All right. Good morning. Thank you all for joining us here on day two of the transports track of the JPMorgan Industrial Conference. I'm Brian Ossenbeck, I cover the group for the bank. Very happy to kick off day two here with CSX and CFO Sean Pelkey. We also have Matthew Korn in the audience from IR. Sean's got some slides. They should be available online. You can watch them on the webcast. Let me just turn it over to him, and then we'll get into Q&A. If you have questions in the room, feel free to raise your hand, and we will get you a mic. If you can't get my attention, just start waving and we'll get it to you.
'Cause there's certainly a lot to cover, but I'll let Sean kick us off.
Great. Thank you, Brian, delighted to be here today to tell the CSX story, which I think is a really compelling story. I have a couple of slides I'm just gonna kick off with to take you through sort of the general landscape of where we're at. Beyond some forward-looking disclosures here, what I really wanna start with is the five guiding principles that really undergird the way that we operate at CSX. If you've been following CSX, you've probably seen these before. These are the principles under which, you know, sort of Hunter coined the term scheduled railroading.
You know, Joe Hinrichs, our CEO of six months now, has really emphasized that we're gonna build on the principles of operating safely, optimizing asset utilization, and controlling costs with a renewed focus on improving customer service and value and developing employees. You know, I would be remiss if I didn't point out the fact that the rail industry has been in the headlines the last couple of weeks, month, unfortunately due to some safety issues and a significant derailment in the industry. I wanted to talk about the first guiding principle of operating safely because I think from the outside in, sometimes it's underappreciated just how embedded the safety culture is at CSX.
I can remember from my very first days many years ago as an office worker getting trained in CPR certification and getting out in the field and seeing how these safety briefings take place, and how seriously our operating folks take this mandate to operate safely. We have weekly calls, network calls with operating folks, sales and marketing, and support folks. The first thing that we do is not talk about how's the business doing and how's the network doing. The first thing we do is we talk about safety. We look at any injury or accident that's happened in the last week. We dissect it and figure out what we can learn from it. That's that culture of continuous improvement on safety that really is embedded at the core of what we do.
There's been a lot of talk about the derailment in East Palestine. I think anytime you have an incident like that that's that significant in the industry, we have a duty as a company and an industry to sit back and say, "What could we do better?" We always have to learn. You know, I think the positive news is that we've had hot bearing detectors across the network for several decades. This is a technology that's not new, and we've had algorithms that can help us to predict wheel bearing failures for over 15 years. We've made improvements to those algorithms. We are now sharing a lot of, you know, those learnings across the industry. You know, just last year, we caught about 1,000 of these across the network.
You know, bearings that were heating up or that had reached the threshold, we set the cars aside. In some cases, those were false positives, in some cases, they were real positives. There's a heavy focus on technology investment for accident prevention, which is good for our communities, it's good for our employees, and, you know, importantly, it's the right thing to do. Last year, we had one wheel bearing related derailment. It was a minor derailment. It's one too many. Just goes to show you that the technology underlying all this is working. We are filling in the gaps. We did some GPS location mapping to figure out where we had our hot bearing spacing. You know, on average, it's every 16 mi across the network.
We're gonna add a few of those across the network in areas where the spacing is around 20mi or so to fill in those gaps, and our average will be 15 mi after we're completed with that. The other sort of proof point around the investments that we're making in safety, for a long time, we've had cars that go across the network and measure the track health. There's usually two of those that are making their way around the network. They may touch different parts of the mainline network once a year, two times a year. Two years ago, we started introducing these autonomous inspection train cars that are actually running in revenue service. We are actually covering the vast majority of our mainline track every single week.
We're getting reports of track health, and those are immediately being sent if there's an issue to the engineering department who goes out and fixes these issues right away. Just looking at the data, you go back five, six, seven years, we were running about 25 track-caused mainline derailments a year. That average over the last three years has been five. Again, that's still five too many, and there's investments that we can make to continue to improve track health. Part of that is investments that we're making in the core infrastructure to upgrade it and use science-based principles to figure out where to replace track and ties across the network, and part of that is the continued evolution of autonomous technology to help those who are out there visually inspecting do a better job of figuring out where those issues are.
Heavy emphasis on safety, which I think supports network fluidity and ultimately helps us get to where we need to be to drive profitable growth. Let's turn to the next slide and see how the network is performing. Again, if you've been following CSX, you've probably seen these numbers. I like to look at the trends, and we do this every week as a leadership team just to make sure that we've got our finger on the pulse of how the network is running. Here are four key metrics, velocity, dwell, and trip plan performance across both intermodal and the carload. Those numbers that you're seeing there are just about the best numbers that we've ever seen across the network.
It began to improve in the fourth quarter when we were finally able to get enough train and engine employees to run the plan. You know, I think that was the major issue that we were facing last year, was when you don't have the right number of employees to run the starts that are dictated by the operating plan, then you're not running the scheduled operating plan that you need to run in order to maximize the fluidity of the network. We're now able to do that. You're seeing these cycle time improvements. You're seeing reductions in overtime. You're seeing crews who are actually able to get home to their families. They're not held away as much as they were last year. Significant improvements. The customer is feeling that as well, which is a great news story.
I had the opportunity last week to have lunch with our service measures group. This is a group of data scientists, data analytics folks who dig into this service data every single day. I asked them, "Hey, all the measures that I'm seeing look really positive. What are you seeing? Is there anything that I should be concerned about? Any sort of, you know, canary in the coal mine type thing?" The answer I got was pleasantly surprising. They said, "We are natural skeptics. We're always looking for that kind of thing, and we're just not seeing it right now." The network is not perfect. It's never gonna be perfect. We operate with human beings in all weather conditions, and there's things that happen.
The network is running just about as well as it can right now, and that is supportive of our ability to capture a lot more carload volume than we did last year. Let's flip to the next slide and look at how the volumes have been tracking. On a year-to-date basis, we are down a little bit, but you'll see based on those gold bars on the left-hand side of the page, which is intermodal volume. Intermodal, and particularly international intermodal, is what's dragging down our overall volume trends for the year. That's something that we expected going into the year. It's something that our international intermodal partners were very clear about, very much related to, you know, an overbuild on retail inventories as well as uncertainty around consumer demand.
They still see this trend continuing for most of the first half of this year, and then hopefully it stabilizes after that. Clearly, the long-term growth perspectives for intermodal remain very strong for us, but that's dragging the overall volumes down. If you look at merchandise, which is the blue bars on the left-hand side of the page, we've had merchandise growth every single week. Overall, about 3.5% growth in this economy is something that we'll certainly hang our hats on any day. That's even in light of the fact that auto is not running quite as strong as we expected it to be. It's still up year-over-year, but we've been hampered by some quality issues at several of the plants that we serve with some of our largest customers.
We should see that start to turn around in the coming weeks. That'll propel merchandise growth, you know, from here forward. We've seen strong demand in aggregates, lots of municipal construction projects going on. We've had some good weeks in metals. In fact, a couple of weeks ago, week eight, we had our best week in metals since 2015, so almost a decade high in metal shipments. We are running significantly better in grain. Cycle times last year were 18 to 19 days. This year, they're closer to 10 days. Nearly a 50% improvement in cycle times means we're moving more volume. You see that in coal as well. Now we're lapping some issues, production issues at mines from last year. We're lapping the Curtis Bay incident.
The, the percent growth that you're seeing right out of the gates this year is not gonna continue quite at that clip, but we do feel good about where the export market is at. Utility is holding up so far as we're continuing to do some restocking. Obviously, natural gas could be a headwind going forward. Feel very good in total about where we're at from a growth perspective. If we flip to the last slide here. You know, as we sort of take this foundation of operating safely, controlling costs, and optimizing asset utilization, that's really ingrained in our culture, and we think about how do we use that foundation to drive profitable growth, we need to make sure that we have measures, incentive compensation measures that are aligned to that goal.
At the beginning of last year, we introduced a measure of economic profit. It's called CSX Cash Earnings. Very similar to EVA with a few small differences. The punchline of it is we've got to be a company that continues to focus on cost control and asset utilization while also figuring out how we can stimulate investments in innovation, technology that ultimately will position us to grow profitably in the coming years. We're not talking about significant increase in capital by any stretch of the imagination, but just a shift in the culture that is supportive of being able to add business to existing trains in terminals where we have capacity. Brian, with that, I'll turn it to you for Q&A.
All right. Great. Thank you, Sean. It's a good rundown. I want to come back to safety in a second. Just to tie off on the quarterly performance, it seems like things are running, as you mentioned, probably as good as you've seen in quite some time. You know, relative to I know you don't have a quarterly guide, but relative to what you would have expected, you know, when we all spoke a few months ago now, seems like it's pretty much in line. You had one derailment that's, you know, everything is in the news from a derailment perspective. Is that a challenge? We've heard softer demand, tougher weather. Just wanted to see if you had any further comments, maybe qualitatively, around what you're seeing just to start the year.
Yeah. No, thanks, Brian. I would say you're right. It's probably largely in line with what we expected. You know, I think we've been doing really well from an execution perspective in markets like coal and grain, as I just talked about. You know, the fact that the network's running as well supports volume growth that's probably a little bit in excess of what we expected in those markets going into the year. International intermodal has been a drag. The last couple of weeks, it's been even worse than where it was the first eight weeks of the year. You know, that's been a little bit of a miss, but largely in line with what we expected.
I think probably the market that's been the most behind our expectations has been auto. As I talked about, we do expect that that's gonna turn around here. It's up year-over-year. We think it could be up more as we go forward here.
I think it was last week, you had the press release, which was quite helpful to outline your safety and infrastructure initiatives because clearly that's on all of our minds and it's gonna be a fair amount of our questions here. Then the industry came out, the AAR, which is the Industry Trade Association, came out the next day with, you know, more standards. Maybe you could just tie those two together. I know you mentioned the spacing of the hot bearing detectors is going to come down a little bit. It seems like, from my interpretation, correct me if I'm wrong, that you've already moved, you know, a lot toward where the industry was, you know, putting the new standard, so to speak.
Yeah.
Maybe we'll see regulation, who knows? Maybe you can just give us a context of what else you have to do, how long it's gonna take, and of course, you know, if there's a financial cost associated with installing the new equipment?
Sure. Yeah. In terms of I talked about the hot box detectors and the spacing there will be at 15 mi across the network when we're complete with that. That's a, you know, call it a $10 million-$15 million incremental investment for us to get there. We already have a significant number of these across the network, and we continually refresh them, you know, as we go forward as needed. We inspect those every couple of weeks. We will continue to do that. We've gone in and sort of calibrated all of them to make sure that everything is functioning properly.
You know, I think it's also just sort of a wake-up call to say, "Hey, what can we do from an operational testing perspective to make sure the crews understand when they get these alerts, what needs to be done?" We have very high compliance with that as we speak. I know Joe Hinrichs, our CEO, actually went out to the data center, data operations center in Jacksonville to talk with the dispatchers and understand when they get these trending alerts, what do they do? While he was there actually was one that came through. Essentially what happens is they'll get an alert on their screen, the dispatcher does, that says, "Hey, you know, train XYZ, axle number 15, you know, is heating up. It's reached a threshold.
It's gone past two of these detectors, and the indication is that, you know, this needs to be stopped. The dispatcher will call in to the crew. They've got to stop the train. They walk down. They check the temperature. They have a device that allows them to check whether there's an issue or not. What we found is, with the trending data, the vast majority of the time, that trending data is resulting in a real positive, that there is something that needs to be switched out. There is a bearing that's heating up. That is a very accurate way of anticipating potential issues down the road. You know, I think it's working, and we're sharing a lot of good information across the industry. This is not...
You know, safety is not intended to be a sustainable competitive advantage in the industry. We are an extraordinarily safe industry to begin with, but the consequences of, you know, even one incident are so significant that we've all got to be working together on this stuff.
Yeah. On that point specifically, you know, we're all seeing just how interconnected the network is with the interchanges, with the parts, and then obviously the cars. There's been more focus on that. Norfolk identified some loose wheel sets. I'm sure that's another area of collaboration. Maybe you can just remind us or at least explain, like, how that works. You know, you obviously have an obligation to make sure it gets there safely, but clearly you're not the only ones who, you know, have an economic interest in that asset. How does that work now, and do you think that'll change going forward from a car inspection perspective?
Yeah. Just to level set, you know, as we look at the cars online on CSX's network, about 15% of those are system cars, the owned fleet. About two-thirds of the cars that are on our network are privately owned, meaning owned by customers, generally speaking. There are some foreign cars from other railroads, TTX and so forth. The inspection of all of those cars takes place any time it touches a CSX facility. There is an FRA mandate that says every time a train is built in a terminal, before it departs, it's got to have a visual inspection.
Most of the time, it's the mechanical employee walking the train front to back and making sure all the air hoses are laced, the safety appliances look right, doing whatever testing needs to be done, of the air brakes. That is in place. That will continue. We have talked about, and I think there's been others in the industry who have introduced train inspection portals.
Mm-hmm.
Those portals are really interesting because they provide a 360-degree view of the freight car as it's coming into and out of the major terminals. What that allows us to do is to use algorithms to pick up on potential issues that, you know, need to be fixed on that freight car. If it's coming into the terminal and we see, hey, this safety appliance needs some welding, we can get that taken care of so you don't have a delay in the outbound yard with the inspector catching it before the train departs, and then you've got to set it out. There are some efficiency benefits in addition to the safety benefits that you're getting there.
As those algorithms advance, you'll be able to pick up on even more things, that, you know, there'll be a little bit of an increase in some of the maintenance that you're gonna need to do on those freight cars, but it's gonna have a significantly positive effect on, you know, the, those bearings that may have been faulty. We don't have to wait for the hot bearing detector to pick it up and trend it. We can actually see it as it's coming into the yard, set it out, fix it there, and you don't have to have a mainline stop. Those are the types of things that we're excited about as we continue to invest in this technology.
On the technology front, I think you do have one of those inspection portals, down in the southern part of the network.
Yeah.
if I remember correctly. One thing that the DOT at least had put out there as a suggestion that in response to all this, and we'll see how the regulatory plays out, that you might have to do human and automated inspection. Like, you have to have both. I don't know, just maybe you could give us a sense of what you think the regulatory environment is. I know it's challenging. It's changing. There might not be too much you want to comment on ahead of any firm proposals. You know, what are some of the implications or potential ramifications you think are, we should be considering coming out of, you know, the last month or so and all the things that are gonna be coming down the road in terms of further hearings and testimony.
I think if we're all working together towards a common goal to improve rail safety, then, you know, we should end in a good place. You know, CSX has always been in favor of common sense rail regulation, and standards that, you know, protect our employees, protect our communities, and protect our customers, and I think that you're gonna see that continue. You know, when you have a major incident that hits the front page headlines and is there for a while, there's gonna be...
You know, everybody's gonna come out of the woodwork and say, "Well, we need to add this, we need to add this, we need to add this." You know, our hope is that over time, again, common sense prevails and, you know, we all focus on things that are gonna move the industry forward, not things that end up, you know, being just simply in place because some special interest decided that this is important and has really nothing to do with rail safety. You know, I think that's the hope, and I think, you know, we are working together collaboratively across the industry in collaboration with the AAR, as you mentioned, to make sure that we're all following the same standards and working to improve the safety and efficiency of the rail network.
One of the areas I think CSX has been out in the lead on is just labor relations. I think a big part of that is Joe and his background and his focus.
Yeah.
You obviously came through a period of time where it was very contentious, multi-year negotiation, because it went so long, we're gonna be into a new one.
Yeah.
... before too long. Maybe you can just talk about why you took the lead, CSX took the lead in, from our perspective, in getting those paid time off, agreements and getting, you know, some of those other things addressed, which I knew couldn't necessarily be done at the national level because a lot of it's local and complicated. What, you know, what was the rationale behind that? You know, what sort of benefits are you seeing having probably some of those already, you know, in place?
Yeah. You know, I think if you look at the history of railroading, there's been lots of consolidations and lots of downsizing and, you know, a lot of redundant infrastructure that's been rationalized over the years, and a lot of that had to happen because things were overbuilt. You have employees out there who are decades-long employees that have been impacted by all of these changes. What that leads to is, you know, sort of this negative view of the company that I work for, and that's... You know, if you're trying to figure out, Joe has said this, we're a service-oriented industry, right?
We're not B2C, but, you know, our train and engine employees, mechanical engineering employees who are out there every day, the service that they provide to the customer is fundamental to our ability to grow the freight profitably. If they're not engaged when they come to work and excited about working for this company, they're not gonna have the discretionary effort that we need them to have in order to move trains safely across the network, spot problems, and actually say something about them. You know, try to make sure that every car that needs to get switched, gets switched during their shift and doesn't get shifted to the next person to come and fix.
You know, coming out of the labor negotiations, it was very clear there were several unions for whom, you know, paid sick time was extraordinarily important to their quality of life and balance. If that was something that we could provide, and we could do it in a way that was, you know, mutually beneficial, then why would we not do that, right? It's about building some goodwill with the employee base coming out of, you know, like you said, protracted labor negotiations that, you know, weren't all that positive at the end of the day. We got there, but I don't think anybody walked away feeling all that grateful about how it went down.
When you have that as the backdrop, you've got a new CEO coming in who can sort of establish, some positive momentum very early on without a significant give. You know, these are employees, for the most part, who are, you know, either working in a shop or they're working with a team of folks going out and maintaining the railroad. If they're gonna call in sick, and they have a legitimate sick excuse, you know, we'll make that up. Maybe we need to work a little overtime. Maybe when they come back, we've got to do a little bit more work. It's not a significant cost to the company, and it's the right thing to do for the employee. It builds the goodwill that we need ultimately going forward.
We've seen a number of these already, but at least my understanding with the T&E employees is maybe a different issue. It's not necessarily paid sick time. It's more about scheduling and inconsistency. Maybe you can touch on that and then also just labor availability. We've seen the pipeline actually came down a bit in January. Everybody else is moving up. You moved first, I think, in terms of filling that. Maybe it's, you know, a good sign that this year we might not be talking about as much about labor and how many folks you have and can focus more on growth and, yeah, the potential.
Yep. You're right in terms of the T&E employees. I think we're at 6,000 employees now of our union employees that have agreed to new sick leave arrangements. We already had about 1,000 that had it already through, you know, legacy union agreements. 7,000 out of the 17,000 union employees now have paid sick leave. The vast majority of those remaining are in the T&E ranks. You know, so far they have not indicated that that's the most important issue to them. It's really around, like you said, quality of life, predictability and scheduling. You know, I would say we're having discussions around that. There's a lot of different models.
There is some give and take that's going to need to occur, not just between the railroad and the union, but, you know, any change you make to scheduling impact benefits somebody. It may have a negative impact on somebody else who's been here for a long time and has the seniority and the jobs that they want. We are, you know, willing to cooperate on that and work towards solutions that improve the quality of life. Solving that puzzle is not an easy equation. When it comes to the hiring, you're right, we sort of I wouldn't say we're at steady state necessarily because there are still a few areas of the network where hiring has been a challenge, and we continue to have a, you know, focal point on those areas.
By and large, we're in really good shape on our T&E employees. We've got about 7,200 active T&E employees today. Jamie has talked about wanting to have a few more as we get into summer vacation season. Those are already in the pipeline. They're in training as we speak, so they'll be graduating from classes in the coming months. That active count may come up to, you know, 7,400 or so at its peak. What we're doing right now is basically hiring for attrition on the conductor ranks. We're running on average two classes a month instead of four classes a month. What that allows us to do is to focus on other areas of need at our training center. As an example, we've had several classes already this year of engineer trainees.
A conductor who's an experienced conductor has the ability to go to engineer training school and learn how to drive the train, essentially. We have not focused on engineer training in six, seven years. We've got enough engineers today to run the network. As we look forward at attrition curves, retirement curves, that's something that we absolutely need to address. We're sort of balancing between conductors and engineers. We've had some new classes of management employees that are coming in. We've had a lot of really positive, you know, external management employees that have come in fresh. They've brought great ideas, great energy, enthusiasm. They're learning how to railroad. You know, and I think that's helping to build a really positive culture out there in the operating environment.
On the financial side, and we'll get to questions in a second. One thing I'm worried about just for the industry is we have a bit of a lag in terms of, you know, all the labor costs have gone up immediately. You've got the back pay. Inflation is still elevated. It's gonna be the highest on record based on some of our estimates for the second quarter. Pricing is obviously strong, but there's, I think, a little bit of a lag in terms of you can reprice half the book, and some of these are annual contracts and with indices. Then, of course, you have to move the volume to get the higher price related in a new contract. Maybe you can just give a little more clarity on how you see that.
Is there a little bit of a lag in terms of those two catching up, at least maybe in the first quarter or the second quarter? Is it less of a gap than maybe we're worried about?
Sure. I think on the inflationary front, we've talked about kind of mid-single-digit inflation across labor and PS&O. You know, what we're seeing so far would indicate that that's probably gonna be where things shake out. On PS&O, most of the inflation that we experience is based off of, you know, contracts that get set on last year's change. Inflation last year impacts the rate that we pay this year. That's, you know, that's the headwind that we're up against. At the same time, you know, we've talked about this quite a bit. The majority of the contracts that we reprice are in Q4 and Q1. That's our renewal season.
If you think about end of 2021, beginning of 2022, we were in a heightened inflationary environment, but we were not in a 8% inflationary environment at that point in time. We were, you know, we were certainly able to reflect that inflationary environment in those renewals, but we were behind the eight ball when it came to, you know, really catching up to what we were seeing in the broader inflationary environment, the 14% wage increase that we experienced when the new agreements became active across our union employees. As we got to end of last year and beginning of this year, that's been, you know, a large part of those conversations that we've been having with customers. I wouldn't say there's a significant lag.
We're seeing, you know, very positive results on the repricing front, particularly in the, in the merchandise segment. You know, strong pricing in coal as well, and met coal prices have held up. I would say, you know, we feel good about where we're at from that perspective.
Okay. Question there?
Thanks. Just wanted to come back to the labor discussion for a minute. There was a lot of focus in the industry last year on trying to hire T&E and the struggle that the industry had, which was kind of different than you'd experienced in the past. You've had success there and brought the ranks up. I'm wondering on the, kind of the maintenance side of things, the Maintenance of Way and equipment, if you've had trouble hiring there as well, and maybe those ranks are still kind of thin, and if that's had anything to do with some of the safety issues in the industry or not.
No, it's a good question because you're right. We've talked almost exclusively about train and engine employees. I would say we have just as many engineering employees as we do train and engine, almost, and mechanical's a little bit smaller than that. When we look at those ranks, I would say we're in really good shape on the engineering side of the house. We are continuously hiring in small chunks for engineering maintenance employees. That headcount has been fairly steady over the last couple of years, so we feel good about that. I think on the mechanical side, there have been a few crafts that have been in need, particularly in certain geographical areas. You know, electricians, as an example, there's a lot of competition for labor there.
We've had a push, we've seen some success. We've got some classes of mechanical employees that are running through our training center as we speak. I wouldn't say we're at a significant deficit, though, versus where we wanna be. I mean, we're talking about maybe a few dozen people below where we'd like to be network-wide, not significant numbers like we were facing on the T&E side last year.
One other thing that we focus on from the financial side, just looking at the normalization of supply chains is the accessorials and the demurrage that the industry has, you know, incurred, recognized based on everything that's gone on, or not gone on in terms of fluidity in the network. I think you guys have done a good job of actually calling that out, leaving a little bit of the guesswork to the others. Is there? I don't know if you've necessarily got credit for it, but we at least appreciate it. In terms of the other side of that, though, is that still something we should think about in the $40 million-$50 million of congestion related costs coming out? Like, obviously you're storing boxes, but there's a cost associated with it.
Is that something that'll ramp down ratably as you start to see normalization and potentially, you know, this quarter with international intermodal coming down so much, I imagine that's got to be probably the first sign that that's underway already.
Yep. Let me first hit on the first part, which is the revenue piece. The guidance was that other revenue would be down about $300 million versus last year as a result of reduced storage and premise use charges specific to intermodal as that, you know, as supply chain returns back to normal. That's consistent with what we're seeing here this year. Those numbers have come down quite a bit, pretty much every month since August of last year. I would say February, March, we're kind of at the run rate that we expected for the full year. No change to that guidance.
In terms of the cost side, the what we've talked about is last year was $40 million-$50 million of, let's call it, excess congestion-related costs that we were running each quarter. You know, we are seeing some of those costs begin to normalize. I talked about overtime, recrews, held away pay, travel expenses, those types of things. As the network becomes more fluid, those tend to normalize pretty quickly. Cycle times have improved, which means the amount that we're paying for freight car rents is going down. There is a lag on some of the costs. We're still running with a few more locomotives than we probably need once, you know, we've got the right level of confidence, and we get through some of the, you know, seasonal peaks in certain types of volume.
On the intermodal side, there's some supplemental labor, there's some outsourced facilities that for storage of containers. Those costs will come down. We're starting to see them come down already, but there is a little bit of stickiness to some of those costs. While we may not get the full $40 million-$50 million a quarter right away, by the time we get to the second half of the year, we should see all of that come through. We've got other initiatives on top of that to drive efficiency. Of course, as we grow and we add to existing trains, we get more efficient as a result of that as well.
Okay. One thing we keep hearing from the industry, is that the demand is still there, it's just the service product hasn't been. There's a lot of unmet demand. I know you guys typically talk about fill rates and customer orders, which I think is helpful because we can sort of quantify it and see the trends. Is that still moving in the right direction? I'm assuming all the slides you showed about performance and dwell and speed and the throughput would suggest that it's there, but is it going to come back quickly in some areas, maybe not so much in others? Like, how does that shape out?
I'm assuming some customers are just gonna really wanna see this stick for a very long time before they really make that switch back or give you more volume than maybe they have in the past.
In terms of order fill rates, last year, in many of the merchandise fleets, we were running 60%-70% of customer orders. You know, what you don't know is how much are customers padding the orders knowing that we're not able to service 100% of them. There was probably a little bit of inflation in those numbers versus a normalized level of demand. We're now running pretty much in every fleet at 90%+ order fill, and in some cases, you know, 95%, 98% order fill, which is great. You know, we are by and large meeting the customer demand that is out there. I think, you know, one thing that Joe has really emphasized for us is we can't judge our customer service based on our own metrics.
What we need to do is ask the customer, what is your experience? Are there any gaps in what we think we're providing versus what you need us to provide, and how do we fill those gaps? You know, every Monday when we come together as an executive team, Kevin Boone, our chief sales and marketing officer, shows a slide of, here's what our customers are asking for. Can the operating team make an adjustment in order to meet that customer demand? In many cases, it's, "Hey, they're getting switched Monday, Wednesday, Friday. They want us to come Tuesday, Thursday as well.
If we can do that, they can give us a couple thousand more car loads a year." These are, you know, in most cases, not huge wins, but you have six or eight of these every single week. You're talking about numbers that add up to something a lot more significant. We're seeing more and more of that as the customers gain confidence back in our ability to serve them. There's incremental opportunities, and, you know, I think that coordination and collaboration between sales and marketing and operations, where operations is saying, you know, whereas last year it was, "No, I can't serve them Tuesday, Thursday.
I can't even serve Monday, Wednesday, Friday." This year it's, "Yeah, we can add that start as long as you can commit sales and marketing that the volume is gonna come, and then we need to take another look at it in a couple of months and make sure that it's justified." There's a lot of really positive stories happening across the board. We're seeing freight come back to rail that had moved to truck previously, last year. There are customers for whom we need to prove it for longer than just a couple of months, you know, five, six months. We need to prove it for years. You know, as we sit right now, I think we're on a path to do that.
I don't see, you know, anything that would disrupt this momentum at this point in time, which is great news.
On the coal side, it's obviously always an interesting and challenging market, to say the least, but you have pretty strong volumes right now. Obviously, export market is still strong with that can taketh and giveth. In terms of the gas price being so low, I mean, what's the sense on inventory levels? It feels like maybe this is the time we should start to worry or at least be mindful of potential coal plant retirements.
Mm-hmm.
Maybe if you can end on that note, just what's the coal franchise look like now, both on the export side and then on the domestic side, which is strong, but get the sense that that's not necessarily gonna be the case, you know, maybe even six, nine months from now.
On, on export, strong demand across the board, both met and thermal. Last year, I think the, you know, the vast majority, probably 90% of what we moved was met, very small amount of thermal. We're seeing strong demand across both, strong double-digit growth in both met and thermal, and that demand is expected to continue, at least as we sit right here right now. On the utility side, we are still rebuilding inventories. You know, I think we had so many mine production issues last year, you know, our own ability to run the starts that the customers needed, and then some specific issues, particularly at certain facilities that prevented us from really meeting customer demand. Those stockpiles still need to be rebuilt.
We're in that phase right now, so utility, coal is growing. I think you're right to point out, you know, natural gas prices at $2, $2.50, is not supportive of continued coal burn across many of the plants that we serve. I think it's a watch item as we get a little bit further into the year. We see what the summer looks like in terms of weather. We see what happens to natural gas prices and demand. You know, I think it's something we're watching as we sit right now.
Maybe we can just end with a little bit longer term in the industrial development pipeline. As it looked to prior years, obviously you just talked a lot about service and some people wanna see more sustained and some maybe are willing to hop back on. But it seems like the industry maybe a little while ago was really trying to use more of the land developments to cite more things. I know that's been a focus for the team and for Kevin for quite some time, but are those on the horizon or are they still kind of, you know, lumpy things that are gonna take a little bit of time, that won't necessarily move the needle, they'll be additive, but how is that portfolio developing, and are you getting more interest now that the service is back?
Well, last year was a banner year for industrial development. I mean, I don't think there's been a year in my nearly 20-year history with CSX that we've had a better year for new plant announcements on CSX's network. These are new manufacturing plants that are going to. You know, it's billions and billions of dollars of customer investment. It's thousands and thousands of new jobs that are gonna locate on CSX's network. They'll be exclusively served by us. We've got tremendous goodwill with many of those customers as they build those pipelines out. In most cases, there's very limited investment required from CSX. In some cases, we may need to invest in some cars, some track infrastructure to get to the new facility, but the payoff is certainly there.
You know, in terms of where we are right now going forward, I think we feel very good about the pipeline. We've got still, you know, over a dozen sites across the network that are shovel-ready, in partnership with state and local municipalities. We're always looking to add to that portfolio. We have some land ourselves, that, you know, we're looking at creative uses for and how do we drive new growth to the rail. That's certainly Industrial development is certainly part of the equation. I think the other part is just, you know, serving the customers better, consistently and reliably, seeing some of that business that over the years has shifted over to truck, move back to rail where the service is already there.
You put those two things together, and, you know, I think we feel pretty confident in our ability to continue to outgrow the economy.
We are out of time, so we're gonna have to end it there. Thank you, Sean, for all the insights and participating today. Really appreciate it. Thank you.