Round out the transportation track at the 14th Annual Laguna Conference by welcoming back onstage CPKC with President and CEO Keith Creel and Vice President of Capital Markets, Tax, and Treasury, Chris de Bruyn. Gentlemen, thank you so much for coming back to Laguna.
Always a pleasure.
Keith, so much going on from the cycle to M&A to regulations and obviously your plate remains pretty full. Wherever you want to start off, again, just give us a sense of where you're spending your time today, what you're focused on, and what you think the top priorities are for the company.
Okay. Thanks again for having us up. It's always a pleasure to talk about our story. Thinking about the year, the way it's playing out, a lot of things I could not have predicted. Obviously, there's no shortage of challenges, but the things that we could, we put the pin in at the beginning of the year, guiding to mid-single- digit RTM growth, which will allow us to produce a low double-digit earnings [ figure]. In spite of all the challenges, as this thing has played out, I am very pleased with where we are. We came out of the first half in a momentum operating strength as well as commercial strength in the second half. RTMs were about 4% year- to- date. Quarter- to- date, we are knocking on 7%, so we continued to gain a little bit of momentum. Operationally, the railroad is running extremely well.
Continued growth in strength in grain, strength in intermodal, moderating headwinds in some of our coal challenges. That 4% I talked about, if not for coal, if it were normalized, that is 6% RTM growth. Again, as those two things start to moderate for us, demand continues to be there. We are clearly in line to deliver on the guidance that we have given for the year. More importantly, as we continue to build this network out, we are well-positioned to continue to lead the industry in growth. We talked about a lot of noise. We have integrated a railroad that I never would have predicted the freight recession over the last three and a half years.
As that begins to moderate you get to a more normal environment, whatever normal looks like, and you get beyond some of these, I call them the trade tribulations, and get to more certainty when it comes to tariffs and trade between the three countries. The things that are occurring in Canada as a result of those trade tribulations that I think continues to strengthen our network as well as the North American economy overall. It leads to a good place as we go forward.
Got it. Great setup there. Maybe a couple follow-ups on that. Do you and your customers know what normal looks like? Maybe do you have to move the goalpost a little bit on what normal looks like? When do you think they can finally maybe effectively get off their hands and say, "Hey, we need to create economic activity here," or, "We need to build inventory here," versus waiting for headlines to allow?
Yeah, I don't know what normal is anymore. I think you control what you can control. The customers themselves, what we've seen, certainly when you have volatility and unpredictability, it's going to minimize or at least lessen the full benefit of certainty and the investment that follows certainty. I think once you get to USMCA, CUSMA, whatever you want to call it, whatever acronym you have, once that gets settled. I think that leads to a better outcome. But in spite of that, you continue to have significant investment in Mexico. You continue to have significant investment in the United States from all the manufacturing and the data centers are being developed, all those mechanisms that are moving. So investment's occurring, trade is flowing. It's going to be accretive once it gets settled. But the biggest impact, especially for us, I think has already been felt.
The things that are being talked about and the potential outcomes I think are favorable. I think some of what we've lost in metals, some we lost in aluminum, some of the headwinds even in automotive, I think once it gets settled, those become tailwinds. You may not get it all back. There's going to be some rebalancing. More shift is going to happen in the United States, perhaps on the manufacturing side. But I still think you have trade and trade flowing between these three nations, which we uniquely connect in a very positive way.
Got it. Maybe just to follow up on the point of USMCA. It feels like there is renewed momentum there, some more optimism that we may get a lasting resolution fairly soon. Obviously, you guys are pretty plugged in on that. Do you have any intel there? What are your views on that? Second, you sort of alluded to it in your comments, but does it feel like there is some pent-up demand there that can be unleashed when that's done?
Well, as far as resolution, Steve, I am not certain. I think we are in a better place with Mexico than Canada. I also think that Prime Minister Carney and President Trump at the end know and will do what is best for the United States, what is best for Canada. That is a strong trading relationship between the two countries. The thing that I am very encouraged about, though, short- term, is what Canada is doing to diversify itself to a point. They are always going to be connected to the United States. It is the largest single end market. But what this crisis has created in Canada, I perhaps never thought I would see maybe in my life, much less in my leadership legacy at the company.
To have a country now that is entertaining tax reform, the things that Prime Minister tabled this week that is going to be tabled in legislation that with his majority government, certainly the need is there and the political strength is there to get it passed is going to take Canada from being a laggard in investment to a leader, a world leader. So it is going to attract additional capital. The capital is going to end up flowing through the build-out, through the build that is transporting goods through the rail network.
We are going to benefit from that. When it comes to labor reform, that is another area that people do not really understand. If you think about it, the unpredictability, the unreliability, kind of the damage that has been done to Canada's reputation as a reliable trading partner is undeniable. When it comes to the two railroads being on strike a couple years ago, when it comes to the airlines being on strike, when it comes to the ports being on strike, I do not care what market you get to, if you cannot get the product to market or get the people moved from market to market, it impacts your ability to be able to succeed.
Now you've got a government that understands that labor reform is important. The way it's working, quite frankly, labor relations and the ability to negotiate good agreements for labor, good agreements for company, because of the way the process works today, it's broken in large part, at least with some of the most significant major unions the railroads behalf.
Right.
The men and women that actually move the product from point A to point B. Dysfunctional is probably being generous. If these changes occur, the labor reform occurs, and you get to a place when all negotiations have been exhausted, and as opposed to the pain coming before the solution, which is binding arbitration, the government has an ability to bind the parties to arbitration. You kind of get to where you would've started anyway. That's going to get us to a place where, quite frankly, that I think will allow negotiations long-term, not short-term, but long-term. That's an art that's kind of been lost in Canada, the art of negotiation. The labor leaders come to the table with a list of demands that if you were to say yes, you'd be bankrupt.
You'd have no business. They know that. They won't admit it, but they know it as well as I know it. You have to say no. To put on this front that you are negotiating. You are not negotiating. You are just creating an impasse that ultimately the net sum is everybody loses. The employees lose, the country loses, the customers lose. That is not a positive outcome. This labor reform with investment reform, and then the other piece, the final piece is investment itself. What the government is doing to invest to harden the infrastructure, the port investments, the rail investments, to be able to get this resource-rich nation to market.
Again, the railroad is going to play a part in that. In the end, I think what has happened, this crisis has created a country that is woken up, and they are becoming a stronger Canada. And a stronger Canada is not only good for Canada, it is good for all three nations. And it is uniquely good for CPKC because we connect all three nations.
Got it. It sounds like a really strong foundation there. Just to build on that and connect with some of the remarks you made earlier about potentially some manufacturing kind of moving to the U.S. Obviously, still lots of moving parts in so many different ways, but as we head towards more of a multipolar world, I think obviously a lot of focus on nearshoring in the last several years, not as much of a theme this year at the conference as it has been the last couple of years. But do you have a sense of where that is settling out, and how happy are you with your network and what part it will play in whatever supply chains will look like going forward?
Well, listen, it is still in flux, but the major announcements that have been made public, if I look at my network, it does not hurt the network, it helps the network. There are some of the OEMs that might shift production, perhaps from Mexico to the United States. They have announced building another facility, but it is production coming out of a facility that I do not serve. It is served by my competitor in Mexico. The one I serve actually is going to increase production. Net-net, I think it is positive. It's nothing that's fundamentally going to hurt our network itself. So again, get back to where I started.
The parts, the engines, the finished vehicles, I think these negotiations might get to countries of origins, those percentages being shifted, but it still leads to products and vehicles being manufactured and produced more so, not less so in Mexico, Canada, and the U.S. Again, when you're the network that connects all three, however it shakes out, we're going to be a player in it. The strength of our franchise is undeniable. The reliability we've created, the piece that's coming online now that hasn't in the past because of the network is now it's not just rail checks, it's also water to rail. It's taking it out to sea and putting it on the rail. So again, we uniquely enable and benefit from that.
Got it. I want to quickly touch on grain here, because obviously it's a huge profit engine for you guys, volume engine for you guys. I feel like it doesn't get as much air time because obviously nobody can predict grain crop. But it feels like this has been a gift that's been giving for you guys for a long time. Obviously, record grain crop this year. There's some concern about it'll be a tough comp next year, kind of, we'll see what happens. But what are some of the levers you can pull on the grain side that, again, continue to deliver the profitability there, continue to deliver yields there, irrespective of what the crop does?
You know what? That's a very insightful point because it's kind of the story is today at Pacific, we're a grain railroad. Before we lived and died by the harvest. As we've expanded our network, we diversified the book of business and we've created an ability to create some resiliency. But along the way, we're also still benefiting from being that one-trick pony. If I go back to 2013, 2014, the winter and the crop and the meltdown and regulated grain and the government forcing us to haul grain in Canada, that created innovation. It created an expansion, especially on our network of what was a 6,000-foot feeder network to now we run big, long trains, 8,500 feet. Most of our grain elevators, probably the lion's share, are all converted now.
The ability to turn those assets, the capacity that was created is huge. The export capacity that's been built at the West Coast with G3 and everything that happened on the North Shore and the additional expansion on the South Shore, that's all realizing its full benefit now. Now you couple into the network now where we can take Canadian product into Mexico. If you have a drought in Canada, you got product coming from our U.S. Midwest. It is feedstock that is going into Canada. There are levers that we can pull today because of the diverse book of business that never would have been possible without our merger.
Whether it is corn going to Mexico, whether it is now soybeans again going to China, whether it is grain export out of Canada or grain export out of Canada, wheat into Mexico, it is a very diverse book of business that allows us to continue to pull the levers. When we have the bumper crops, i t is really, really good times. When the bad times come and you have a drought, the lows aren't near as low. There's a resiliency built in the network because of the merger.
That's weird. No, exactly where my follow-up question was on your merger here. You said at the top of your comments that no one envisioned a three-year downturn when you did the merger. I think that's absolutely true. But given everything that's happened macro-wise, industry-wise, idiosyncratically, obviously you guys put the operations together pretty quickly and delivered the cost synergies. But if you sit here and look back at the merger today, what are the things that you really like, and what are the things that may have gone differently than you thought?
Yeah. So number one, we are ahead of where we thought we would be in spite of the recession, in spite of these puts and takes and challenges. The things that have not manifested yet that I think, not that they will not, they just will not now. Crude oil, that was a big piece for us. That was part of our expanding upon the DRU and the business that we do out of Canada into Mexico from in the U.S. That has not come. But what has come is transborder trade. Trade between the United States and Mexico really, really has surprised us. This crisis has accelerated. We were doing, I think when we put the railroad together, maybe CAD 100 million. We are over CAD 600 million and we are going to CAD 1 billion.
There is more demand, not less demand. So that is even in spite of all the trade situation. Again, that is really kind of exceeded our expectations. We are going to exit this year about CAD 1.5 billion of revenue synergies. But what is most important, what is most exciting is when you get a normalized economy, and as you go forward and look forward, as you build this out, this railroad is an infant. We are three and a half years old. We're 42 months old. A forever story. You don't build this thing out overnight. As regulations change, and they're changing, as infrastructure's invested, and it's being invested, you build out the Americolds, you build out SMX, you build out continued MMX, transborder trade between Canada and the U.S.
You get to a place where if we're not doing our jobs, if we're not a couple points better than the industry is because of the network that we've built out and we're creating and we're building out, we don't deserve to be in the positions. That is what I tell my sales team. At the end of the day, if the industry is growing at 3% and you are not doing 5%, you need to go work somewhere else. Go grow at 3%, you are not going to be employed with this railroad because we are going to grow at 5%.
Right. Got it. Just on Mexico itself, the Canada-Mexico land bridge revenue has, to your point, grown from CAD 100 to CAD 600 here. Can you just unpack that opportunity a little bit more? Is it existing customers? Is it new customers? What does that pipeline look like?
It is both.
Okay.
It is further deeper penetration in our existing marketplaces. It is continued growth in intermodal, continued growth in grain, this cold storage piece. We have expanded now the cold storage Americold facility, which was three or four years into development. Changing the regulations to be able to make the border transparent. It was all based on proteins going south and vegetables coming north. Now we have just literally got the regulations changed. We are going to start taking pepperoni, popcorn, dog food, dry goods, not just cold storage goods, using that same transload facility that is located in our facility in Kansas City.
Additional facilities being built in Mexico that have not been announced yet that are deep into the development phase. Something close to Toluca, Mexico City market. Going south of Monterrey. Again, all that is still in early stages of being built out and developed.
Got it. I want to switch gears a little bit from talking about the transaction that did happen to the transaction that has been proposed. Obviously, the STB has taken the transaction out of abeyance and has moved to the next stage here. Obviously, you have been very vocal with your thoughts on this the entire time. Would love your latest views on where we are right now and what do you think needs to happen from here.
I think I've actually been a bit restrained in my true thoughts.
It's just us here in the room.
Yeah.
You can feel free to be unrestrained. Tell us what you really think.
All right. Well, I know Jim's listening. So number one, I'm going to start with some of his moves. I think he maybe needs a little bit of love. I think what UP and CN did together, good on UP, not so good on CN. When it comes to standalone. When it comes to the transaction overall, as this thing plays its way out, I feel even more stronger today than I did a month ago or two months ago or three months ago. I do not care how good the story is, no pun intended, it does not trump bad facts. As the facts get known and understood, and they are becoming known and understood, and more people are coming out and speaking against, there will be some force, but it is the heavy, it is the preponderance of the bad facts that are represented by the against.
We are talking about a deal that the industrial logic makes sense, and there is certain benefits when it comes to single line service. I am a proponent of single line service. It makes sense, but it is at what cost? Unfortunately for the proponents, UP and Norfolk Southern, the regulations require those costs to be measured. Those new regulations say that if the goods do not outweigh the bads, and I am saying in layman's terms, thou shall not approve the merger. If it does get approved, it is going to come with heavy concessions to try to offset the competitive harm that it creates. I would say and suggest, as these facts get developed, they clearly say that the harms are undeniable. The risks are real.
Too big to fail, the consolidation, the market power, all that that gets created if this deal gets approved. That is just step one, that is not the additional consolidation that would have to occur after. They never can solve for that in this process. I say, and I believe it leads to a no. But if I'm wrong, the concessions are going to be so heavy that quite frankly, if I were the proponents, I'd be concerned that I'm giving away what I think I'm getting. Much like what CN's done. That deal they did with UP relative to Chicago, to me, and I was part of the team that fought for that strategic advantage of decoupling your connectivity in Chicago and creating an interstate around, so that when it melts down, you don't melt down, too. They just put it in play.
They just gave away an asset, an asset to an asset that quite frankly, UP's network just got stronger, CN's just got weaker. As a result, because it's in Chicago, when Chicago melts down, we all suffer.
Right. A couple of follow-ups here. You sort of alluded to this, but obviously they have made some concessions so far with the CN agreement and a few other announcements as well. How far do you think that goes?
Relative to?
Relative to what you would expect in terms of concessions.
Again, I don't think there's enough concessions to offset the harms. I think when it comes to their merger case, I think it's dilutive to their case because what they've done is said that they haven't exhausted all opportunities to exhaust interline agreements. That's, guess what? Even if Jim doesn't like it or UP doesn't like it, that's what the regulations require. I think that is important. Much like some of the comments that have been made that another merger or consolidation shouldn't worry the STB. Well, guess what? The law says it has to. You can't just approve one and disapprove the other. You have to take all that into account because you've got to a place where an industry that, three decades ago was 30 railroads, now we're living in a world, there's six.
If this gets approved, it's a path to two. I just don't think the United States, and again, I'll talk in airline terms because Jim likes to speak airline terms. If I go to Chicago and there's only two airlines, and I'm there in the middle of winter, and I lived there and I've been there a lot and I've flown through there a lot. I'm sure you have, too. It's kind of scary to think that you've got two airlines. You don't have Midway Airport at all. We're all going to go through O'Hare, and the nation's going to live and die by how that works in the middle of winter. That's a scary reality that it is too big to fail, and I think that this regulatory body understands that.
There's your truth, UP's truth, my truth, and the truth, and this regulatory body's going to make their decision based on the truth. I don't think the truth ever is going to enable a yes to that merger.
Understood. Very clear. Thank you for your thoughts. Again, maybe just one point, you brought up CN, one of the parts of the concession was kind of giving them access to Kansas City and maybe a direct line. Oh, no. Once it's done, a direct line into Mexico as well. Thoughts on that and how maybe that potentially influences your commercial strategy?
Well, commercially, let's separate those two, bifurcate them. So one is in the deal, one's not in the deal. So what CN has done, and what UP has allowed CN to do, is enhance competition perhaps, or options, competitive options for Canadian shippers and Mexican shippers. I do not think the STB cares about that.
Sure. Yep.
At all. They have helped Canada, they have helped Mexico. It is good to see that Jim has not forgotten his Canadian roots. That said, when it comes to competitive tension for us, we are not afraid of competition. We are a single line move. They are a multi-line move. I do not care how you do it, change it, slice it up, it is still a three-line move. If we do our job, our best day versus their best day, it is two different value propositions. That is out of Eastern Canada. Western Canada, we are such advantage from a route mile standpoint, it is not going to come to play at all because to get to Mexico by way of a CN origin, you got to go to Chicago versus our route is going to go right down the west side of the Mississippi River.
As a crow flies, I am not flying to Chicago to get to Mexico. I am going to go direct. I am not going to go change planes in Chicago. Again, from a competitive standpoint, good on the Canadian shippers that might be served by CN that don't have the option today. Good for the Mexican shipper. It's indifferent for the U.S. shipper. I would suggest that you're sending traffic over perhaps an Amtrak route. That they may not be so happy about, or their trains get delayed. They may not like it. But does it change commercial dynamics in Canada for us? No. Not in the least bit.
Got it. Last question on this topic. I think you said that CPKC has never been closer to BNSF and CSX. I don't want to sound like TMZ, but exactly how close are you? And also, I think, are the benefits there of that closeness something that need to be achieved through a transaction, or can it be done through an agreement? Does it need a merger or not?
Yeah, there's a lot that can be done without an agreement. I'll start there. Because we don't want a merger. None of the parties want a merger. It's not a best outcome. But if the merger happens, when I say we're close, as you work through these processes and these concerns and these coalitions, you bring your teams together. They communicate in a way they never communicated, your sales and marketing team, Tom Williams and his team, and John and our team, they're talking more than they've ever talked. Not talking as much as we talk with CSX because we've already announced some things with CSX, but we're not done. If you think about this and you try to unwind decades and decades of marketing relationships and what CSX might originate today and interchange to UP, which tomorrow would get unseated, so to speak.
UP would probably rather do business for themselves as they had with CSX in order to make it compete well when that happens, and if it happens. Then CSX is going to be more motivated to work with us for access, perhaps into Mexico. Today, they are not going to do that because they still have an existing commercial relationship with UP. They are not going to get ahead of themselves. They would be cutting their nose off to spite their face. So pro forma, if it happens, short of a merger, there is going to be immediate things that we can do that are going to put products in the marketplace that will better compete head-to-head with a pro forma UP. But again, that pales in comparison.
You cannot let a giant like that be created and compete against, yet in your best way to realize your best potential as a standalone entity. So additional consolidation is going to happen if it gets approved. It is not if, it is when. When it happens, if they get approved, our network is unique. We are the only railroad that will ever connect all three nations, single line service. We have a very strong value proposition to bring to the table. Maybe I'm a bit biased, but I think I've got the best team in the industry. It's a deep bench with a great network. I think that puts us in a place that if those discussions, when and if they happen, we'll be able to have a voice at the table, and I think it's going to matter.
All right. We'll see what happens in the next couple of years. Maybe we can switch gears a little bit. Obviously, we spent a lot of time talking about the long-term and strategic focus. Maybe we can talk a little bit about nearer term trends. Anything in particular to look out for in the 2Q to 3Q walk in terms of noisy items? Obviously, you have the labor disruption.
Yeah.
We have CAD 6 diesel, kind of anything to keep in mind?
Yeah, I think the only two things that are kind of headwinds for us, immediate things, fuel price, like everyone else, it's escalated so quickly, so fast. It'll be a bit of a headwind to the quarter, but will correct itself with our recovery mechanisms for the fourth quarter. The other piece is [ECP]. You don't see it necessarily in the numbers as much because you see car loads up. That's why I've always said car loads are not your best proxy, RTMs. You get paid by RTMs. RTMs we're seeing because of the war, specifically in [ECP], plastics that would be otherwise going to a market in Mexico that are being short Hauled going to European markets. Except those two, everything else is right in front of us as we expected.
Got it. On the labor front?
On the labor front, I am more encouraged than less. We had a strike with the IBEW. For the employees' sake, I hate that we had it. It does not make a lot of sense. They have agreed to binding arbitration, which we offered before they went out for three months. The way I see it as a human being, they lost three months of wages. I interacted and talked to these people. Our employees are family members. So I think it is a shame that it had to happen, but it is resolved. We are going to get to an arbitrated settlement. I do not expect it is going to look any different than the pattern that has already been set by the same arbitrator that arbitrated our disagreement with the Teamsters. I wish we would have gotten there in the beginning.
But again, I will go back to where I started. I am super encouraged by what might come out of labor reform in Canada. Because I think it leads to a place where the parties can actually negotiate an agreement that's good for the employee, good for the customer, good for the company. That's a win-win. This creates a path to do that. When it comes to the balance of our network, the U.S., we're in a good place. We're about to announce a deal with one of our major running trade unions that will go out for ratification soon, probably next week. Other than that, we've got our integration. We've consolidated to one agreement on the legacy KCS network south of Pittsburg.
It's called the Mid-South Agreement. It's an hourly deal, kind of short line like. It gives us flexibilities, but most importantly, gives us one consistent agreement as opposed to four agreements, which brings complexity and cost, lack of service and reliability, all those things. Death by a thousand cuts, we're beyond that. From a labor standpoint, over the entire entity of our network, we are in a good place.
Got it. Just want to follow- up on fuel, maybe for you, Chris, just remind us the mechanism here. I think you have the quickest pass through of any of your peers. Just talk to us about the timing of that and how the mechanism works, OR and EPS.
Yeah, that is just right, Ravi. 60% of our fuel surcharges program is on a one-month lag. Our [components is on a two-month lag, which is more the industry standard. Our fuel lag will be catching up the quickest in the industry. Fuel prices will be an OI tailwind, but with the run up in September, we will have a little bit of a headwind from some negative lag that Keith was alluding to.
Understood. Any questions from the audience? Nothing?
Hi, team. Just wondering, as the major merger related investment cycle starts to wind down, how we should be thinking about the potential step up in free cash flows and shareholder returns over the next few years and just the capital strategy.
Yeah. Chris, you're the orchestrator of that one.
Thank you.
I'll let you know if you get it right.
Sounds good. So thank you for the question. You've seen capital guidance this year. We took CapEx down about 15%, we'll come in around that CAD 2.6 billion level. We do expect that CAD 2.6 billion-CAD 2.8 billion level to be sustainable for the next several years. We've invested a lot in the network through the merger process between the bridge at Laredo, redesigning our Chicago terminal, all the CTC and sidings that we've put in. So you're seeing that free cash flow conversion upcycle, and we think that's sustainable for the next several years. We don't believe in hoarding cash on the balance sheet, so first call on capital is investing in the business, and once that's satisfied, we'll look to return cash through a mix of share buybacks and dividends.
Any other questions?
Keith, I know you consider CP to be a technology leader in the space, everything from autonomy to hybrid locomotives and such. Obviously, a lot going on, a lot on your plate with strategic things and macro, but can you just talk about some of the latest tech initiatives you guys have at CP and what you're excited about?
Well, listen, when it comes to technology, I don't believe in being on the bleeding edge of technology. I don't like to burn capital just to burn capital. But I do believe we're leaders when it comes to implementing and operationalizing technology. We have focused on technology to run the railway safer and more efficiently. And when it runs safer and more efficiently, assets turn faster, cost are less, sweat the assets. It just fits our mantra and our model. The things that we're trying to do, we've done some very innovative things in Canada where we've eliminated regulatory inspections through the use of our portals, through the use of cold wheel technology to test the braking systems on the trains. We're trying to bring that to the United States.
We're working closely with the FRA. We're working to try to get a pilot to do that, which I think is going to give us a stepped improvement in productivity, efficiency, and safety. We're not there yet. They're slower than I'd like them to be. But we do have a very good relationship, and we're going to continue to work on that. The other area of technology that I'm excited about that we're sticking our toe in the water, and again, think about bleeding edge. When it comes to AI, we have implemented AI in our algorithms and safety in our back shop, in our customer service center. We were doing bots and some of those things, which is way above my understanding. I don't know, six, seven years ago.
We've converted headcount. I understand about converting headcount. But we've created a team inside the company, IT. I'm on it. It's an AI steering committee, for the lack of a better term. We have started to apply AI to something as simple as all of our contracts. Think about the book of business, three nations, all the vendors, looking at the contracts that we negotiated and signed, creating AI agents that go through and make sure that we're really getting the benefit of those contracts. The vendors are charging us what they should be charging. There is leakage in all that. There are monies that we are going to bring to the table that we are implementing. We are also doing some additional things on safety when it comes to track reliability, locomotive reliability.
Those are the two key areas. That is kind of it. We are going to work through this thing. We are going to evolve it. The Board is always asking. I am like, "I have learned enough about AI to know about tokens and how much tokens cost and what model you use matters. We are not going at warp speed. We are going at steady speed. We are not throttle 8, which I am a throttle 8 guy. They've got to prove the test. Prove the concept. Once you do, we implement fast. That's kind of the approach that we're taking.
Got it. Maybe not directly related to you, but are you keeping your eye on autonomous trucking at all and kind of how you'll see about the timeframe, but when that happens, how that might potentially influence, impact rails?
Yeah, I think it's not if, it's when. Eventually, it's going to happen. I don't think it's full scale yet. I think we've got to be aware. I think they could become partners, perhaps. First mile, last mile stuff is kind of an opportunity for us. I think the other natural barrier for full penetration for us is the border points themselves. A lot of our trade flows, U.S., Canada, Mexico, the United States. I don't think you're going to AI and automate the border. As long as that is there, I think we'll be the least impacted, but eventually, it's going to impact us, so we have to stay aware of it.
Got it. So Keith, bring us home here. Obviously, you guys have had the best earnings CAGR of any of your peers by some distance since the merger. Talk to us about what the market has not yet seen, what the market underappreciates, and kind of what the opportunity is, hopefully when the upcycle kicks in.
Yeah. I think the biggest underappreciation is we're three and a half years into this. We haven't built it all out. We're unique. We have a land capability that nobody else does, and we've done it in spite of the economy. If you put the two together, you put a little tailwind to that. The 2%-3% that we've missed because the economy hasn't given it to us, you lay that on top of our organic growth or synergy growth, whatever you want to call it, are coming together. We're three and a half years old. This is built forever. You're going to see us doing, again, we're doing our jobs. We're going to be a couple of points ahead of the industry. We're doing really good at our jobs. It'd be better than that. The economy will help us get there.
You're going to see continued discipline in the way we run the railroad. Strong operating performance. You put those two together, it's going to drive better than average earnings growth and free cash flow generation. Those two together, pretty compelling value creators.
Great. Sounds exciting. Keith, Chris, thanks so much for being here.
Thank you.
Thanks so much.