we'll go through each one of the gentlemen on the stage providing color on the marketing side. Tommy, over to you.
Thanks, Keith. Good morning. Real quick this morning, I'm going to share with you a story about the first time I met Mr. Harrison. It was 1990. I've been in the industry almost a year. I just relocated to Memphis, Tennessee. They came in my office and invited me to have dinner on the office car that evening, have dinner with the vice president of operations and the chief marketing officer. Now, you're probably sitting there thinking, "How does some kids, hadn't even been around a year, get invited to have dinner on the office car?" It's easy. No one else would go. I got the short straw. So I went, and I walked up to the office car that evening, and there was a gentleman standing out behind the car talking on the cell phone. And I figured it was Mr. Harrison. Why?
I'm going to try to be politically correct here. Very loud, very animated, very direct. He was talking on the cell phone. Not too many people had cell phones in 1990, much less the ones that you could actually take out of the car. So I figured this was somebody, right? So I walked in, sat down in the office car, and about 10 minutes later, the back door just flew open. Then walks this gentleman. He looks at me, and he says, "Who are you?" Got up, shook his hand, introduced myself. His next question was, "What are you doing here?" I'm like, "Well, I thought I was invited to dinner." He looked at me and left. Shortly thereafter, here comes his chief marketing officer around the corner, and he says, "So I see you met Mr.
Harrison." I said, "Well, I guess I did." So we sat down to dinner that night. They put me at the head of the table, and I had Mr. Harrison on one side, chief marketing officer on the other side. And we began to talk about everything, everything under the sun, personal business, everything. Now, I'm going to stop you right there for a second. I'm going to rewind that tape a week. And I'll never forget this. A week before, I'm making sales calls with my boss, vice president of sales and marketing at the time. And we're making sales calls between Memphis, Tennessee, and Fulton, Kentucky. Now, if you guys are familiar with that territory, you realize that there's a highway, Highway 51, that parallels the main line there. And the only thing that separates you from that main line is a drainage ditch.
So you can see the main line perfectly. I look over, and there's a train headed north. On the front of that train's two locomotives, one headed north, one headed south. And I ask the question, "Why are those locomotives headed in different directions? Shouldn't they both be headed in the direction of route?" His response to me was, "Because that's the way we do it. Because that's the way we do it." I hadn't been in the industry not even a year. It doesn't make a lot of sense to me, but this company's been around forever. So I'm assuming that they know what they're talking about. Now, let's go back to that dinner table. I took that opportunity to ask Mr. Harrison that same question. His response, very simply, was, "Because when we get to the northernmost point, they're already in position to go back south.
We don't have to take the time. We don't have to spend the money to put them on a turntable or run them through a Y. They're already ready to go. Now, that makes sense. Now, he looked at me, and he says, "Can I ask you a question?" "Sure." He says, "Have you heard stories about having dinner on the office car?" I said, "Yes, sir." He said, "Have you heard any good stories about having dinner on the office car?" I said, "No, sir." He said, "Why are you here?" I said, "It's easy. I'm 23. I don't make that much money, and this is a free meal. And I'll never pass up a free meal." So let's fast forward to date, 23 years. Last July, I walk on the property, become a member of the Canadian Pacific.
And I spend the first couple of days watching, observing, asking questions. What are we doing? Why are we doing it? What value does this bring? And the answers I was getting, "Because this is the way we've always done it. Because this is the way we do it." Second day on the property, Mr. Harrison invites me out to dinner. "You guys see a trend? Every 23 years, a man buys me dinner." We began to talk, and he asked me, he says, "What do you think?" I said, "It's 1990 all over again." I said, "This is exactly what I saw when I went into the Illinois Central." He looked across the table, and he said, "Fix it." So what are we doing to fix it? We're creating a marketing and sales group that has a customer focus. We looked at the organization.
We looked at what we were doing. We looked at what we weren't doing. What we weren't doing was selling. So we're creating an organization that has a sales focus. We're taking our people out of the office. We're taking account managers that in the past were data entry clerks, and we're putting them out in the field. We're putting them in the market. We're putting them in front of the customer, putting them in front of the customer to understand the customer's business, to learn the markets, and to sell a product. We took a look at where account managers were located. On the energy sector of the business, which is going to be a large growth sector for the CP, I had nine account managers sitting in Calgary. Looked at where the control was.
The control was in the northeast and down south, mostly in the Houston area, of which we had no people. Today, a year later, we have an individual in Northeast U.S. that we've brought over from inside the industry. We've got an individual that we hired about a year ago down in Houston, also brings some railroad experience. We hired a second one in Houston over the past couple of months and getting ready to add a third. Now, why is it important to have people close to where the control is? Simple. We no longer sell price. We sell service. And in order to sell service, you have to get in front of the individuals that control the P&L sheets. You have to get in front of the individuals that understand the business. You have to get in front of the individuals that understand velocity.
The quicker we turn the cars, the less assets they need, the less assets they need in a time where assets are getting extremely, extremely tight in the marketplace. Now, how do you motivate a salesperson? You pay them. We put a sales incentive program in place. I know you guys have heard of, also known as the SIP. Put it in place in January. It's paid out twice a year. First payout came in July, actually, for the first six months. Of the account managers that were eligible for the SIP, 83% of those got a payout. Now, the way this works is you have to achieve 90% of your targets in order to get paid. 89%, you get nothing. You basically get paid for what you bring in. 83% of those got paid. Now, in addition to this, we've created a regional sales team.
A sales team that's just in the car all day long, drives up and down the railroad, calling on customers that have tracks in their backyard. Lots of singles, lots of singles, doubles, a few triples here and there. Not the big, sexy growth, but the merchandise growth that we talk about around here, the opportunities, and the opportunities that are coming because there's never been a focus on the customer. First three meetings I went into at the CP, there's a common theme. "Thank you for coming." This is the first time we've seen a CP rep in over 10 years, in over 10 years. We never sold. And what we're seeing now is that the opportunities are out there, big, small. They're there.
Now, when we talk about opportunities inside the CP, we need to talk for a second about the growth in the energy sector of the business. Now, the energy sector of the business is not just crude. We're going to see growth in crude, and we'll talk about that here in a minute. Our carloads in crude are going to grow to about 200,000 next year with additional growth over that. But we're also seeing growth in metals and minerals aggregates. Our metals and minerals portfolio will grow to over $1 billion between now and 2020 with growth in steel, pipe going to the energy sector, road projects, steel going to the automotive industry. Aggregate business will grow just over $135 million over the next four years. A lot of it frac sand, but we're also seeing an increase in cement.
One of our largest cement customers, Lafarge, just going through an expansion right now that'll be in place middle 2015, beginning of 2016. That'll generate an additional $25 million-$30 million on an annual basis. So there's growth in all areas inside the CP. Now, when I talk about growth on the crude side of the house, I said we're going to see the numbers go up to about 200,000 next year. Now, where's it coming from? If you look at our mix today, our mix is about 60/40 lights to heavies. The growth that we're going to see is going to be in the heavies coming out of Canada. And probably by the end of 2015, middle of 2016, we'll see that completely flip to 60/40 heavy to lights. Now, we, too, have a heavy franchise.
We don't get to the farthest northern parts like our neighbor does, but we do get to Edmonton. And I can tell you, as a guy from Alabama, Edmonton's about as far north as I ever need to go, okay? But what Edmonton gives me access to is the new facilities that are coming on board, facilities that are going to take crude out of the pipe and put it in the railcar, take it to various points. Cenovus at Bruderheim, a facility that just went down. It's come back up after three or four months, looking at efficiencies inside the gate that has just recently announced that they'll do between 10 and 14 trains a week. We pulled the first 3 well, we pulled the first two trains out. Last weekend, we pulled a train going to the East Coast for PBF.
Two days ago, pulled a train out from Mercuria going down to the Texas Gulf, interchanged with the KCS, and we got another PBF train coming out this weekend. On top of that, we got the Edmonton Rail Terminal that's going in place, be operational by Q1 of 2015. A facility that's already announced they're going to double the growth from 100 million to 200 MMb. What does that mean? One train a day to two trains a day. A facility operated by Kinder Morgan with the anchor tenant right now being Exxon, the majority of the crude going down to the Baton Rouge, Louisiana area. Both of those facilities are jointly served between the CP and the CN. On top of these jointly served facilities, we have some single-served facilities. Plains Midstream announced last summer that they're going to put a facility in Kerrobert, Saskatchewan.
A facility that'll generate a train a day, a facility to mostly feed their own refineries, East Coast, West Coast, Gulf Coast. On top of that, we've got the facility USD Group facility at Hardisty. A brand new facility that came on board in July, and a facility that will generate between 40-50 trains a month between now and the end of the year, going to 60 trains a month next year, two trains a day, two trains a day with plans in place to take it to a phase II by the end of 2015, first quarter 2016, to generate four trains a day with plans for an additional phase down the road. So the opportunity for growth in crude is there, and it's here now.
If you look at crude and you look at where the demand is, right now, a lot of this crude is going to the East Coast. A lot of it we're interchanging over Chicago. As more demand comes on, as more supply comes on, we see a larger pull going to the Texas Gulf. Now, we don't go there. But what we've done is we sat down with all our Class I connections, all our partners, and we've put plans in place. Interchange points are in place. How do we accommodate this growth? How do we keep the hiccups out of the system? How do we make life more efficient on our operating folks? What we've done is we've taken this mentality called a routing protocol that I know you've heard Mr. Harrison and Mr. Creel talk about, especially last winter.
We've gotten rid of this historical thinking inside of a railroad where we want the long haul. What we want now is how do we utilize interchange points that are efficient? How do we utilize interchange points that create velocity, creating velocity, creating capacity for the railroad, creating value for the customer? How do we turn these assets faster? What makes sense? Whether it be Coutts, Kingsgate, New Westminster, Chicago, plans are in place. Now, if we take this a little bit further south and we look at what's happening in the Bakken, a lot of people think that the story in the Bakken's over. Well, the dance hasn't ended yet. We have three facilities on us, Global at Stampede, Plains All American at Van Hook, and Dakota Plains at New Town.
All three facilities, all three were either in the process of an expansion or just finishing up an expansion, expansions that would generate one train a day. Not only will those expansions generate one train a day, but those expansions are creating efficiencies inside their gate, efficiencies that will allow them to load trains faster, efficiencies that will give us the ability to plan, to plan in an area where crude situations have always been tight, a win-win situation. So the opportunity in the energy sector of the business here is going to be big. And we have a lot to look forward to. We've also got the sand. And when we look at what's going on in the sand market, we've got three facilities that are on us in Wisconsin. Of those three facilities, you've got Smart Sand, Unimin, and U.S. Silica.
One of those facilities was built to handle 100-car trains. The other two have just expanded to handle unit-car trains, or yes, 100-car trains. Now, we took sand and we put it through a whiteboard session here at the beginning of the year. We looked at what was going on with the operations. We looked at what the demand was. We looked at everything that was happening inside the sand business. This was an opportunity to bring marketing and operations together.
This was an opportunity where the account manager stood up and took control of the meeting and came up with a plan with his transportation cohorts, a plan that they're now held accountable for, a plan that gave us the ability to move from 85-car trains to 100-car trains, a plan to utilize interchange points more efficiently, an opportunity to put more sand in the market in a more efficient manner where demand is through the roof and the sand companies are saying they're completely sold out through 2018. A great example of marketing and operations working together.
Now, on top of that, with the announcement that EOG made about three weeks ago on how they're going to look at fracking a little bit differently instead of putting four fracs down into the well and partially filling with sand, they're now going to put several smaller fracs into the well and fill those completely full of sand, thus claiming that there's going to be a 50%-75% increase in demand on sand from their standpoint. So the more efficient we can be in the market, the more velocity that we can create, the better position we are to capitalize off of this. Now, the growth in the energy sector is quite impressive. But this organization is forged for growth in other areas as well. We've got four mills that are coming back on board on the forged product side of the business.
Four mills that generate between 1,500-2,000 carloads a year, driven by the increase in the housing starts. Empty order fulfillment, we have an opportunity to pick up between $30 million-$40 million on an annual basis, an opportunity to grow $30 million-$40 million on an annual basis just by doing what we say we're going to do, just by operating the plan. If we look at the automotive side of the business, shortly after I or I should say, shortly before I took this role, we lost a key piece of business. But when you lose a piece of business, it gives you the opportunity to take a step back and look at what you're doing and why you're doing it and how you're doing it. And one of the things that we noticed was that we have a solid franchise.
We have a solid product. We've got to learn how to leverage that franchise. We've got to learn how to sell that product. We've got to learn how to maximize capacity. We've come up with a strategy that's going to give us the ability to be more competitive on automobiles coming out of the States into Canada, unloading in Canada, giving us the ability to reload those cars in Canada and send the automobiles back to the States, a natural turn. In addition to that, we're seeing a shift in the manufacturing of automobiles into Mexico. With our partnership with the KCS, we see this as a huge opportunity for the CP, the ability to take cars, interchange trains in Kansas City.
The Mazda, the M2, the M3, traffic is now coming up through KCS, and we're taking it to Kansas City, taking it into Canada, unloading, reloading, and going back south. Just signed a deal with Honda. The Honda Fit is now being produced in Mexico. We will take that traffic in Kansas City from the KCS, take it to Canada, unload, and reload back south. The opportunities are there. We have now gotten ourselves in position with a product that has been created by the operating side of the house to be able to go out and sell. We've now got something to sell. We are now focused on the customer. We are in a position to capitalize on the market. There's now competition in the market, guys. When Mr. Harrison said, "Fix it," I can honestly tell you we're fixing it.
Merchandise alone will grow about 70% between now and 2018, about 70% between now and 2018. The CP is promising you growth, and merchandise is where it's going to come from. Thanks, guys.
Okay. I think Tommy's got a challenge there for you, John. So he said he's going to have all the growth. We're going to call John up. John, like I said last night, a guy from Iowa, calls himself the Iowa boy. Certainly, with railroad experience, a very consummate and capable executive. I identified John when I first came on this property as someone that knew his business, someone that was engaged with his business, someone that understood accountability. He gets the way we're running the railroad. He's doing a phenomenal job with his group as well. He's going to take you through where we see growth in the bulk side of the house. As much as it may not seem that attractive to you, you're going to be a bulk guy or a gal, a bulk believer when John gets done.
Over to you, John.
All right. Thank you, Keith.
All right. Well, you guys dropped it on me right at dinner, and I know you've all heard it before. Bulk, come on, John. It is what it is. You heard Keith already say it. It's the simple business, right? Or my favorite one is, and I heard it last night after a scotch or two, "Grain isn't sexy." Come on. Well, I'm telling you, being an Iowa boy and I've been in the business for specifically the bulk business for about 20 years, we're bringing sexy back. And we're bringing it back into the bulk business at CP. And specifically, what I'm going to talk to you about today is our grain business. So similar to the stories you've heard from the CP team for the last couple of years, you're hearing about them yesterday. You hear about it today. Change is part of our culture.
It's who we are. It's what we do. It's what we challenge our team with every day at CP. So you know what we're going to do? We're going to change our grain business. We're going to flip it on its head. We're going to try new things. And that's what I'm going to talk to you about today. So for starters, as you know in the grain business, we're going to stop worrying about all the things we can't control, whether it's going to rain or not or it's going to be the drought. Is crop production going to be another record at 80 million metric tons, or is it going to be 40? Or is the farmer going to sell, or is he going to hold that grain? You know what?
We're going to shove those issues aside and really focus on the core values that Hunter and Keith have talked about for years. It starts in the grain business, number one, with asset utilization. You've heard it. Tommy talked about it. Matt's going to talk about it. James is going to talk about it. Asset utilization and ultimately providing service to our customers. Through these mechanisms, we're confident in grain that we're going to create new value for our customers, CP, and then ultimately our shareholders. Let me start off by telling you about eight months ago, I wasn't in the role I was in today, but I got invited to come into our executive committee meeting with Keith and Mr. Harrison, and we have them at the end of every month.
I got invited to come in to present some new ideas, some new ideas in grain that I've asked my team to go back and sort of peel it back and say, "Why are we running grain these ways? Is there a different way we can approach grain in our business?" So I came and sat down, frankly, a little nervous, a little intimidated, and said, "You know what? Here's my thinking." And we laid out a strategy that ultimately said, "Look, if we do these principles, which I'm going to talk about, I think we can get a productivity lift of about 10% in our grain business." So we went through the plan, and ultimately, Hunter and Keith came back and said, "You know what? We support it. Go do it." And that's what my team, the grain team, is out doing today.
That's what I'm going to take you through. So it's really three components that we're focusing on. Number one, the origin franchise. I'll talk about that. It's a strong one. Number two, how we're creating new destination alternatives through our network. And then number three, how we're taking the origin side of the business, the destination side, and we're really bringing it together and how we're going to provide the service that's going to take the grain business to the next level. So let's start off. We'll talk a little bit about our strong origin network. All right. So I'm biased. I think it is the number one origin network in all North America. And why? Because we can leverage crop diversity, strong customer diversity, and geographic diversity being on both sides of the border.
So with that, we're focusing on working with all of our customers on some basic principles to really transform and reshape what our origin network looks like. So let's talk about those. Number one, and we'll get into this one into some detail here, but train lengths. You've heard it. It's a common theme. We're going to figure out ways, and we have figured out ways to lengthen out our grain trains. Number two, when customers are developing new facilities or expanding existing facilities, how do we do it to speed them up, to create so we can switch, one switch off the main line? Where can we create new loop tracks to where trains can come on, the power can stay on the train, the customer can load it, and we can get it departed to destination in the quickest manner possible?
That's what we're doing in our origin franchise. Let me talk about the train length piece in a little more detail. So currently, the Canadian train length sort of standard program is 112 cars. And you start scratching your head, and you're saying, "Well, why is it 112? Who made that up? That doesn't make a lot of sense." Well, basically, if you go back in time, 3 locomotives going west, to Vancouver, the trailing tonnage could haul about 112 cars. Well, naturally, that's what the system was built out to. So we've stepped back and thought about it and said, "Well, you know what? There's new locomotives. There's tons of technology out there. There's operating conditions in the winter. They're certainly different than the summer.
And there's distributed power." And if we bring all these components together, really, as you think about our network, what's the art of the possible in train length from our grain origins? So let me tell you a little story. One of our customers, Paterson Grain, we sat down with them and said, "Look, here's what we ultimately think the art of the possible is in grain: 134 cars to Vancouver, not 112." Paterson, all right, said, "Look, we're in with you. They built a brand new state-of-the-art facility in Long Plain, Manitoba. The facility is a 134-car loop track. It allows our grain trains to show up empty on one switch, clear the main line, come into the track. The power stays on it. This customer is fast loading.
They load these cars in 1two hours or less, and we're ready to depart back to Vancouver." Now, let me tell you, that's neat. You're all saying, "Okay. Well, that's kind of neat. But what do you get out of it?" Well, here's the punchline. Number one, last year, Paterson loaded about 600 more cars or 7 mi of grain more than a competing 112 elevator right down the road. And here's the beauty of it all. We did it with the same number of train starts, same number of people, and same number of locomotives, a 20% productivity lift just in this one facility. We've got 80 high-throughput elevators across Western Canada. We got about another 40 in the U.S.. The art of the possible of going elevator by elevator through both our Canadian and U.S. system is huge. The opportunities are out there.
Now, we just scratched the surface, right? So we currently've got 12 elevators in our origin that are running longer than 112, but the list is long. So as Tommy spoke about, Keith spoke about, as part of our train length initiative, my team, the sales team, are working close with our operations team going elevator by elevator to drive this initiative. So let's switch to the destination side of the business and talk a little bit about the initiatives on that end. So one of the keys in the grain business is finding new markets and alternatives so shippers can play the market and decide where they want to send their grain. So if you're familiar with the grain business, that is one of the key aspects. Having optionality in the destination end is a key aspect of creating value back at the origin.
Well, if you create more value at the origin, the bids for the grain at the origin can be raised. And that becomes the 1 key to getting market share to CP Railroad, right? So a farmer can decide whether he wants to send his grain to railroad X or railroad Y. If the bids higher on Y, he's going to gravitate his grain that direction. That's what we're trying to do at CP on the destination side. So how are we doing it? Well, about 50% of our grain exports out of Vancouver and the U.S. PNW. It's a growth market. It's our bellwether. And it's going to continue to be. So we're working with the destination terminals to enhance the throughput and velocity of those terminals.
So specifically in Vancouver, on the North Shore, we're working closely with Richardson International on phase two of a construction project where they're going to increase the track capacity, increase the speed of loading vessels so our trains can get in there quicker and get back to the origin. On the South Shore, similar projects, Viterra, Pacific Terminal. We've got expansion projects going there to increase the throughput and the commodities they can handle. But it's not just about a Canadian infrastructure play. It's equally the U.S. PNW. Down there, the terminals, we've worked with them. They've spent about $1 billion over the last three years enhancing the throughput capabilities of those terminals. And I'll talk about why that's critical to us because the story on the destination side is not just about finding opportunities for investment and further infrastructure. It's about creating new routes.
I'm excited to tell you about last year, we put a program in place through working with our customers to ship grain out of our Canadian origins down to the U.S. PNW. So I know everyone's kind of scratching their head thinking, "Well, wait a minute. Why didn't you just take it all to Vancouver? That's your direct route. You go to the U.S.. You got to share the revenue." Well, here's the beauty of it. We all know Vancouver's a congested area. We all know that it rains during Vancouver. We know during the peak grain season, those terminals still up. So the U.S. PNW has become now sort of our residual outlet for grain coming out of Canada. It gives us another option to hit the marketplace, to hit the Asian markets for that grain demand.
Last year, we shipped about 9,000 cars of Canadian grain out of the U.S. PNW. We expect that program to increase this year. There's a quote up here. There will be a quote up here. John Heimbecker, Vice President of P&H, sort of sums it up. It's all about creating the value back to the farmer. And having the West Coast outlet flexibility that now CP provides to the U.S. PNW is allowing their elevators to draw more grain in. And that's key. But let me flip around the opportunity because it's not only about the potential to continue to grow pulling grain out of Canada to the U.S. PNW. There's an equal opportunity to work with our U.S. origins that when the peak grain is not flowing through Vancouver, to pull U.S. grain on a CP direct haul out of Vancouver, the opposite direction.
I'll tell you, at the end of the day, and we've got work to do in this one, but this one could be a game changer as you think about CP's franchise. So we've talked about the origin side in the infrastructure and the things we're doing with our customers on that end. We've talked about the destination side. So now let's really focus in on the middle component and the service. And I talked to a number of you last night about some of these principles of our new dedicated train product. But ultimately, and I'm telling you, I am excited about it. I truly believe this can be and will be a difference maker as you start to think about share, whether it be in Canada or share for CP in North Dakota. But our dedicated train product is really designed around creating asset utilization.
It's designed to create incentives for our customers to act and move their grain in an efficient manner. And then number 3, it gives them the transparency and certainty of car supply that, frankly, they haven't had in the past. And those are the keys to buying and selling grain, having that certainty of rail car supply. So let me describe the product in a little greater detail here. So essentially, what the sales team is out doing is we are working with our customers to ultimately provide them a train. They become the owners of our train. So what does that mean? So XYZ customer has a number of elevators on our franchise that can handle trains. They've got a number of destinations. And we allow full flexibility for those customers to take those trains and run them in a grain conveyor belt between their origins and destinations.
The customer knows they have the train. They direct it. But they also know the faster they run it, the more responsible they act in the markets they sell it to, the more velocity they're going to get, and they're going to move more grain. So it gives them these incentives around asset utilization. I'm telling you, we ask for 3 things out of them as part of this deal. We ask them to load the train in 24 hours. Pretty simple. We ask them, when it shows up at destination, they got to take it in. They got to unload it. And they got to release it back out in 24 hours. And then number 3, we want them to use it year-round. And that's part of the deal. So you get asset utilization that they have to take this train. They own it.
They have to use it for the full crop year. We're all familiar with the peaks and valleys of the grain business. We think this can help smooth out that peak and valley. Again, if you think about this, it's really this grain conveyor belt. Currently, we've got agreements for 44 of these trains. We expect this to double. It's rolled out both on our Canadian franchise and our U.S. franchise. Here's a quote from one of our customers, CHS, that ultimately reiterates what I've been telling you. It's really around giving the customers the knowledge, the certainty that they have the railcars so they can buy and sell grain on the world market with confidence. I can tell you, the program has been in place here for about 60 days.
So far, the early returns on the velocity of these are about 20% better than what our customers expected. That ultimately means 20% more grain moving. These are some of the changes going on in our grain business. But these are also principles that, within our bulk business, have been longstanding, specifically in our coal with Teck or our potash business that we run today. I'll give you a little update. Our K+S Legacy Mine is progressing on time, on budget. We expect the facility to be up in production Q4 of 2016. And with that, we expect a fairly rapid ramp-up to over 2 million metric tons. Now, here's the exciting thing as we talk about this closed-loop conveyor because this is the epitome of it as you start thinking about in terms of potash. We're going to run 177-car trains.
There'll be private equipment, power-on, a pure loop from their mine to destination export. So again, the principles I've spoken about, you're familiar with, we're taking them to a new level in the bulk business. I'm excited about that. Really, they're the foundation of how we take the next steps of speed and velocity in our business. So I'm confident we've stopped worrying about the things we can't control. We control this. Ultimately, we're creating new value for CP, our customers, and our shareholders. Thank you.
Okay. So I've got a marketing executive that's talking in operating terms. That's pretty powerful for me. Very excited about the opportunities in grain, about up years, down years, running it more efficiently. Whatever it is, we're going to be able to move more of it when the demand's there. And when it's not, our costs are being controlled. Our costs are going to be lowered. So we're going to be bringing more money to the bottom line, which is very exciting. I've got a marketing executive that's talking in operating terms. That's pretty powerful for me. Very excited about the opportunities in grain, about up years, down years, running it more efficiently. Whatever it is, we're going to be able to move more of it when the demand's there. And when it's not, our costs are being controlled. Our costs are going to be lowered.
So we're going to be bringing more money to the bottom line, which is very exciting. So now over to Jonathan Wahba. Jonathan Wahba runs the intermodal business unit. It's another area of huge potential growth for us. He's going to explain to you how we're going to grow this business unit by about 50% over the next four years. Jonathan Wahba comes from a trucking background. He's now taken that knowledge and expertise out of the truck and putting it on the rail in a container. So over to Jonathan Wahba.
Thank you, Keith. And good morning, everyone. As Keith mentioned, I ran a trucking company, about a 200-truck operation, for about 15 years. So I know a thing or two about trucking. I know what are the opportunities and challenges. I know the economics. I know what it's like to compete against truck and compete against rail. And I also know that we had everything stacked against us: fuel cost, hours of service, increasing regulation, truck shortage. And the drivers we had, they didn't want to spend one night away from home. So I decided to join the winning team. And now I'm in rail. I've been sitting two years in this chair. And over the last two years, Mr. Harrison, Mr. Creel taught me one or two things about railroading.
By the end of this year, I'll be qualified as a conductor, meaning that I went from backing up 53 semis to a warehouse to actually taking a 12,000-ft intermodal train across the property. So I've seen both sides. I understand both sides. And that's what makes me really excited about the opportunities we have here in intermodal. And I'm here to tell you today, as Keith mentioned, that we're going to grow this business by 50% in the next four years. So when the government of Canada hired CP in 1881 to link what was then the dominion of Canada in the East and the West Coast and Western Canada, they didn't have the luxury of time and money. So they just built the rail line as straight as possible. And when I joined CP a few years ago, we saw this as our main structural disadvantage.
We had to go above mountain. We had to go through valleys. We had to follow rivers. But now we just see it for what it is. And it's the shortest distance between two points. And at CP, we have the shortest routes between key markets in Canada and the U.S. Midwest. And when you have something I like to call the intermodal triangle, and when you have the shortest routes between two points, and your cost per mile is equal or better than your competitor, then you're going to get there faster with less cost. And that is a sustainable competitive advantage we can build on. So let me walk you through my triangle. And I'll start with East to West, where CP has the shortest route between Vancouver all the way to Montreal. Keith mentioned earlier today that CP is an operations-centric, service-driven organization.
Nowhere was this more evident than in early 2013 at the whiteboarding session we had where my peers and I sat at the same table as the operating team and redesigned the whole network on the whiteboard. When it came time for intermodal, I knew what needed to be done. We needed to be even faster. A couple of weeks later, we implemented a 61-hour service between Toronto and Calgary, two of the fastest-growing markets in Canada. That's 20 hours faster than the previous service. It's as fast as truck. And it's something that our rail competitor cannot even physically compete on. It's a premium service that is fast, consistent, and reliable even during the winter months. And when you have a service that is as fast as truck, consistent, and reliable, it sells. So far this year, we've grown 29% on this lane. So we're growing.
We're growing with the right customers, customers that we could never attract before, customers like Walmart, who see the value in removing one day out of their inventory in transit, customers like the courier companies, who see the value in moving some of their business to truck. It wasn't easy to convince them that CP is a different company. We had to ask them for one test load. We delivered. Then we earned the right to have more. We did what we say we're going to do. So far this year, on the same lane, our door-to-door performance is over 90% on time, 90% on time. That builds confidence. It builds confidence in the sales team that goes out there to sell this premium service. It builds confidence in our current customers in order to reduce their lead time.
It builds confidence in new customers to convert their business to CP. And when you have a premium service that is truck-like, well, there's room to grow. Stats show that there's 6 million truck moves long-haul in Canada. And we think, with our premium service, we can convert 20% at least of those. So the size of the prize is about 1.2 million incremental intermodal loads. To give you an idea of size, at the end of this year, a record year, by the way, CP will have moved 275,000 loads. So there's room to grow. I showed you how we're converting it on the long-haul. Now let me show you how we're doing it on the short-haul. Calgary to Vancouver, you know 641 mi? 641 mi. It's a truck market because there's only one railway that links directly Calgary to Vancouver. And it's CP.
We didn't have the service. So we saw the opportunity. We took the lessons from the whiteboarding. And we reduced the transit time by 20%. We now consistently deliver second morning, 7:30 A.M. In a matter of months, we've converted and moved over 3,500 loads of grain, retail, forest product. And this is just the beginning. So we're excited about this opportunity. Now I'm going to go on the second side of my triangle, where CP has the shortest route from Chicago through Detroit to Toronto and Montreal. And this is, again, a truck route. But it's an untapped market for CP because, in 1910, when they built the Detroit Tunnel, they never saw the double-stacked high-cube container coming. So we were running single-stack train competing against double-stack train. We couldn't win.
So earlier this year, with our partner CSX, we've launched a new double-stack service that runs from Chicago through Buffalo to Toronto and Montreal. So overnight, double the capacity at half the cost per unit. Now you can compete. And it's important for us because CP is a partner contributor in the EMP Container Equipment Pool program with our partners UP and NS in the U.S.. So if a shipper wants to send a load, say, from L.A. to Toronto, they're going to go order an EMP container, load it, bring it to a UP rep. UP is going to bring it to Chicago. And normally, what would happen is the UP would hand it over to CP to deliver to Toronto. But this was not happening because CP never had the cost structure or the capacity to take on the incremental volume.
So the container found another way to get to Toronto. Not anymore. With the new double-stack route, this is coming naturally back into CP. And when you combine that with the new sales organization, where 75% of my team is out there knocking on doors, drumming up business every day, and the sales incentive plan that Tommy talked about earlier, where the whole sales team is rewarded for every single incremental container they bring in, then you have results, results like 211% growth last month, 211% growth from Chicago to Toronto. And we're just getting started on this lane. And now on the final side of my triangle, Western Canada to U.S. Midwest, where CP, again, has the shortest route from Vancouver to Calgary to Minneapolis and Chicago. And it's not a surprise to you that it's also our fastest-growing international lane.
Without the account we chose not to renew last year, we've grown 12.2%, which means that our ocean carrier partner is leveraging the faster, more consistent service from CP to grow faster than their peers in their market, and that other ocean carriers are now looking at the Port of Vancouver CP route to the Midwest as a competitive alternative to L.A. Long Beach. So we're growing. But the team is focused on balance. And at the end of this year, CP will build a transload facility in the Chicago intermodal terminal. We're going to take grain and grain products from John's team. We're going to rail it, rail car, all the way to Chicago. We're going to transload it in a container for export.
This is a true win-win-win, where the shipper finds a better route to get their product to market, the ocean carrier finds an export load exactly where their empty containers are, and CP puts revenue into a container that was previously moving empty. So our target for next year is 10,000 loads. And the beauty of this is that it's easily scalable. It's easily replicable. And it's easy to integrate into our network. And on the domestic side, the return of manufacturing into the U.S. and Mexico and the nearshoring is really playing out to the EMP partnership I was talking to you about, where the NS and the UP are taking all this volume, bringing it into the base of my triangle, and then feeding it into Calgary, who became the logistics hubs for Western Canada, Target, Canadian Tire, Walmart, all the big box stores.
They all have their logistics center in Calgary. As Keith mentioned, Calgary is in our backyard. We've grown 9% on average in the last two years. This is quickly becoming one of the fastest-growing, most profitable lanes we have in our portfolio. You can see how the triangle is really at the center of the intermodal strategy and why I'm excited about all the opportunities that we highlighted across the triangle. We're going to continue to leverage our network advantages and our shortest route to compete against truck and convert to rail. We're going to continue to leverage our premium service to tap into markets we could not compete in before and upgrade our book of business. We're going to continue to leverage our existing capacity and the capacity we created at low cost to grow this business.
And when you combine that with a disciplined and focused sales force, it's easier to see how we're going to grow this business to $2 billion by 2018. That's 50%, $2 billion. Excited, looking forward to it. And thank you for your time.
Okay. Thank you, Jonathan Wahba. And last, we've got our VP, Strategic Planning. This gentleman knows our entire network, strengths, weaknesses, opportunities back and forth like nobody else in this company. He's going to come up and speak to some of those franchise opportunities as well as summarize our revenue plan. James Clements?
Thank you, Keith. Let me start by telling you a little bit about myself. I have 20 years at Canadian Pacific Railway. Right now, I lead a couple of teams. One is the revenue planning and forecasting team. And the other has a strategic view of the network, works on our interline relationships, and does transactions related to our network. This role puts me in the unique position to bring it all together and tell you how this revenue plan is going to be enabled. And the first and most important point I want to make is that not just the internal capacity of the network that Keith has told you about on what we're doing in that, but the overall capability to provide an efficient route to our customers to access markets across North America. So let me walk west-east and tell you a little bit about our network.
We serve the Port of Metro Vancouver, which is a world-class port. And uniquely, we have multiple connections to the Western Class I carriers between British Columbia and Alberta. This allows our customers to access the Pacific Northwest market, as John had described, and flow down into the large California markets. As we work across our network and down through the Midwest, we have connections with all of the Class I carriers. How does this make us have the opportunity to provide that efficient service? Tommy has talked about not just going after the long-haul.
Obviously, you would say, "If I want to move a shipment from Alberta to the Gulf, that Kansas City would be the route that you would take in a traditional railroad view of getting the long-haul." But we have shipments that, when we look at how we supply the service to our customer, we're moving it to Noyes, which is just south of Winnipeg, and giving it to the Burlington Northern. They have a route that goes straight south on the west side of Minneapolis and straight down into Texas. And they can efficiently serve that market. And that's the right solution for that shipment for our customers. Then, as we move across the east of our network, we, again, have multiple connections to the Eastern Class I carriers, allowing our forest products and other shippers to access the eastern and southeastern markets. So we have a great core network.
The other piece I have to do in my role is look at how we optimize the assets. Let me talk a little bit about what we're doing with the asset base on our network. We're active, as you've seen, in selling 660 mi of branch line network to the Genesee & Wyoming to create the Rapid City, Pierre & Eastern. I'm happy to say that that transaction has gone really well. We're seeing strong volumes come onto our network at Tracy. We continue to expect volumes to be strong there in the future. We've also taken steps to initiate the discontinuance of 200 mi of low-density prairie branch line. As we look across the network, I expect you will see us take other actions to clean up small, low-volume branch lines.
When we asked the question, "Why?" we had the question of, "Why do we have assets in Duluth-Superior?" When you look at the map, there's a dotted line. We don't have a physical connection. We're looking at ways to achieve value for that asset and continue to provide our shippers the ability to ship to and from that port without having a physical presence in that market. While I'm talking about the Midwest, I'd be remiss in not talking about Chicago. You've already heard Keith and Hunter talk about the fact that we've made an offer for the IHB and the BRC. The message I'll leave you is we're not sitting idly by letting others solve the problems. We're being proactive so that we can enable our volumes to move through this critical connection point on our network.
The last piece that I haven't talked about yet is the review of the Delaware and Hudson. Hunter told you yesterday that we're close to completing a transaction on this property. Let me describe a little bit about what it is. When you see on the map, we go from Buffalo over to Schenectady with a combination of physical assets and rights. Then we go down in a T towards Philadelphia through Sunbury. That's the portion of the network that we're going to exit from our network. We're going to continue to retain access into Albany. So now that I've given you a perspective of our network, let me give you some numbers for your model to bring all the revenue picture together. Tommy has talked about the opportunities across cement, metals, crude oil, automobiles. We're going to see very strong growth in our merchandise portfolio.
It'll be about 14% annual revenue growth over the next four years. Matt has talked about how he's leveraging the opportunities on the intermodal triangle. And we expect to see about 12% annualized revenue growth across this portion of our business. Finally, bulk will work out to be about a 5% annual revenue growth. All of this will come down to a little bit over 10% average annual growth across the book of business. When we think about that 10%, let me break it down for you into what the volume, the price, and mix looks like. We expect to see about 8% volume growth per year on the basis of revenue ton mi. As we're out in the market, we're expecting to achieve pricing on renewals of our contracts in the 3%-4% range.
I just want to make a comment here. Mr. Harrison yesterday talked about the opportunities to price differently and think differently about how we go to market. Let me give you some context. An example is the intermodal network today. We can think differently about how we price the backhaul. It isn't necessarily a drag on price. It's we can go out, we can get a new container where we would otherwise move it empty, fill it up with revenue, and continue to put revenue ton mi onto the network and drive growth. The last piece is that we will have some business that's below today's cents per revenue ton mile that is growing fairly quickly. There'll be slight negative mix for us to get that equation down to a 10% annual revenue growth rate.
The other outcome of this growth pattern is that the composition of our book of business is going to change. By 2018, you will see that merchandise has become 46% of our book, intermodal growth slightly to 20, and bulk has shrunk a little bit. What I'll tell you is that we are no longer a bulk railroad. So to pull it all together, we have the service, we have the sales plans, and the teams to execute on those plans, and we have the network. And with that, we will deliver $10 billion of revenue in 2018. Thank you, Keith.
As you can see, we've got a strong team of railroaders that are passionate about their business here. We've got Tommy. He's talked about the growth in energy. He's talked about the network advantages we have in our reach and our ability to grow not only in energy, not only in crude, but in frac sand. He's talked about automotive. He's talked about lumber. So as we transition to the new CP, which is not a bulk railroad, it's a merchandise railroad, Tommy has the keys to the property to be able to do it. John, at the same time, he's not going to let bulk become immaterial to the company. He and his team are going to lead and work with our operating team and work with our customers to create a more efficient bulk operation so that we bring more money to the bottom line.
As we grow, we create capacity for that growth, minimize investment. Jonathan, he's talked about the strength of this franchise, this intermodal network, the triangle that we have, the route advantages that we have, the market reach that we have, and the way we're converting that service. James, of course, wrapped it up talking about the network strengths, our connections, and also the revenue plan. These opportunities we've created effectively, that's how we're going to get there to the $10 billion of revenue we've talked about. The past two years, I think the initial plan was 47%. 2013, 2014, we're at about 8% on our revenue growth, moving to an end game by the end of 2018 to the $10 billion. That said, we're running a little bit behind. We've also got an issue, I guess, with the telecommunications in the hotel.
Our webcast is down. We're going to give these folks an opportunity to get the webcast back up. So I think it's appropriate. We'll take our lunch break now. And then when we come back, I'll have these guys back on the stage. And we'll take any of the questions about the revenue plan. So Nadeem, what time?
Well, we'll be back in an hour to 1:00.
At 1:00 P.M. sharp, we'll start again. Thank you very much.
The lunch is just outside your left table, back here, where the cocktails are required.
Okay. Did you guys get that left and right? Food in the same place as we had cocktails, I guess, last night? Okay. Thank you.
Our webcast is live again. I think it's an opportune time to get our Q&A with our sales and marketing panel, although I think they were—I don't know—if they actually ate lunch or not and got most of the Q&A done during lunch. Certainly, we've got plenty of time now to take your questions.
Okay. I'm Benoit Poirier. Just a question on the pricing. I understand the strategy is to raise prices by 3%-4% by 2018. Could you discuss a little bit about the upside for crude by rail? We know that volume are ramping up. Also, the contracts are being repriced, my understanding, at better price. So just want to know what kind of yield we should expect specifically for crude by rail. And also, if you could discuss about the non-regulated grain, what's happening on the pricing side.
Well, I can touch base on the non-regulated grain. So essentially, that's, let's call it, 50%-60% of our book. I think we've been in a time period here that we've been able to be fairly aggressive in that portfolio. And I'm not sure how the run rate's going to be on that. But I would expect that to maintain in that 3%-4%. But we've certainly had some success in that area over the last six months.
From a crude standpoint, it's no secret when we came on board, we inherited some contracts that weren't that attractive. We have worked, the team has worked extremely hard to look at crude business and make it more profitable. The new business that's coming on is a lot more profitable. Some of the old contracts, we have been able to get inside some of those contracts and reopen them and create better profitability. There's still a couple that are out there that need to be addressed. But it's headed in the right direction. Now, Hunter will tell you it's not anywhere near where it needs to be.
Keith will, too.
But okay.
Hi. It's Walter Spracklin from RBC Capital Markets. Just two questions, if I may. First on crude and then the second one on grain. Crude, when you talk about that switch from 40/60, light heavy going to 60/40, is that pure growth on your network in line with the growth in that sector? Or are you going to be stealing market share from the competition that serves that area? In other words, if you could give us a sense of what your market share is today out of the Canadian crude side or the Canadian oil sands, and what will that market share penetration be, call it, four years from now?
Let's see. From a crude standpoint, let's see, market share today. Our neighbors have had a little bit more advancement than we have recently. But as the supply comes on, you'll see new supply coming to us. So you won't really see a market shift. When I talked about the four new facilities, the majority of that is new business to us. Now, we have taken some business away from our competitors coming out of Cenovus, one of the double-served facilities. But the majority of what you're going to see is going to be brand new business.
Perfect. Now, my second question would be on the grain side. Now, obviously, you've had a huge crop, right? I mean, a huge crop, 50% above the historical average. You are going to be moving it into 2014, into 2015, of course. But your outlook for bulk is 5%. With that grain being such a big portion of your business, shouldn't we be modeling a significant decline in your grain volumes as we come off this absolute high peak out to 2017, 2018? And will that influence, and will that still be able to is that in your number? And is that bringing into the 5%? Or are you assuming some level of growth in grain that's different from that?
Yeah. So I mean, on the Canadian side, essentially, we've, I think, taken a little bit of a conservative approach in that we've somewhat held share flat, maybe a little uptick in the out years in terms of share between us and our neighbors. On the production front, certainly. We're not modeling an 80 million metric ton crop, right? So we're back to starting off at about 58 million metric tons and then growing at about 1.5, maybe on the high end, 2% a year in terms of production.
I wanted to ask you a little bit more on assumptions behind some of the way you're looking at crude by rail. A number of proposed pipelines out of Western Canada seems to be on all of them, so various sources of pushback. What's your base case? Do you assume that maybe one of four major pipelines goes forward and you split the market with pipe? Or do you say our baseline is that none of the pipes come on? If you just kind of frame the way you look at that and maybe if you want to talk about if the pipes didn't come on, is that upside? And then the second one is just 10% revenue growth over four years. At the lunch table, we were talking about that's pretty aggressive for a railroad when we've seen that in the past.
Given the strength of growth, you could argue maybe it's not that aggressive. I don't know, Keith, if you want to say if there's a greater chance of upside or downside in your view versus that 10% target. Thank you.
Well, let me start with that one first, Tom. Then I'll hand it over to Tommy on the crude. I'd say there's a chance for upside. I'd say in the out years and 2018, I think we've taken a conservative approach. So if we execute and we earn the business we think we're going to earn and the opportunity's there, short of a downturn in a world economy, we can't predict, I think there's upside. Tommy?
From the crude standpoint, we don't look at ourselves as competing with the pipe. We look at ourselves as complementing the pipe. The one thing that we bring to the marketplace is optionality. Right now, there's quite a bit of growth out there in the marketplace. There's quite a bit of growth coming at us. The key becomes how do you manage that growth, sustainable, profitable growth? So what we're focused on is how do we manage that growth moving forward, right? And if you want to look at the pipelines, look at what's going on in the marketplace, crude is a natural fit for the pipe, okay?
But if you look at how long it takes to build a pipe and put that in place, a plan through 2018, I think that we're based on what we see in the marketplace. I think that this plan's very safe and very conservative.
Could you elaborate a little bit about some of our partners you're going to do to DRU as well? Because that's product that can't move in pipes, period. We're all bitching.
Yes. We've got a well, our facility up north in Hardisty, they are looking at doing a DRU, a Diluent Recovery Unit. And that will be part of a phase III that they're looking at, which will probably be sometime in, let's see, 2017, 2017 into 2018. So the partners that we've had, we've taken a very conservative approach to this in the sense that we haven't invested a lot of capital outside of infrastructure. So all our partners, we've partnered with the right people. The partners are investing the capital. So the growth opportunity here is very good for the CP. The CP's in an excellent position.
Thank you. Hi. Jason Seidl from Cowen and Company. And gentlemen, thank you for taking the time today. Quick follow-up crude question, then on intermodal. You mentioned that there's still a couple of contracts that seem to be a little bit lower than you'd like. What percentage of your book of business is out on crude that's sort of below market on pricing?
I'd say probably about 35 in round numbers.
In terms of intermodal? You mentioned in terms of. I think there's 1.2 million loads you were saying on the long haul side that can be converted. That was a bit surprising, especially given sort of your average length of haul. So what was it that was keeping those shippers from sort of going to the natural intermodal movement on such a long haul move? Because you look at the American market, and that's pretty much a legacy business and a very slow-growing market, longer haul, I think. So was it the old service levels at the CP that was preventing you from really growing?
It's transit. All of a sudden, with all the good work we've done, is we have offered transit now that our truck competitive. So we can compete head-to-head against truck with a fraction of the cost, though. And the reliability's there. Even through the worst of winters this industry's had in decades, we're 90% on time. So if you're a decision-maker and you're putting freight trying to save money, you don't want to save your job, so to speak, or lose your job as a result of the decision. Some of the players that we've got riding these trains are world-renowned logistics folks that pride themselves, and they sell service as well. So before they trust their reputation with the CP, we had to prove the product in the marketplace, which is what we've done. And they've rewarded us with their business. That's pretty compelling.
All right. Hi. Tom Kim over at Goldman Sachs. I had a question with regard to the 14% CAGR within the merchandise business. It's Tom on. Can you just help us understand, of that growth figure, how much of that is from business that doesn't exist today because the service capabilities just aren't there, and it's just totally untapped? And then how much of that business is there that you think you can capture? And is that going to be coming from truck, as you kind of alluded to, in terms of the opportunity? And then what percentage of that business that's out there already but being serviced by others coming from rail? Thank you.
Thank you. Keith talked earlier, and he made a comment about you just don't know what you don't know. But what I've seen since we've put the Sales force in place in January is that there's lots of opportunity out there for us. There's opportunity to take it away from truck, and there's opportunity to take it away from our competitors. A lot in what I call the manifest side of the house, which plays into what Mr. Harrison talked about last night and basically selling capacity. The opportunities on the forest products and the metals and minerals side of the business, I see as big force, real big force. But it's not the 25, 50-car units. It's the ones two a week, 10 a month, things like that. But they're all out there. And there's quite a bit out there because of neglect, just being honest with you.
All right. Great. Thanks. Chris Wetherbee from Citi. Just thinking about the intermodal side, particularly the pricing opportunity, when you think about the domestic long haul lanes where the service is relatively similar to truck, but there's still that 20%-30% gap on price, I mean, how much can you realistically capture of that gap? And then a follow-up question would just be on the international side. As you look out over the four years, do you contemplate bringing any of the sort of legacy lost business back on from an international perspective? Is that included in the numbers?
We have a premium service right now. We're commanding a premium for the service in terms of price. We feel very comfortable with the guidance that we're given, 3%-4%. I think over time, the truck pricing is going to move. We're going to move as well. We think that there's some room for us to move up there. On the international side, the premium service that we're offering and the consistency has a lot of value for the ocean carrier. We think that over time, there's going to be some customers that are going to see the value and be interested in that. We have some model in there. But most likely, where we have model is that our current partner are going to gain market share themselves.
Hi. John Jay with USAA I'm curious, going back to the crude by rail, that 60/40 swap that you're expecting, is the length of haul going to change very much as that occurs?
Yes. You'll see the length of haul. You'll probably see the length of haul actually shorten. Right now, the majority of our moves are coming out of the Dakotas going over the top of the lakes into Albany. And what we're going to see, as Keith pointed out earlier, is you're going to see a lot of heavies coming out of the Edmonton area, going south to the border and going to the Louisiana Gulf. You'll see the profitability improve. But you'll also see the length of haul decrease.
Scott Group from Wolfe Research. So I want to ask about the revenue outlook for next year. If crude volumes are going to double, it feels like we can do closer to low teens revenue growth than double-digit. I just want to understand if there's an offset that we should be thinking about elsewhere across the business. Then just a separate question. For those of us that model on a carload basis, do you have a view on carload growth? And I'm guessing mix becomes a big positive in there. But if you have a view on carload relative to RTM over the next four years.
Why don't you take this, James? You got the most.
Yeah. On the carload growth side, the difference isn't as large as you might think. So we would be looking at carloads in the 7% range versus the 8%. So when you, as you say, push that through, there isn't the same impact on the mix that you see on the RTM side.
What about the price?
Yeah.
Hi. Bill Greene, Morgan Stanley. Keith, I want to bring it back to the operations. So I think if you get the 10% revenue growth, I think people are pretty comfortable that there's a lot of opportunity here. If that fails to happen, how much do you feel you still have on operations to see improvement? In other words, how much of this plan do you feel like is in control of CP? And how much of it is really dependent on what happens macro? If easier, you can answer it in the way of how much of the revenue growth's really in your control relative to dependent on macro. Thanks.
Well, obviously, macro, if it's bad, it's going to affect us. This is more of a traditional standard conservative approach. But if the bottom falls out, it's going to impact us. But the beauty of this plan, the spin we're going to make, I mean, there's synergies just from productivity standpoint. So if I want to take the revenue that we make today and make more money, I could invest some of the cash that we're creating and drive the operating synergies to a lower cost point standpoint. So that we control as far as I'm concerned. As this business grows and in the out years, as I've said, this is big chunks of money that we're going to invest over the years. If the demand's not there and if something happens from a macro level that affects our business, we'll just cut the tap off.
We'll wait until the growth comes back, so the economy bounces back. I'm sure, like we have in history in the past, sometimes those downtimes are opportunistic times to invest more in the physical plant. And if that's what we see as an opportunity to buy more steel, rail, get ahead, so to speak, to do it at a lower cost, then that's what we'll do as well so that when we do bounce back, we're going to bounce back hard. Yes, sir, Tommy?
Yeah. This is a question for Tommy. You got tremendous growth that you talked about here. But one of the things you didn't mention, I'm sort of surprised you only have 2+ sides next to the chemical side. And 2+ sides, it's not a stick in the eye. But given what's happened with energy prices and whatnot, don't you foresee, or is it possible to foresee a more optimistic outlook for your chemical business and your plastics business in the future?
Yeah. And we are seeing a more optimistic swing here. One of the things that one of the things this organization has never done is we've never looked at business from a market standpoint, right? What's out there that we want? What's out there we can take? Where can we leverage our franchise? That's a cultural change that we're going through right now. And one of the things that we're seeing is the opportunity now with the LPGs, the propanes, right? We've seen a huge increase in that over this year. Our propane business has probably tripled. Now, we didn't start with that much. But we've gone from probably about 300 carloads to over 1,000 carloads. So there's opportunities out there. And there's opportunities that this market will bring to us.
But there's also going to be opportunities for us to compete where we've never competed with our competitor just because we now have a product to sell. So yes, there is an opportunity there.
Keith?
Okay. So to keep things on schedule, we're going to break now. Thank you very much. We appreciate the questions, the dialogue, the interaction. We'll make ourselves available again at the end of the day. We're going to bring Mark up. Mark, then Bart. Mark's going to roll into some of these opportunities that we're talking about with our physical plant, with the properties that we have. So with that said, I'll turn it over to Mark.
Thank you, sir. Tommy?
Good, Rich. All right. Well, good afternoon. Thanks, Keith, for that warm introduction. Really passionate. My name is Mark Wallace, the Vice President of Corporate Affairs and Chief of Staff. Before I begin, I just want to introduce or thank two people who've been really instrumental the last couple of days and the last couple of months, actually, setting up this two-day investor day for you all. Back at the ranch, you don't see all this. But back at the ranch in Calgary, they've been working day in, day out for the last couple of months preparing all these slides, preparing the presenters. This has been rehearsed 18,000 times. You probably don't know that. But they've worked with this team of railroaders to really get them in shape for presentations for you all.
So I think what you've experienced here the last day and a half has been nothing short of spectacular, first-class, like we do things at CP. So I really want to recognize Nadeem Velani and Maeghan Albiston. Thank you for all your hard work. I may be a little biased because they work for me. But I think they're the best IR team in the business. So please vote for them next time the IR Magazine awards come up. Little plug. So I've been with the company a little over two years now. Some of you may know I was with that other Canadian Railroad, CN, for a little over 16 years. I had the privilege of working with a lot of you for about six years. I was previously in the IR department.
So it's always nice to come back to New York and rekindle old friendships and see you guys again. So I'm glad to see a lot of you. I left CN back when Hunter retired, shortly after his retirement in 2010. And at that time, having the privilege to work for such an iconic leader and railroader and mentor of mine was something short of spectacular. And I also had a front-row seat on that transformational journey, which was simply fun. So just think about, as I'll rewind the clock or fast-forward it, two years after, it was June, I guess, of 2010, the Saturday morning. And my phone rings at home. And it's Hunter on the phone. And he says, "Hey, Mark. What are you doing?" I said, "Hey, not too much. Haven't heard from you in a while.
Been seeing you in the press a lot." He said, "Yeah. Well, get ready to move because we're moving. We're going back to work." So I was pretty excited. My wife and I packed up. Even when he said it was in Calgary, he said, "I hope she has a warm coat." Which, obviously, we went out and bought one. But we're thrilled to be in Calgary and having a great time, having a great time there. It was shortly after that that Hunter said, "I want you to come in and be my Chief of Staff," which I had done a little bit at CN as well. So I kind of knew what that meant. But really, his meaning was a little bit different this time. And he said to me, "I'm going to start on July 4th.
So I want you to go in on the 3rd into Calgary." And his excuse at that point in time was, "You could go in, set up the office, get everything ready, meet the team. And then we'll be ready to roll and hit the ground running when I arrive." What he really meant was, "I was actually the human shield for all the incoming bullets that we thought we were going to get." But fortunately, my family and my life insurance provider were very happy that we were greeted with open arms by most people. And the experience so far has been simply spectacular. Part of the portfolio that Hunter asked me to assume shortly after coming on board was real estate. I think he and I both knew there were tremendous opportunities at the company.
But I don't think either of us really realized the significance of the opportunities that lay ahead for us. One of the first things that he said to me, it was probably week three. Now, those of you who know Hunter. He expects a lot from us. We work hard. We produce great results. But he likes us to be in nice quarters. For those of you who had been to Calgary and Gulf Canada Square, the offices were not that nice. And so he said, and he doesn't believe that railroaders should be in office towers, bank towers, as he calls them in downtown cities. We should be looking out the window and seeing what business we're in, like you saw in the video yesterday. So he said, "Let's look at building a new headquarters." So I said, "Okay. That's fine." So my team went off.
We came back a couple of days later. And we said, "We have this opportunity. We can move out to Ogden, which is a couple of mi away, put up a brand new headquarters building, and get out of where we are." So the timeline, I said, "Obviously, this is going to take some time." He said, "Yeah, a couple of months." I said, "Well, maybe a little bit longer." But I'm happy to report, we built a $40 million new headquarters building. We started in November. The first wave of people were in the building by August. The second wave, the rest of us, we were all in just about a couple of months later. The building was built on time, on budget. It's a beautiful facility. I hope some of you get the chance to come out to Calgary and see it. We're all very proud of it.
But probably more importantly, it saves the company about $20 million a year in lease expense. The second assignment or the second work that I went about doing in the real estate file was actually figuring out what we had as real estate. Seems like a simple task, right? Well, it wasn't so simple. CP, in fact, had not done a comprehensive review of its real estate holdings since 1967, when Marathon Realty had been created as a subsidiary of CP Limited. So they weren't up to speed. So the files, there were no files. The work was also challenging by the fact that back in 2001, as you all know, CP Limited broke up into separate operating companies. And some companies took different parts of the portfolio as well.
I would say to you that the record keeping at the railroad on the real estate file was pretty abysmal, so complicated by that. We set about doing the review. Hunter, being Hunter, thought this work should probably take about six days. It actually took my team a little over six months to complete. But we're all happy. We finally got a good grasp. We reported back to our board that we actually understood and we knew exactly what our real estate holdings were. During this time now, as we were doing all this review, you've heard our operating teams that during that time, it was early in the new plan, we were going about all these whiteboarding sessions. We were busy. We were all over the railroad doing whiteboardings.
Hunter was having his other more intimate Hunter teaching sessions, redesigning the service with our operating guys and with Matthew. And we were also redesigning our yards and our intermodal facilities. Obviously, given all this work, including, as we've talked about in the past, the closure of all those hump yards, the four major hump yards, created a lot of surplus properties for the company. So to date, we've narrowed that list down to an inventory of about 45 properties in Canada and the United States. And these properties are in a number of high-demand areas with potential future use, such as retail, residential, industrial, etc., etc. And I wanted to give you just a little bit of a flavor as to the type of properties that we have that we're dealing with going forward. The first one is Schiller Park. Schiller Park is in Chicago.
This property was created as a result of the consolidation of our intermodal facilities. So we took Schiller Park, the intermodal facility, consolidated it with our Bensenville Yard operation. And now what we have is a 75-acre site that's close to O'Hare Airport in Chicago, which has big, big, big, big potential use for future industrial use or other development uses. Next is Obico. Obico, for those of you in Toronto, Obico, again, was freed up as a result of our intermodal consolidation. We took our intermodal operations out of Obico. We put them into our Vaughan Yard just outside of Toronto, just a little further away. It's a 74-acre site. It's a great site. It's really close to all the major highway systems in Toronto and really close to downtown and has big potential going forward. South Edmonton Yard.
South Edmonton Yard is really the power. I describe it as the power of whiteboarding. I think if you had asked Guido, our Senior Vice President of Operations for Western Canada, probably two years ago, whether he ever imagined a day when we wouldn't be operating in South Edmonton Yard, he would have probably thought you were nuts. But the power of whiteboarding and redesigning our service and our yards, his team accomplished this task. So today, we have a site. It's about 92 acres, close to downtown Edmonton, in a very tight industrial demand site. So a lot of potential with South Edmonton Yard. Last but not least, because I'm a Montrealer, I wanted to show you something in Montreal. Lucien-L'Allier is a site that, as my Montreal friends know, right across the street from the Bell Centre, where my Montreal Canadiens play.
Those of you who know this site know around it. There's a lot of development going up, condominium towers and office towers. We're quite excited about it. It's a three-acre site. This was actually uncovered during our real estate review. I think it was lost in the file somewhere. But we found it. It's a great site with a lot of demand for future potential use. So I hope these sort of give you a little bit of a flavor, a little bit of a sense as to what we've got in our portfolio. Rest assured, I didn't just show you the crown jewels of what we got. We've actually got a number of very interesting properties in our portfolio.
Let me take a step back now and talk to you about the process, how we got here, and how we think about creating long-term shareholder value from our real estate holdings. When we looked, as I said, when we looked at the whole entire portfolio of real estate, and there were thousands of properties, literally thousands upon thousands of properties, we went to the business. We sat down with our operating folks. We sat down with our marketing folks and James Clements' folks on the business development side. And we went through each property and said, "Is this property required for rail use? Is it required to be held for potential growth?" So we may not need it today. But if the business is going to grow, we know one thing: if you sell it, it's hard to get it back.
Should we hold onto it for potential growth? And if not, is it truly surplus and no longer required for rail operations? If it was required for rail operations, and the team said yes, we said, "That's great. That's fine. But we're going to make the property sweat and earn its keep." What do I mean by that? What I mean by that is that we're going to look for ways to extract maximum value out of these assets. That could mean looking at other complementary uses, such as putting up a signboard, putting up a cell tower, laying fiber optic cable, or lighting it up if it's already there, other things that'll generate value on this land other than just it being there for the railroad. Now, I promised Hunter and Keith that I wouldn't billboard the entire right-of-way. We won't do that.
But I think the point is, where there are opportunities to create future value or further value on these assets, we're going after it. And we're going after it hard. So now, if they said, "Well, the property is truly surplus, no longer required for rail operations, what do we do with it?" Well, we can do what CP has typically done in the past, which is to sell it. From 2001 to 2010, CP sold over $1 billion in real estate, buy locomotives, keep the lights, heat, and gas going. We're no longer in that position. We no longer need to sell it to maintain the company going. So we have the cash flow. We can probably take a longer strategic view of that.
We can hold the property if we think the timing for a sale is not right or the timing for a potential development is not right. We can hold the property. Or if we think there's a tremendous property that has the potential to realize significant value over a sale price, then we put it in this development bucket. So as in the examples that I just showed you a few minutes ago, there are a number of these properties. But we know one thing: this is the team of railroaders, not developers. So currently, we're speaking with a number of major North American property developers to identify the best partner or partners to help CP develop the properties and realize significant value going forward. On this, I fully expect to be able to make a recommendation to our board later this month at our board meeting in October.
To wrap this up, as I've said, this is all about creating long-term shareholder value. First, we believe the underlying value of our book of properties is about $1 billion. Secondly, on our ancillary lines of businesses, today, that represents revenue of about $50 million to the company. Working with experts in this field and working with other partners, we easily see that revenue growing or doubling over the next few years. One thing is clear going forward. We will always maintain the flexibility for future strategic options. What does this mean? Well, it could mean bundling these assets or revenue streams into separate businesses, looking at different options like REITs or other vehicles to maximize going forward long-term shareholder value.
So now, the question that I've received 18,000 times since I've been here the last couple of days, "What's the timing?" You all want to know what the timing is. As I've said, we expect to generate significant value from these properties over time. And once our partners are announced or our partners announced, we will immediately commence the development process over the next few months. And the amount and the timing of that value generation will really depend on the projects that we pursue in the short term. Let me say it this way. Would I and this management team be disappointed if we didn't see significant value creation near the second half of this business plan? I think the answer to that question would be a strong yes. However, in the near term, we will begin monetizing properties that are not targeted for development that we will sell.
You should start to see some progress on that front by next year. With that, I'll wrap it up. We've probably got time for a couple of questions. Bart's going to come up. And then, like Keith said, we can follow up with more additional questions at the end, should you have any. Thank you.
Hi. Tom Kim from Goldman Sachs. I realize this is pretty early days yet, but you have put up this number of a potential $1+ billion value. So presumably, you have some sense of what kind of capital might be required for that. Can you give us a little bit of a range in terms of what you'd be anticipating? Thank you.
Capital from our investment?
Correct.
Yeah. Well, I think I don't want to get too ahead of myself because we haven't formed a deal yet with our partner or whoever we're going to be working with going forward. So I think the way we look at this is our initial investment would be our land. So we'll probably be forming JVs on most of this book of properties. We would add the land. I think our partner would provide their expertise and some capital. I think it really depends on the property. You saw the range of value. There's a lot of range of the properties that I showed you a little bit earlier, the range of values are a lot different. The types of development will be different. So it'll be really specific to that property that we develop going forward. So could we look at maybe making some capital investments? Sure.
I think they would have to meet our threshold in terms of value, in terms of return on that capital that we would put in there. But we'll sit down with Bart and the team and look at those opportunities going forward and make those determinations. But certainly, we view it as we're putting in the land.
I'm Ken Hoexter from Merrill. Just to clarify your REIT comment again, that's not bringing back the whole concept of REITing any portion of the railroad. That was just for the land that you want for development? Or is it for any of the things that you've got cell towers or whatever ongoing residential?
No. That would just be for the properties that we've identified, the book of 45 or so. Sure. We'll take one or two more.
Yeah. Thanks. It's Steve Hansen, Raymond James. I'm just curious about the ability to keep some sort of optionality into some of the properties that you're selling from a development potential. One's actually in Vancouver, for me. And the Arbutus Corridor is a big debate point there. But I mean, even beyond that one in particular, is there the ability for you to contribute the land into some sort of development option as you're contributing equity, if you will, and then collect some of the upside thereafter?
I was wondering whether I was going to get the Vancouver question. Clearly, I did. Let me answer it this way. I think, as I said in my remarks, the teams, we're not in a rush to sell for the purpose of just selling and raising cash. Arbutus is an example of that. We've received a ridiculous offer. We're not going to part ways with it. So we're going to put that asset to use, as I said. If we can't extract value out of these assets, they're going to earn their keep. Arbutus has been an embarrassment for CP Rail over the last decade. The company, unfortunately, just let it actually rot. We could have done other things with it. So we're putting it to use. Clearly, the city of Vancouver is not interested in buying it at our price.
We're going to return it to rail operations. But certainly, yeah, I mean, we're keeping optionality in all the properties that we're looking at. That'll be part of the details that we work with our partner on.
Thank you. Jason Seidl from Cowen. Quick clarification. The $1 billion mark is excluding any rail properties you might sell, such as the D&H?
Yes.
Okay. Thank you.
Yes. Scott. And then we'll pass it over to Bart.
Thanks. Two things. One, in the past, we had talked about $1 billion-$2 billion range, just a view on what's changed there. And then we've seen some other companies with rail-related assets, like railcars or terminals, create MLP structures. Wondering if you guys have looked at that and thoughts there?
Yeah. So the way I look at value is the following, Scott. I think when you look at the $1 billion that we have of land, I think, as I said in my remarks, we expect a lift on that on the development side. We fully expect that at some point in the future, we'll be looking at monetizing that in some way, shape, or form, whether it's a REIT or some other vehicle. Or as you say, those are all options that are on the table for us right now. So I think that $1 billion, there's upside to that number. I think on the $100 million as well, on the cell tower or the ancillary business lines, right now, that's a neat little revenue stream for us. Will it always be within CP Rail?
Or could we look at REITing that as well and put a multiple on $100 million or $150 million? I think that could be an attractive number for us in the future. Right now, it's earning a pretty nice multiple on CP. So I think we wouldn't do that immediately. But certainly, going forward in the future, as we build those revenue streams in those businesses, I think we would look at monetizing those. I think that gets closer to your number, maybe even a little bit higher. Okay. Thanks. And now, turn it over to Bart. Thank you.
Hold on.
All right. Good afternoon, everyone. I think, and hopefully, you can all appreciate having heard from all of the leadership team, Keith, Hunter, all of the folks that Keith introduced to you last night, and the quality of their work, their plans, the things they are going to do on behalf of shareholders, just how easy that makes a CFO's job to be. I mean, I might have the easiest job in the company because the performance of the organization and the team behind it not only improves the operations, but the quality of the finances and the financials, which is where I come in. It's a real pleasure to be here in front of you today, speaking to you as the company's new CFO. I haven't had a chance to meet all of you.
I'm looking forward to meeting all of you more tonight and over the months and years as we move forward and work together on this great company. I've been with the company about nine months now, in fact, almost to the day. I can tell you, without question, it's been the most exciting nine months of my 25-year career. I've had the opportunity to do a lot of different things in my career. But nothing has been as exciting as this opportunity. That's in spite of what's now almost $80 share price increase since I joined the organization. I can't believe what's happened to benefit shareholders in such a short amount of time. But there's more to come in the coming years. I'm going to take you through some of the numbers over the next little while.
But before I get into those, I did just want to take a moment to give you a little bit of my background, introduce myself to you so you understand where I come from and how I think a little bit more. In January of this year, I came over to CP from Suncor Energy. I'd spent the last eight years of my career there in a variety of different executive roles, the last four of which was as their CFO. Like anyone, when you make a transition between industries, you start to lose your old language and lingo, things like netbacks and lifting costs, and start to learn the new language of the industry you're in, so the language of operating ratios and revenue ton mi and GTMs and all the other acronyms that come with the railroading industry.
But when you think about the oil business and the railroading business, while there's differences, there's a real commonality when it comes to the recipe for success. It starts with a high-caliber leadership team. You've met those individuals now. You've seen what they're all about. It carries through to an engaged workforce, one that is working on and working with a common culture, all of that focused on asset optimization and ultimately building an operationally excellent company. And thanks to Hunter and Keith, as I've joined the organization and learned more about it, the education I'm getting is, without question, from the best railroaders in the industry. And that was absolutely key for me to make the decision to make the move over here. It's been a remarkable transformation over the past two years. And we now have something clearly in our sights.
That's to be the industry's best operator. Now, as CFO, it's my job to ensure that the company's financial vision and strategies are married up with the operational vision and strategies for the company. That is really to ensure the organization is a world-class operator. Now, I'm no stranger to leading financial transformation successfully. In fact, well, a little bit of success. I had the opportunity to lead integration of the merger between Suncor and Petro-Canada a number of years ago. There was a tremendous amount of learning that came from that success. There's one key thing in particular that stands out for me as I've now joined the team and I'm working on the transformation here. That's the need to have the absolute highest quality team in place. The work cannot get done without the right people.
So the first thing I've been focused on since joining the organization has really to be to get the right people into the right jobs and the right chairs. And that means some people leaving the organization. But it also means it gives us the opportunity to bring some new people on board and bring some new talents into the organization. And that includes our new treasurer, Darren Yavorsky. I know some of you have had the opportunity to meet him. Darren's in the back there. Darren, maybe you could stand up and just be recognized for a moment. Darren came to us about seven months ago after a very, very successful career in banking and at Enbridge. He's brought a tremendous energy to the treasury and corporate finance area, a lot of knowledge about working on capital and structure and how to use that to benefit shareholders.
I'm very, very pleased to have him on board and as part of CP's new executive team and talent. Now, the second thing I've been working on since arriving is the financial strategy of the organization. So that's creating and finding that balance between our cash generation, the network reinvestment that Keith talked about, and ultimately, shareholder returns. I'm going to speak to each of those items in just a moment and give you a bit more detail on them. But before I do, let me just take you back to the numbers for a moment. Now, I know you've seen this slide. Keith and Hunter have talked about it extensively already. So at the risk of being a little bit repetitive, I've put it up again. But I mean, what CFO wouldn't want to talk about these numbers and be excited about them?
It's a fantastic story. We're sitting here now in a position where, by 2018, we're going to be moving more than $10 billion in annual revenues. Our focus on velocity and productivity improvement, and Keith talked a lot about that today, is going to enable and allows us to grow at a very low incremental cost, driving further improvements in the operations and the operating ratio and resulting in a more than doubling of the earnings per share of the company. At the same time, that is going to generate over $12 billion of cash from operations for the organization, $6 billion of which are going to be free cash available to work with after we pay dividends. Now, those are some powerful numbers. But they don't tell the whole story of how I believe we're going to generate shareholder value.
I'm going to spend a few moments just walking you through those details. I want to start by giving you a bit of a sense of how we think about financial strategy and the principles that guide us. The first thing is the strength of our operating model is its ability to release latent value, untapped value that's in the organization, and at the same time, grow the business. Now, we all know that that is going to generate a substantial amount of cash flow. I just highlighted the $12 billion. The question really is, what are we going to do with all of that cash? The first order of business and the first principle is that we have to continue to reinvest in the business. I'll talk a little bit more about how we make those choices in a minute.
Because without that investment, we won't be able to sustain the forward momentum of the organization or achieve the growth that we believe we can. But beyond that, we are committed to returning excess cash to our shareholders. And I'm going to come back to more about that in a minute. But at the same time, we need to do that in a very accretive manner. Now, it's early days. But we've done some good work already towards optimizing our capital structure. And our goal there is really to reduce our cost of capital. And the way to get there, we believe, is by maintaining a prudent level of leverage as we go forward as a company, so long as the price is right and we can utilize that cash in a meaningful way to drive shareholder returns higher.
When it comes to our credit ratings, we're targeting a AAA+ or equivalent rating. We think that rating affords us the appropriate amount of financial flexibility going forward. It'll allow us to access low-cost debt, ultimately, to reduce our cost of capital as a business. It also affords us uninterrupted access to capital, which is very important. Lower ratings than what we're targeting, we believe, would be suboptimal for a couple of reasons. One is that there are certain financial instruments and markets that would not be open to us otherwise with a lower rating, for example, U.S. commercial paper programs and other sources of low-cost debt that we can use to ultimately help lower our cost of capital. Finally, we want to use our cash in a way that is optimal and ensures we don't compromise our liquidity position.
So to that end, recently, we've almost doubled the size of our committed credit facilities in the marketplace. And we've been able to do that at no incremental cost to the business, zero incremental cost. So Keith and team have given you a lot of color today and a lot to think about in terms of growing the top line. But the beauty of our business is that we can grow and achieve that growth at an overall low incremental cost. And we've had dramatic cost savings to date, over $500 million, which have come from reductions in purchased services, reduced equipment rents, reductions in materials, lower fuel costs, and as well from lower compensation and benefits. But we also remain committed to cost reduction. And we expect, through our planning period, further cost reductions in the order of $230 million-$250 million.
Once we've achieved those, we'll be approaching $750 million in cost reductions for the company. As we go forward, we're going to continue to reap the benefits from improvements in fuel efficiency and asset velocity. Keith talked a little bit about, and highlighted, that velocity is not just about train speeds. It's about process improvements in all parts of the company. That includes finance. I want to share with you a story just about one area where we've been working hard to improve our velocity. It's in the area of closing the books. It seems like a simple thing. But when you come in as a CFO, something you want to do is you want to make sure your books are getting closed efficiently and effectively and as quickly as possible.
CP, for the longest time, was, dare we say, worst in class. It took us longer, I think, than any peer in the industry to get our books closed and release our results. We were averaging 12-15 days through process changes, redesign, getting more efficient, system implementation. We're now down to four days. And we're now either first or second out with our results to the industry. And we're doing that with fewer people at the same time. Now, I know 10 people doesn't make up the hundreds or thousands that have come out of the operations. But in finance, we're a pretty small group. And being able to take 10 people out is material for us as well. And it saves the company about CAD 1.5 million a year. So we're growing the top line.
But through additional margin improvement, we're going to see those dollars flow through to the bottom line. And what does that mean for CP? Well, the earnings growth has just been fantastic over the last couple of years, with a full 48% growth in 2013 and a further, we're guiding towards actually exceeding 30% earnings growth in 2014. So the momentum is tremendous. And over the next four years, we're looking at a more than doubling again or achieving a CAGR in excess of 20% over the planning period. Now, I should mention that and Mark gave a terrific presentation on the real estate assets. That growth is exclusive of any incremental benefit from asset sales or monetization of those real estate assets. And it's also exclusive of any further share repurchases beyond what we've already announced, so the 8% program that we have announced.
So a very, very powerful story. I mentioned our operational improvements are going to release very significant cash flow. Over the planning horizon, that's $12 billion of cumulative cash flow. That puts us in a very, very enviable financial position. After funding our CapEx of about $1.5 billion per year, that's going to leave us with $6 billion of excess cash before dividends to put to work on behalf of shareholders. I can imagine or we can all imagine that that provides us with a tremendous number of opportunities and things that we can be working on and thinking about. But we have to deploy that cash in a disciplined way that is the most accretive for shareholders. So let me just talk for a moment about capital allocation. I want to start by reemphasizing something that Keith said yesterday.
I'm going to paraphrase a little bit here. But what he said was, and I think it embodies our principles around capital allocation. He said that CP is an operations-centric and service-driven company. And that means that, from a capital point of view, we need to be very diligent in how we allocate it. It starts first with replacing capital. Second will be productivity capital. And then third will be growth capital and in that order. And it's that waterfall that will guide our decision-making as we move forward. Simply put, all of our capital decisions need to be driven by, how do we create the maximum shareholder value out of those decisions and how we prioritize? And there's three things that guide us. I mentioned the waterfall. That's number one.
We've also set minimum hurdle rates, IRRs, within the organization, not so much for replacement capital because that's necessary to keep the operations running, but for our productivity and growth capital. That number is 15%. Then lastly, by constraining ourselves. There is not an unlimited pool. We need to be efficient with it and prioritize so that the highest return projects are the ones that attract the capital within the business. That is how we actually work on it between Keith, Hunter, and myself. Let me share some numbers to emphasize my point on why this is so important. In the past, CP was soundly mired in kind of mid-single digit to high single digit returns on capital employed.
When Keith and Hunter and the team came on board and started to do their work around improving the operations, they also employed this framework that I'm talking about. Our company's return on capital employed has improved dramatically as a result. You can see it from the numbers on the screen here. We're now in a position where we're approaching 15%. The path forward with the improvements that are coming in the business is higher from here. We fully expect that we're now in a place where we're near or will be industry leading. Now, Keith and team have done a fantastic job in outlining the why and the where we're planning to invest in the network to support our growth plans. He's mentioned that these improvements have created capacity.
Like a lot of the other guys who've talked about their stories about asking why, it was one of the first things I asked, "Well, what do you mean by creating capacity when you're in a rail industry?" I had to boil it down to some simple things. For me, it means we now have surplus locomotives, surplus railcars. There's things that we can do with those. Our yards and terminals are considerably more efficient. Ultimately, what it means is that we already, within our network of assets, have the capacity to accommodate the growth ahead of us. That's an important point. Because if you read the headlines about our peers and the investments they're having to make, particularly in new engines, we are clearly in a position of competitive advantage.
So over the next number of years, this capital will be focused on productivity and efficiency improvements, siding extensions, terminal upgrades, CTC implementation. Those are key areas for us. But the bulk of our spend is basic replacement. And that is going to be at an average run rate of about CAD 720 million per year. Now, you will note I think it's on this slide, 14%. But it's 14%-15% of our capital is earmarked for rolling stock investment. But this is not your typical rolling stock investment. It's not investment in new engines. In fact, we don't believe we're going to need new locomotives or need to acquire them to accommodate any of our growth during the planning period. And the earliest we might need them is 2018.
Instead, we're going to be reinvesting in the locomotives that we have to remanufacture them, remanufacturing legacy yard locomotives and the existing locomotive fleet that we have to increase train speeds, increase fuel efficiency, and make them and to provide interoperability between those locomotives and our rail fleet. While also
buying out uneconomic leases. Keith had a slide up early on. I can't remember the exact numbers that were up there, but it was a tremendous number of cars that we no longer needed. We had CAD hundreds of millions of leases on the books for assets that were no longer required because of the improved efficiency and velocity of the business. So we're in the process of removing those, further improving our capital and asset efficiency. Over the next number of years, we're going to spend between CAD 1.4 billion and about CAD 1.6 billion on capital. That's where the average of CAD 1.5 billion comes from, which today represents about 20% of our revenues.
We're intentionally pacing our capital over the next number of years, which, as we grow our revenues through this plan, means that by the end of the plan, by 2018, we'll reduce our CapEx to revenues to a more normalized level of 16%. So in short, through the strategic investments that we're making, the nominal CapEx that we're going to be putting into place and the revenue targets we're achieving, we're going to have significant cash to put to work for shareholders. This brings me back to my previous comment on prudently returning cash to shareholders. There was a story I heard last night.
I can't remember who it was who approached me and was telling me this because he was asking, "Well, what are you going to do with the cash?" And I won't say who he was speaking about, but he used to ask that same question of another CFO for many years, a very senior person in a large financial institution. He said, "Well, there's three things that I like to do or would consider doing with the free cash of the company. One is stealing it. Two would be spending it on all kinds of things that would be inappropriate. Or three, return that cash to shareholders." And I know there's one of those three that will be top of mind for this company as we go forward. But there are other options, including share buybacks. There's dividends and strategic investments for the company as well.
Now, I'm sure, as most of you saw earlier in the week, or all of you probably saw and have read, we've upsized our normal course issuer bid this week. We announced it on Monday. We had a very successful run executing the first 3% of that program. We've now upsized it to 8%, which is going to allow us to buy up to an additional 7.5 million shares. This fits perfectly with our philosophy on delivering value through share repurchases because today, we believe there's unrealized intrinsic value in our share price. In other words, the price of the shares is below what we believe the intrinsic value of the company is. We would see buying shares as a very good investment for shareholders. We've had very good success with the program to date.
The average purchase price we've been able to execute at is a little more than CAD 6 per share below the volume weighted average price during the buying period. It doesn't sound like a lot, but when you multiply it by 5.3 million shares, you realize you're approaching CAD 40 million in incremental value creation for shareholders through that program. And I fully expect we'll be able to continue to buy shares below the average market price going forward, at least for the next number of years. We, as a Canadian issuer some of you are probably, I'm sure, aware of this but we, as a Canadian issuer, have the opportunity to buy directly from Canadian banks at discounted prices relative to the market. It can only make up about one-third of the shares that we purchase, but it gives us a great advantage when we're purchasing those shares.
To date, the average price we've been able to execute those trades at has been greater than 8% below the market price. Now, I think it's important to point out that while share repurchases are going to remain the primary way for the time being that we plan to return cash to shareholders, it's not the only tool in our cash return toolbox. We are committed to our current dividend, and we remain committed to it. We will be looking for strategic acquisition opportunities. James Clements talked a little bit about some of those earlier. Again, we'll look for those if they can be fit into the network and provide the highest optimal returns. Now, beyond all of the operational improvements and the financial improvements I've talked about, we've also been doing some other planning and things in the financial space to support optimal cash flow generation.
So I'm just going to touch on three things briefly here. We've seen a very significant deleveraging in the company over the last two years. In fact, we've fallen from the time when Hunter joined the organization two years ago. We were in excess of three times debt to EBITDA. I think it was closer to 3.5. And the improvements in the operations have allowed us to continue and resulted in a continuous deleveraging of the organization. In fact, now we've fallen below the threshold of 2.5 times, and we're quickly approaching two times. So we're now within that target debt to EBITDA range of ours of 2-2.5 times. And we believe that range provides us an optimal balance between maintaining financial flexibility and a prudent level of leverage.
For those of you who might be trying to do the math in your heads or thinking about updating your models, we'll do a little math test here. That amount of leverage or that leverage range over the planned period will provide us with the opportunity to add incremental debt in the range of $3 billion-$6 billion. That's incremental to the $6 billion of cash we'll have available to return to shareholders through that time period. Now, our target leverage and our other key credit metrics put us in a terrific position to achieve our target credit rating of BBB+. I mentioned earlier that that rating provides us with literally uninterrupted access to the capital markets. It allows us the opportunity to add low-cost debt. It allows us the opportunity to bring our cost to capital down.
It gives us access to some kinds of debt structures that wouldn't be available otherwise with lower ratings. I mentioned U.S. commercial paper, obviously low-cost conventional debt, and as well as hybrids. In fact, one of those things that we're considering right now, we're doing some work on it, is the establishment of a U.S. commercial paper program. That is a very low-cost form of debt today. Obviously, it attracts a variable rate of interest, so we would need to manage that very well. But in today's markets, the all-in costs would be less than 40 basis points. So you can see how that would help us with our cost to capital goals. Now, when it comes to freeing up cash for shareholders, we've also done some extensive work on our pensions to improve returns, mitigate risk, and reduce cash flow volatility.
The improvements have primarily come in three ways, although there's a number of things we've been working on. First is and I'll give full credit to our finance committee. They did a terrific job early on in changing the asset allocations within our portfolio. It's benefited the company greatly. We've closed access to our defined benefit plan to new non-union members. And we've negotiated and Peter Edwards was talking about this earlier, Peter in the back. Kudos to him. We have a full 85% now of our unionized members. And the collective agreements have been renegotiated so that there are liability caps now in place for those unionized staff. And I think the benefit of the changes is the proof is really in the pudding.
From a returns point of view, for the last two years, we are now in the top quartile of returns for similar large public company plans. In a short time frame, our liability position has gone from a very significant CAD 1.5 billion deficit to over CAD 500 million surplus today. So a CAD 2 billion swing, almost 20% of the plan. That is huge for us going forward in terms of reducing volatility and managing risk. From a cash perspective, we expect contributions are going to be in the CAD 50 million-CAD 100 million range. Million range going forward. We still have available to us more than CAD 600 million in our prepayment account, which will afford us the ability to withstand shocks to the markets if they hit us. In fact, we've done some work to understand what that means from a stress test point of view.
We do a number of stress tests. But for purposes of demonstration here today, if we saw a two-standard-deviation downside move to our portfolio that was sustained going forward, we wouldn't need to change our cash contributions until at least 2018. Last, from an income perspective, we're looking at a modest range of either income or expense going forward. $50 million of income this year, and we're forecasting $10 million of expense next year. That's based on a 4.55% discount rate assumption. As you all know, those liability assumptions are very susceptible to interest rate movements. And I mentioned earlier that just for back pocket, every 10 basis points move in the interest rates means about $13 million of expense. So in short, our pension situation is vastly improved. We've got more stable returns, predictable cash requirements, less risk.
Together, all of that means more cash available for shareholders. Now, from a liquidity standpoint, we're targeting backstop liquidity equal to one times our cash needs on an annual basis, those being dividends, capital, shareholder share buybacks, and any debt maturities during the year. That provides us surety that we won't face any business disruptions or disruptions to our plans should we find ourselves in a position, again, where capital markets become disrupted or closed. To that end, just last Friday, the team successfully secured a $2 billion aggregate backstop or credit facility for the organization. That compares to the $1.165 billion credit facility we had previously, nearly doubling our capacity at the same cost. If you measure that on a cost per dollar of liquidity basis, it's more than a 40% cost reduction. A terrific success there.
Now, there's an immediate benefit of adding that amount of liquidity. We knew we were going to be doing this a while ago. It allowed us to free up cash that was sitting on the balance sheet and really doing not much in the way of providing returns for shareholders. We've freed up $700 million. I'll call it trapped cash because it was needed for other purposes, liquidity in particular. We put that cash to work more quickly to buy back shares. That's why we executed the first 3% more quickly. The average share price we've achieved is $187 to date. We're feeling very good about that in terms of how it's delivering value for shareholders. We're also thinking about taxes in a different way. Our tax rate has been rising for several years.
Over the last number of months, we've taken some steps around planning and our tax structures and have implemented those now. Going forward, we would see ourselves with a lower overall tax rate at an average of 27.5%. And we aren't going to stop there. We're looking for other opportunities as well to further reduce our tax rate as we move through the planned period. And again, for those trying to do the math, if you think over the planned period, what does every half a percent improvement mean? It means about $65 million in tax savings. So again, freeing up more cash to put to work into the business and for shareholders. And so that brings me to the end of my remarks. These are undoubtedly the most exciting times probably in the history of CP, other than when the last spike was first driven.
The transformation that's taken place over the last two years has been just nothing short of remarkable. The team has dramatically improved operating performance. We're quickly approaching industry-leading operating ratio and the industry-leading return on capital employed. The company has significantly delivered value for shareholders. It's all been accomplished at a pace that, as Hunter, I think, referenced last night, that many or most didn't believe was actually possible. And some and he said it in a very entertaining way just couldn't believe could be done at all. That brings me back why I chose to come to CP in the first place. The allure of and my belief in the transformation, the pace of change, and being able to work for and with the absolute best in the business.
When I was working with Keith and Hunter and team on the plan over the last five or six months and saw the potential going forward from here for shareholders, I'm just that much more pleased about the decision I made and the excitement of where we're going to be in the years to come. The journey is far from over, though. We will continue to reinvest in our future, rebuilding the network from the ground up, making it safer, more reliable, more efficient, and adding valuable capacity. With an improved cost structure and incremental capacity available, we are absolutely poised for the growth that's coming to us.
To sum up, over the next four years, by combining the more than $10 billion in top-line revenues with further margin improvement, we're going to be able to double more than double our earnings per share, generate over $6 billion in excess cash for shareholders. We do intend to put that money to work to drive shareholder value. Thank you very much. That concludes my remarks. I think we have a few minutes, Nadeem, for questions. Why don't we start with do we have microphones?
Hi. Thanks.
Where am I going?
Allison Landry from Credit Suisse. I was wondering if you could maybe comment on the potential tax savings that could be achieved from structuring some of the surplus assets as a REIT. And obviously, not looking for a specific number, but maybe if you could give us a sense of the magnitude. Are we talking couple million CAD, tens of millions CAD? How do you see that?
Well, thanks, Allison. I've had a lot of questions about what would we do and how could we save on taxes if we put assets into a REIT or if we did something with an MLP structure. And I think the reality is that the advantage of those structures is to provide a higher multiple, be able to take advantage of a higher multiple. CP today trades at the highest multiple in the industry. And if we're going to spin assets out, we need to be doing it we need to be able to do it in a way that provides even a higher multiple to benefit our shareholders. So I actually don't think, for the time being, those kinds of structures are the things we're going to be looking at. Longer term, I think there's certainly going to be some opportunity there.
Today, we're not putting a lot of work into it. In terms of the tax savings, I think I tried to highlight that earlier, that every 50 basis points of improvement over the next four years is going to be about $65 million in tax savings for the company. I hope that answers your question.
Hi, Bart. Jeff Kauffman, Buckingham. I'm struggling with my math test here a little bit. I'm going to ask you to fill in some blanks. If I credit you for the $10 billion in revenue and a 60/61 OR, that's a little under $4 billion in operating profit. If I use your tax rate guidance, that's implying either the share count needs to be around 150 to hit the doubling of earnings versus kind of the 165-ish we're looking at after the share program, or it's implying your interest expense gets cut in half as you're taking on more debt. Could you help me fill in the blanks? It's probably a combination of the two.
Yeah. I think we've hit part of it, at least. What we're including in there is the 8% that we've already announced. So that provides some of the benefit. We're adding revenue and growth at lower marginal costs as well, which accounts for part of it. I know between the 8% and what's perhaps achievable in terms of shareholder purchase or share repurchases, that would be incremental. And I think because this company has a long reputation Hunter certainly has a long reputation of delivering more than is promised, there might be a little bit of conservatism in some of the numbers that the guys put up on the board in terms of revenue growth. There's definitely more potential out there.
Brandon Oglenski from Barclays. So I guess following up on that, you've already identified that maybe that $6 billion free cash flow target, if you get better revenue growth, could be conservative. You've said yourself that you potentially have another $3-$5 billion of debt capacity if everything goes through. And right now, you see the intrinsic value much higher than where the shares are traded today. So what are the priorities on that potential $6-$11 billion of incremental capital? Are there projects out there outside of your stock that you view as compelling or even more compelling for this organization?
Well, I'm going to maybe call on James or Keith to answer the very last part of your question. But let me start with what's first priority. And it's our CapEx program. We believe the CAD 1.4 billion-CAD 1.6 billion is the right amount. It gives us a good balance between making investments in growth and as well in improvements to the network but without impeding the growth that's available to us. Because when you're doing work on the network, guess what?
That does have a disruption to movement of traffic along the network as well. Beyond that, as I said, we're committed to returning cash to shareholders. Our number one priority today, given where we believe the intrinsic value of the shares is and will be as we go forward, will be share repurchases so long as we can execute them successfully at the pricing that we think makes sense.
That would include perhaps adding leverage. We think it'll be prudent to continue to add leverage as we move forward. Frankly, if we allow ourselves to continue to delever through this planned period, we'll be down below 1x debt to Adjusted EBITDA by the end of it. So that's a disadvantage to shareholders as well. It means your cost of capital is rising. We'd get up to somewhere between 10%-11%. And then if we did want to do things like make acquisitions, we're in a disadvantaged position overall. So returning that cash, putting it to use, with share repurchases being the number one place we see today to fully take advantage of that. So it does mean potentially a lot of buybacks if we can execute on them successfully. James, did you want to talk about the other opportunities?
Yeah. So just to add in on the component that Bart was talking about as to where we see opportunities. At this point in time, we've indicated that we're interested in buying the assets in Chicago, the IHB or the BRC. And so that would be an investment that we would see unlocking potential both in our network and moving freight across North America. So that would be the target at this point in time on top of what we've described.
All right. Thanks. Sorry. Over here.
Okay.
Get to you next, Benoit.
Yeah. Thanks very much, Bart. I just wanted to clarify. So you were saying that the doubling of earnings is not including anything beyond the 8% buyback.
That's correct.
might include some more optimism on the revenue side. What is the revenue assumption that goes into the double-digit earnings growth?
Yeah. Sorry. Just so I was clear, yeah, we're excluding, and that's EPS growth I'm talking about. We're excluding from that any benefit from real estate monetization that comes. We're also excluding from that any further share buybacks beyond the 8%. My reference to earnings was that I think we're very focused on delivering on the plans for you that we've outlined. And that my comment was that there's perhaps a little bit more upside in the earnings growth than what was represented in the numbers. That's what I was getting at, not that it's more overoptimism built into them. Okay?
Did you want me to? Great. Thanks, Bart. I guess I'm just curious about the pace of buybacks. When you think about incremental leverage, does it make sense to maybe go sort of to the high end or maybe outside of the high end of your comfort band, given currently sort of very low interest rates? I mean, how should we think about the pace of this? Is the 8% over the course of the last year the right number to use going forward? Just want to get some rough sense around that.
Sure. Sure. Well, we're trying to achieve a balance. But there'll be a few governors that'll be on the pace. And as we look at our capital structure and sustaining our BBB+ rating and target, obviously, debt to EBITDA is important. But debt to total cap is another metric. And there's several others. So all of those combined, we'll put somewhat of a governor on. The TSX, through their rules, only allows us to repurchase a maximum of 10% in any one year. And that's a hard and fast rule for the exchange. There's also daily limits. And you've probably seen in the pace of buying that we were executing at through the first 3%, that's getting pretty close to the maximum daily limit. So those are natural governors on it in terms of how much cash we can spend.
But we do feel comfortable in that 2-2.5 range. And if we see opportunity, obviously, we'll look to toggle up leverage if it makes sense. Again, we can get it at the right price and buy the shares at a level that makes sense to deliver value back to shareholders. So it'll depend on all of those things. It's a bit of an art rather than a perfect science. I think, Nadeem, did we want to open up the questions to Hunter and Keith as well if they join me up here on the stage?
Are you dodging bullets or?
No. No.
I have a chair.
All right. It's David Tyerman, Canaccord Genuity. Since we're in broader questions, I was wondering if there was any whether we should be thinking in terms of the pace of growth on the revenue side, whether it's going to be any different in any part of the period, whether it's going to be accelerated or slower at the start or at the end.
Yeah. I think there's you could have varying views there. But I think I hopefully described yesterday that my view is that we're going to go through a kind of a transition here. We have worked pretty hard to kind of clean up the book of business and to get it where it needs to be. But as we continue to ramp up and if we do what we say we're going to do, and we have a record for doing that, and improve service and the velocity, then I think the back end. I know no reason why the back end of the plan will not be probably the high side of what we're going to see. I mean, I happen to have a personal view. Okay? Some of you would argue about my expertise in these areas. I think interest rates are probably going to go up.
That's my guess. When interest rates go up, service is at more at a premium. And if you go back to late 1970s to 1980s when Prime was pushing 80% or 20%, excuse me, we saw a period of time where just-in-time and the cost of carrying inventory and all those things put a real high demand. And there was a real almost evolutionary shift in rail business. You had a famous CEO at that time who said that the boxcar was dead. And effectively, what he said and was saying as he went further in his speech, which I'm taking a little bit out of context, was that railroads are going to end up being just unit trains and intermodal. That's all there'll be. Now, he was wrong in that.
I think if interest rates move up, if we see the Canadian dollar get a little weaker, some of those things could really have a back-end effect that is really not in the plan as such. My personal view is that it'll be back-end loaded if you're trying to identify where it is, the spikes.
Thank you. It's Cherilyn Radbourne from TD Securities. Just with respect to getting control of one of the Chicago area railroads, just wonder if you could address the likely willingness of your fellow shareholders to cede control to you. And failing your ability to get control, are there things that you can do as a part shareholder to improve the performance of those properties?
Keith has led some efforts by Robert Johnson, our chief in Minneapolis who heads the Chicago territory. I think it's fair to say that we have exerted a fair amount of pressure on the Belt management that from a one-shareholder position, we're not satisfied with their performance, number one. We have approached all the other owners. I think it's fair to characterize their response as interesting. All of them save one a little bit that wasn't quite as interested but didn't say a firm no. I think when we started saying, when we became non-threatening, when we said, "Look, we'll buy it. If you don't want to sell it, we'll lease it. If you don't want to lease it, we'll run it for a management fee.
If you want a reversionary clause that said if you don't like what we're doing, take it back," they think we're pretty good operators. What they want to do, I think, I think they would like to see is us help improve that organization, that operation through Chicago, which is so important to the industry without being a threat. Now, let's be realistic for a minute. If you take the Belt, it's ownership of all the Class 1 save Kansas City Southern. And all of the people typically on the board are very high-level, responsible operating people. How much time do you think they spend managing the Belt Railroad when they have to look at and prioritize their time and energy? So we, as an industry collectively, in my view, have not spent the time and energy we should.
We have also suggested, and I would pursue, a merger of the IHB and the Belt. So everybody put their chips on the table. We'll divide them back up where everybody will have a one-fifth, one-sixth ownership. And the mandate of that group would be to see that traffic is moved through Chicago in the most effective manner. Now, people have asked me, "What's the likelihood of some of this happening?" It's not something that I'd run to Vegas about and shoot 1,000. But at the same time, I've hit some bad numbers before. So I think this. It's not going to hurt anything. And it has the potential of helping. And to some degree, it could have a large impact.
Hi. Tom Kim from Goldman again. Can we talk a little bit more about the cost side of the equation? Keith, earlier this morning, you talked quite a bit about how you're going to be generating so much more operational productivity gains and efficiencies. And I guess it would help us to understand in terms of the trajectory of your cost curve. Do you anticipate that potentially remaining relatively modest to moderate as it has been over the last couple of years? Or is there anything that actually suggests that because of the increased velocity and the efficiencies, that you could actually see that cost curve totally flattening and possibly even declining from a unit cost perspective?
Not declining, no. I mean, do we have the same quantum leaps we've had the last couple of years? I wouldn't suggest that. But at the same time, every year, 2%-3%, I mean, steady, slow forward progress is what we expect. So we expect from a productivity standpoint, if I take a terminal, for instance, if my wages are going up 3% a year, then my productivity is going to meet or match that. That's what the expectation is. And I guarantee you, these guys, we haven't ringed all that opportunity out. We just had a conversation about this last week about some of these outlying terminals that we haven't spent the same amount of time in. There's an entire network that we haven't optimized. I mean, we're scratching the surface on what the opportunity is.
Is it going to be the big rocks that the hump terminals were? No, because it's not the same cost opportunity. But still, singles and doubles across the board. And we can deal with those headwinds and keep the cost coming down, even if it's marginal. It's not going to be getting worse. It'll be getting better.
Could put a little bit of color in terms of the unit cost growth you anticipate over that longer period of time, 2018?
Unit cost growth, what?
For example, your inflationary pressure. Could you go through the different cost constituents? Do you see any potential pressure, whether it's in purchased services or your rents? For example, just to help us understand as to where there could be possible upside or downside surprise for us as we try to figure out what your OR could potentially be going out to that far? Thanks.
Okay. I would say that's a mixed bag. I mean, it's probably going to track the economy. If inflation's going up 2%-3%, then when we negotiate with people, I'm sure they're going to be asking for the same thing. So it's all about the leverage we can create and how we can negotiate. And we'll do well at the table. And we have all kinds of strategies. If I think about contract services, I think about labor. I've got an opportunity, and Hunter touched on this yesterday, I've got contractors now that are doing certain things for this railway. So they could come with price pressures. They want to raise the price. Well, I've also got unions that are hungry for work.
So if we can get the right collective agreements and we don't get into a huge work ownership issue and we get the same flexibilities as a contractor, I'd much rather give my railroader the work and give them the jobs. So there are those kind of synergies we can play off each other to offset that leverage. So again, I think it's probably going to track what inflation is. And I think we're going to be able to manage through it.
The surprises, if there are any surprises, they're much more likely to be upside. I mean, you know the downside surprises. If we go into some deep recession or something like that, that's the downside. But to Keith's point, we've got a lot of opportunities accretively. The hourly agreement, it's not in here. It's U.S.. It's, I don't know, 0.5-0.75 of a point on the OR if you want to look at it in those terms. If we hit Canada, that's probably 1.75 or more there. When you start to run some of this leverage of the velocity, it's almost like you can't get the OR up. I'm serious. If you run the numbers and do what you say you're going to do, and you start doing this, and you say, "Well, that lowers it another two points," I wanted to make this point.
I was going to make it in my closing remarks. But maybe it's appropriate time now. I don't want any of you to misunderstand me, what I said yesterday. We're not going to forget what got us here. And what got us here and gave us these opportunities are effectively being the low-cost carrier. And as long as we stay competitive and low-cost carrier with good service, we're going to have a lot of opportunities. I might be the first CEO that's had the opportunity to get an organization that he's associated with down to the lowest cost and at the same time have a growth strategy. And that's a nice seat to be sitting in. But look, we are not going to take our eye off the ball as far as being efficient and productive.
It's just that I don't want people to get in this blind rage that we're going to flamingly go to 55 and forget everything else. We'll get our costs down but with no business. Now, I don't like that. I've been through that with recessions. Okay? You get awful efficient, but you don't have any top line. That doesn't work. So there's a lot in the bucket yet. Yes, Tom?
Yeah. So you talked a little bit about drivers of upside to the plan and I think on the cost side. Is it possible you run through the plan, you get some of those things coming in on the union side, and you end up with this 10% growth and flat headcount over the four-year period of time? And then a second question I'll just give to you upfront. What's the greatest sensitivity on OR, I guess, upside or doing better than you expect? Is it FOAs? Is it regulatory? Or what if the OR is really 55? How do you get hurt by that? Or why wouldn't you want that? Thank you.
Well, I'm not saying we wouldn't want it. I'm just trying to say that the driving force appears to be that where this organization is today, we have a much better opportunity to take advantage of growth at the top line to affect the bottom line. Now, it is kind of ironic that all this time I've been CEO, the one thing that y'all have talked to me about was, "Well, you don't have any growth opportunities. This is just a cost story. There's just no growth opportunities." Now, I bring some growth opportunities to you, and you say, "What about the cost?" So I'm about to get this figured out. It's a little late in my career. But to your question about the OR, help me a little bit so I want to be sure I'm addressing it correctly.
Yeah. I'm just saying, I guess if customers see an OR that looks at some point, maybe they say it's egregious at whatever level, 55 or 50 or whatever, is that a concern? Or is it the regulators see that, and they say that that's egregious? Or are there some risks to going too low?
No, there is. There clearly is. And I don't like to see announcements of some of the peers that say, "We're going to take this price up 17%." To some degree, turn that webcast off for a minute. Now, to some degree, we're victims of our success in Canada, both us and Canadian National. Because in spite of the fact that we tell a compelling story about X, people just see headlines and say, "Yeah, but they make all this money. Who cares?" So we have to be sensitive to that. And we have to be in a position to react, not to be a hog. I have a saying that says, "If you abuse authority, you lose it." And so it's not after what the market will bear.
It's a little longer-term issue that we certainly have a responsibility to the countries we operate in and to the shipping public and so forth that we keep that in some appropriate balance.
The first one was just on headcount. Could you potentially run with flat headcount?
Yeah. I think the plan, if you peeled it back right now, and you get to that page, says something like maybe potentially 1,000 coming out. Now, that's related to capital spend, mostly in the engineering side. Are we willing to spend money to make money? Absolutely. I say that hesitantly because then somebody will go out and write a report, and the headlines will be, "Harrison's going to add the headcount." What we're trying to do is a smart, right thing effectively for the bottom line. I don't see an increase in headcount at this point, given that I think as we have the growth, we will be successful with the hourly agreements. And if we are, then with the velocity. And that can take us to those numbers without adding. But if I'm wrong about that calculation a little bit, are we ready to add? Absolutely.
There's going to be a point in this company Peter can tell you about our demographics that we're and I'm probably the leader here. We're an older workforce. Okay? So there's going to have to be hiring. But my sense is right now, if you want to just look at this four-year plan with the potential of taking out what we have talked about, that it'll be relatively flat.
Hey, guys. Jason Seidl of Cowen. Getting back to crude by rail, a lot was discussed about this. I know Hunter, in the past, you haven't been sort of the biggest fan of crude. But I find it interesting that both the Canadian government and the U.S. government are approaching regulations separately, even though a lot of the planned movements are going to have to cross the border. So how are we going to come to an agreement where both sides feel that they're moving out with the same regulations and isn't going to provide problems for cross-border transportation for energy?
I could say a couple of things. And Hunter could add some emphasis to this. We're certainly making them aware of that. I'm advocating directly myself with the Minister of Transportation. We're giving them all the facts. I've got to have confidence that they're going to come to the right conclusion and the right decision because it's certainly a North American market. So we're highlighting all of those things. There's a lot of alignment. There's a couple of things that aren't aligned. And if it were to fall out that way with two different models, it would be very problematic.
But again, I'm going to be cautiously optimistic that cooler heads are going to prevail and through our advocacy and through working with these folks and educating policymakers that are making decisions that they're not necessarily equipped with railroad knowledge to be able to make, that we're going to come to a positive outcome for the industry.
This is, it's so political. People trying to outdo each other, somebody trying to get credit for what legislation, who was more aggressive here or there. What's going to happen with pipelines? Is Keystone going to be built? If I had made the odds a year ago, I'd have put it in one place today. I'd put it at another. I just think there's opportunity. I mean, the U.S. is by far Canada's largest trading partner. There needs to be more harmony at the border. I mean, that line, if you will, that could be more efficient for both of us, could be safer for both of us, and still could be, quote, "the politically correct thing to do." I just hope we'll get there.
It's just so bad that one unfortunate incident, okay, that involved a different set of circumstances that's being talked about is causing all the static that it's causing that I, at this point, see not adding a lot of value. Now, look, tank cars, I talked about the tank cars 25 years ago. They weren't like they should be, that they should have the head shield and the double shell and shelf couplers, whatever. Okay? See where we are today 25 years later? Sometimes it takes some dramatic event for people then to wake up and say, "Maybe we'll have to take a look at that." And we're still I mean, we got a lot of credit at CP because of the headlines in the Globe and Mail that we agreed they were dangerous. But where are we in the U.S. with this? We're still in committee.
Now they're saying seven years. Well, seven years, there might be different technologies. Who knows what's going to be in seven years? It takes to build them. So I don't know if you can see it. I get a little frustrated when I talk about those topics.
I'm Ken Hoexter from Merrill. First, let me just say thank you. It's refreshing for some of the clarity and answers and information you've given. So I appreciate that. But just to keep your frustration level high there then to talk about.
Thank you, Ken.
You've given us a lot on Ottawa and kind of your views in the grain before. But what about the STB hearings on revenue adequacy or open access? Can you just throw out thoughts on there? And I'll give you my two questions upfront. But Keith, they were talking before about building from 112-134 car lanes up to 8,000 ft trains. But that seems to be doing what they did before, which was build the sidings to the maximum of that day. So does that mean you then have to go in if you want to lengthen or if there are any advances, you have to then go in and lengthen everything again? Or are you adding additional capacity for that growth and what you can feasibly do?
Now, the 134 all ties to the optimal tonnage that the locomotives can pull. That's three locomotives. I can add another locomotive as long as I can add incremental cars to pay for that locomotive. We can grow. Our network's going to be able to handle it. There'd be no additional investment other than locomotive. It earns its keep, so to speak, on the train.
But you're building the sidings.
Yeah. Well, that's actually 134 cars. We're building 12,000 ft sidings. Yeah. So I mean, there's room for that train to grow. We could add another 20, 30 cars and not have a problem at all. I mean, I'm running 152-car coal trains today. I'm running 170-car potash trains. I'm going to be running 177-car potash trains. I'm running 13,000 ft intermodal trains. So we can accommodate the business as long as it's going to pay its way and we have the locomotive.
STB, help me there, Claire. Look, I don't have any trouble with open access. I know it scares some of you, but you shouldn't be scared. All that that principle or concept says that if you're not doing the job, somebody else ought to be able to come in to serve the customer. I don't have any problem with that. If somebody else so I'm saying open it up. If somebody else is going to come on my railroad and take business away from me because my costs are too high or I can't provide the service, shame on me. I do think that if we get to the point one day that I'm right about the M&A activity, I think that that will certainly come into play. Now, this revenue adequacy and the 180%, that's the craziest thing I've ever heard, okay, personally. Okay?
So I've said something about Washington. Let me just take a rip at Ottawa for a moment. Somebody asked me this morning in an interview, and they said, "Does this make a lot of sense to you, all the regulations about grain?" And I said, "Number one, the first thing that I wondered when I got to Canada was, why is it western grain and not eastern grain as far as " but in truth, in being serious, let me tell you about the legislation just for one moment, okay? And y'all can get your pencils ready, okay?
Webcast?
Turn it on loud and clear, okay? Here's a message coming. The so-called revenue cap is a revenue cap. It's not a rate cap. So it says we can only, after some bureaucrats do the calculation, we can only charge so much and collect so much money. Now, let me say it this way. Typical railroads overcharge during the year. And that's why if you're keen enough, if you watch some of the metrics, their first half of the year or crop season, they're a little more aggressive. And then when they get towards the end of the year, guess what happens? They say, "We're going to be over the cap." So guess what they do? We, railroads, give rebates. They give back to the shippers. Now, which shippers do you think gets it back? You think a small farmer gets anything back? No. Nothing.
That's why we got the problem in the prairies we got because they don't get anything back, but some large institutions get a lot back. And then when you do the calculations, what it effectively says is the small farmer is paying more than others for their freight. We're trying to be a friend of the farmer, and they won't listen to us. They keep punching back. Now, we have established a policy internally that in spite of what the law says, we're not going to do that. In my view, it's not ethical. It's wrong. Okay? And I don't care what they say. We're not going to do it. I don't need counsel to tell me whether it's legal or not. It's wrong. So that's my help today for Ottawa.
Thank you. Thanks to Chris Wetherbee from Citi. I just wanted to think of maybe a little bit shorter term in the next year or two. As you think about sort of overall industry and network congestion and capacity, as volumes start to reapproach 2006 peak levels, do you worry at all about sort of the interchange opportunities you have with your peers? Or is there enough of sort of control your own destiny built into the plan here that you don't have to worry about that as much? I just want to get a sense of other folks holding up there under the bargain.
Yeah. I would say it's always a concern. I mean, the way Chicago runs is the way the industry runs. And it's a network. And I can't tell you how many conversations I've had over the past six or seven months explaining how congested in Chicago affects my ability to move a potash train in Saskatchewan. It's all connected. So it's something you have to be aware of. It's something we're working very progressively and aggressively with our interchange partners. We're trying to design out all the traffic from Chicago that we can. To Hunter's point, we're trying to work with creating more capacity for the industry, which creates more capacity for us within the confines of Chicago and also offering to purchase. But there's no silver bullet. Absolutely no silver bullet. It's an age-old problem for the industry. And its volumes ramp up.
If you have a weather issue, if you have an event, if you have a mainline outage, and it's a prolonged outage, it's a very fragile place to operate. So it can have an impact on the company as well as the entire industry. So we all have a best interest to make it run better.
Yes. Benoit Poirier here from Desjardins. If we look at the stock price, it's been very good for the shareholders. But it hurt a little bit the OR through stock-based compensation. So you mentioned yesterday that you're becoming less of a fan. So I'm just wondering what could be the option. And I would assume that it's not part of the OR target by 2018.
Now, let me be sure that the answer's understood. It's not just because of the volatility in the stock price that I would recommend to the board and the compensation committee that we do something different. I think there was a lot in the paper about Coca-Cola and one of the activists. And he was not a big fan of options and so forth. And I think he made a lot of good points that I've been thinking about that we have been discussing internally that I'm not sure we hadn't passed a day where options are a little obsolete. Number one, and I know we can make them that way. Maybe we will. They're not performance-based, typically. We've had people with this organization that were with the organization for years when the options were underwater, and they could care less.
The company wasn't performing well, and they weren't very inspired. A new team of individuals came along with a group that was still there. They got engaged, and they fixed it. The stock went like this. Guess what? We sent huge checks to the non-performers that were at home. That doesn't fit well with me. So I think my recommendation's going to be, and what I'm looking at is, maybe setting options aside and maybe doing some performance-based PSUs, RSUs, something like that. At the same time, in fairness, it kind of prices you out of the market. I mean, if you take somebody that's doing X for you and there's a market out there that says, "This person is worth X in the market," and through some, they don't affect something affects the market.
Price of crude or whatever causes us to go way up or way down. All of a sudden, you look at their comp, and their comp is here because crude went up. I'm not sure any of us deserve that. At the same time, if something happens beyond our control, truly beyond our control, and we've performed and done our job, then I'm going to be the biggest advocate with the board fighting for the management team and others to say, "These people deserve compensation." It's just an opportunity to say, "I'm not sure we got it right. The world's changing on us. We've listened and heard some new ideas, and we're going to take them under advisement." Now, I can say to my team here, "I wouldn't run to the phone and start selling everything you got yet. But it's just something we're looking at.
Thank you. I'm Turan Quettawala from Scotiabank. My question's a little bit on the revenue side. If you look at the revenue pie here, and I think partly by design, you guys are getting a lot more balance between bulk and merchandise over the next four years. I'm trying to understand if also from a network perspective, is it a better balance from an east-west perspective? And does that have any implications from capital or anything of that sort? Thank you.
You hear me?
Yeah. I'll take that. Listen, the growth is in the west, essentially. So unfortunately, we don't have the same revenue generation growth opportunity in the east. Now, some of this crude, we're sending east, which is going to help us. But it's small compared to the big opportunity, which is centrally in Manitoba, Alberta, Saskatchewan, BC. So effectively, the western half of the network is where the growth is. And that's where the capital spend is. And that's where we're going to be making our money. And we're going to drive the velocity increases. Now, there's still going to be some investment east of Winnipeg because, again, some of this traffic is going that way. But it's small in comparison to what's going to be west of Winnipeg.
Yes, Jeff.
Thank you.
Wait a minute. Sorry. We got a microphone here.
Okay. Thanks. Allison Landry from Credit Suisse. Given the congestion issues in North America, do you think that this is potentially setting up for all of the Class Is to start to pursue hourly wages with the unions as opposed to mileage-based ones?
They've been pursued, and they don't want it, I think. I think it's fascinating. Maybe that's the term. They came to us. We originated the concept way back in the mid-1990s, early 1990s. But here at CP this year, the collective bargaining units from the U.S. approached us and said, "We'd like to do this." It's my understanding. I'm not involved in their collective bargaining negotiations or issues. We're not part of national. We do our own thing. They don't really want right now, the other Class I's, most of them, don't want the hourly agreement. And one of the reasons they don't want it is that our model provides job security. And I think there's some view on their part that they're overstaffed, and people are laid off. And they'd not want to call them back and have to give them some kind of guarantee.
And that's why we've tried to be very disciplined, matching headcount with demand because we knew or we felt like that if we ask people to give up work rules, which I call artificial job protection. I've never went to the table with a collective bargaining unit and said, "Keith, I want you to do this for me," okay? That works Bart out of a job. So we accepted that responsibility. You help us. You get rid of the work rules. We'll provide security, okay? And hopefully, both of us can take an advantage in the marketplace. So look, they've seen our model before. They've seen our OR before. And they hadn't followed it. So I don't think there's any reason to believe they're going to follow it today. They got their own agenda.
Thank you. Hi, Jeff Kauffman, Buckingham. Hunter, a question. You've mentioned consolidation a bunch of times.
I wish I hadn't, but.
Back in 1999, 2000, I think the whole industry wanted to go transcon back then. But you had service issues relating to the mergers. The Surface Transportation Board at the time said, "Look, no more Class I mergers. We'll carve out KSU, but no more big-to-big mergers." It's been 14, 15 years since that moratorium was put in place. But number one, the rules, I don't think, have been revoked. So would there be a challenge to one-to-Class I consolidation? And when you talk about consolidation being good and solving these issues, are you talking more regionally around choke points, or are you talking one-to-Class I?
No, I'm talking one-to-Class I. If I'm looking at a citizen or a member of the rail industry, and I look at the law, the STB, the requirements, and effectively I hope everybody understands. I'm talking end-to-end. I'm not talking about the west gets together, the east gets together. But end-to-end mergers, which would provide better service, certainly have that potential and meet the requirements of preserving competition to the issue, the question earlier about open access. And it would have a switching model that says, "In this gateway, if there's the two carriers and if somebody only has that choice and one doesn't behave and do right, the other one can come in, and you keep all that balance." I think it's a great response to a need that we have in this country. I mean, can you imagine no other railroad's going to be built?
I don't think, okay? Now, there's a point, and we're approaching that point right now in Chicago during winter when you can't handle all the business. Now, what are we going to do in 10 years? I don't want to have a little foresight here and think about that, God forbid. But what's going to be the answer at some point in time? Do we wait to get in solid gridlock and then address it? So it's almost one of these cases. It just makes too much sense, and it's too rational for anybody to want to do it. Now, I would take a little exception to your characterization to a degree. BN and CN tried to merge. I happened to be part of that, okay? And the law didn't change. There was a moratorium written based on the fact that my friends in the industry, okay, ambushed us.
I'm talking ambushed. In The Wall Street Journal, the back page said, "It's going to shut the country down," and so forth. And effectively—and y'all remember who the chiefs were then—they went to the STB and said, "Look, under the law, this is fine. No problem with it. But you're going to let these two powerhouses merge. And they're going to be great. But we're not ready to do that. And you're going to force us to merge. And so it's going to be bad for us. So do something." And the chairperson of the Surface Transportation Board declared a moratorium on mergers for two years. And effectively, with that two-year moratorium that you couldn't merge and then the period to review it and get approval, you're looking at four years, dead money. And so we closed shop.
Now, it's awful ironic that that young lady who is extremely bright, okay, and I have a great deal of respect for, happens to sit on the CP board today, okay? And we, once in a while, visit about that occasion, okay?
Brandon Oglenski from Barclays. Well, please don't quote me in two or three years on your board here with my name whited out. You have to support your guys' stock.
Let's kind of support your guys.
So far. But I do want to just bring an element of risk here. Are we running the risk that we're looking at a 2014 that's just seen phenomenal growth across this industry, across North America, for CP and for others, and in an industry that hasn't seen a lot of growth in the last couple of decades? Are we just discounting too good of an environment, looking at the velocity potential of the network, assuming that we can take share from the supply chains of our customers, maybe not so much from the other rails? And is it potentially too good to be true to consider that you can double the earnings base if the growth doesn't sustain itself?
Well, Chris, we obviously don't think so. I mean, has that been thought about? Obviously. But I would suggest to you that 2014 wasn't a real good start. I mean, I wish you'd have been in Calgary with us in March with snow over the top of the locomotive. And we'd have talked about all the velocity and how great 2014 is. Now, we've recovered from that. We bounced back, which gave me even more confidence of what this organization could do. We learned more about our network. In hard times, you learn more. But all that's been taken into account, this is not a case that we're going to take everything away from some other railroad. Are we going to get some market share off the highway? Are we hopefully going to see organic growth? Are we going to continue our efficient manner of operation?
All this has been taken into play. Look, I don't want to go riding off here, and they say, "That last plan, he was all right till then. Then he went nutty, and they didn't recognize the old man had got so feeble. And I'd like to have it a little more positive." And so we've given this a lot of time and thought with some very smart, capable railroaders. We're learning. Our relationships with customers in Canada, some of us, are improving significantly. In fact, one of my friends in the industry the other day, we had a meeting with that sector and some of the top CEOs. And we had a little disagreement about volumes. And we made a wager. And I've got my $50. And I've got a letter. And I'm going to frame it and put it on the wall.
I gained a little respect, at least from that knowledge base. So no, I think this look, the worst question you could ask me is, "What's the probability this makes it? 90 or—" I don't know. I just think that it's very realistic. We have the opportunity. We have the resources. We got the cash, which is a nice place to be in. I think we've taken a respected, collectively, leadership role. I think people listen to us. And I'm just going to be extremely disappointed if any of your headlines are right.
One final question.
Yeah, just the final one here. It's Steve at Raymond James. You suggested earlier that the intrinsic value for the stock is higher. And certainly, the plans to buy back large amounts of stock going forward suggest it's higher. Where is that value in your mind?
You want to mark-to-market there, Bart?
That manner yours.
Well, I can try that. Higher. It's one area we don't provide guidance on. But you've got your model. I saw a note come out today. And I think you're headed in the right direction. Okay, Hunter, over to you. I think that's it.
You have one?
Oh, you?
You can close it out, Scott. Yes.
Thank you. Just one last one. So Hunter, you talked about maybe the revenue growth being a little bit more back-end loaded. I'm wondering if you think the OR improvement is going to be a little bit more front-end loaded, meaning, "Do we have one more year or another year or two of kind of step function improvements towards that low 60s, 50 kind of level, and then it kind of slows off? Or does it start to slow next year because of pension or something?
No, no. I think that, Scott, that to your point, we will continue to take the couple of steps in the plan that we had talked about but that we're ahead of and that we will hit those type of numbers that were in the plan early on. And at the same time, this effort through the growth will be taking place. And then we're going to go through some transitionary period there. We'll get a little squeeze from the customers and maybe a big squeeze. And we'll work through that. And then I think that start to hit late 2016, 2017, you really start to see this starting to hit on all cylinders. And that's when that's now look, y'all know better than I. These things are hard to predict. But I mean, we've been pretty good at that so far.
And that's kind of how we see it playing out. So if I'm the wrap-up here, let me, first of all, thank all of you for taking time out to spend some time with us. It's been enjoyable for all the team. We always get some stimulating questions and makes us think and review what we're doing. This was not just something that was thrown together, okay? We don't have a schedule for analyst meetings that says, "We got it every year and a half or every two years," or what. We say that and we've always tried to do this. When we've got something to say, we've got something to talk about, and we got a message, that's when we come to you and say, "Let's sit down because we need to spend more time on this.
This is important." And it causes us to then reflect even further on the opportunities and the potential this organization has. And we've talked about this. And I won't bore you too much. But I have been overwhelmed with the performance of this group, with the way this came together, with the run we've been on. As optimistic as I am, even I could not have predicted where we are today and the kind of performance that we have produced. Having said that, though, I would only suggest that this maybe should give you a little more confidence in what we're saying going forward of the ability to produce results in this organization's track record. This is a solid plan. And the key and the bottom line is, "How do we execute it?" Okay? And I really think this organization has grown in that respect.
And I think that I think this is very doable. I have no idea what the market reaction ought to be or should be or what kind of multiple we ought to be at. That's you professionals' job. And as long as it's up, I'm with you, okay? Support you fully, okay? But I am really, in one respect, the clock is winding down for me. But in another respect, I'm as excited as I've ever been in the industry to see this playing through, see this team accomplish what they can do, to hand the keys over to Keith and his able staff here that you've met. And I would only ask you to reflect on this, a couple of things you ought to think about.
What is your answer if somebody said, "Why were they successful when all the pundits said they weren't?" I think you should reflect on that. I think you should reflect. A lot of you that got very powerful models, mine is on the back of an envelope. And it's worked better than others that have got all kind of horsepower. But you should reflect and say, "They said this. We said, 'No, it can't be done.' And we were wrong. Are we going to be wrong again?" Now, just because we were right one time doesn't make we've got to produce results and execute. But just think about something. If we do it again, if it's the fourth or fifth or sixth time, one day, some of you are going to say, "I got it. I understand. This is different," okay?
And then you'll start to understand a little bit that'll be helpful, I think, to you, what creates differences in railroads and organizations and businesses. And that'll be powerful if you could work that into your model. Now, that's very difficult, okay? I know there's not a lot of motion in those PF keys. And that's the problem with them, okay? But I look forward to each quarter. We'll talk a little more about where we stand. And I stand on my record and this team's record. And I hope you will join me in that. And maybe about two years from now, right before I walk out, the ones of you that write bad reports tomorrow are going to make the slides again, okay? So thanks. As usual, always on script, Hunter. Thank you. So thank you for joining us. That'll be the end of our.