Q2 2020 Canadian National Railway Co Earnings Call
C N second quarter 2020 financial results conference call will begin woman, Charlie I would like to remind you that today's remarks.
Forward looking statements within the meaning of applicable securities laws.
Such statements are based on assumptions that may not materialize and are subject to risks described in C. N second quarter 2020 financial results press release, and I know this presentation documents. They can be found on fans website I such actual results could differ materially.
Reconciliations for any non-GAAP measures also posted on fans website at www Dot scan Dot C. P. Standby you called would begin shortly.
Welcome to see in second quarter second quarter 2020 financial results Conference call.
Now that started meeting all of which Paul Butcher, Vice President Investor Relations, Ladies and gentlemen, Mr. Butcher.
Well, thank you Patrick good afternoon, everyone.
Thank you for joining us for CN second quarter 2020 earnings call.
I would like to remind you about the comments already made regarding forward looking statements.
With me today is our.
Our president and Chief Executive Officer.
She slate <unk>, our executive Vice President and Chief Financial Officer.
Rob Riley, our executive Vice President and Chief operating Officer.
Keith Weird in our senior Vice President consumer product supply chain.
James cares, our senior Vice President real centric supply chain.
I do want to remind you to please limit yourself to one question. So everyone has the opportunity to participate in the Q when he session.
The IR team will be available after the call for any follow up questions. It is now my pleasure to turn the call over to see hands, President and Chief Executive Officer, Mr. Ji <unk>.
Thank you Paula and good afternoon, everyone and welcome to our second quarter, earning call.
In keeping with our commitment to safety and this and so essential services our people that quickly pivoted to working safely under the new normal of Corbett 19.
In Q1, we told you about or proven ability to be resilient to any challenges in Q2, we prove that again and scions operation never slowed down well depending on me.
And we will be ready and prepared if there is a second wave.
As we look back this was among the toughest quarter of my career with heightened endemic concern over employee at a sharp drop in volume of 18% revenue.
But thanks to our people and our leaders we performed very well, we take pride in delivering.
And essential services to our national the economies.
I work around your financial strength.
Serving us very well in these current time.
CNG intimated 1 billion dollar free cash flow during a quarter of severe recession.
We delivered an adjusted operating ratio of 60.4% and we caution you to aim for a minimum of $2.5 billion a free cash flow. These here.
She and is built to last.
And even in these challenging time I'm proud that we continue to demonstrate why is g.'s a hallmark of C N.
Namely our carbon footprint continues to decrease having delivered another record our fuel efficiency.
Today, we will speak to the short term.
Our cost in our resiliency to last is endemic.
And today, we will also speak to our investment in the long term.
In our contribution to the economy recovery.
Rob will walk you through the strength of operation in this new normal you will highlight progress we are causing you to make in cost takeout in bringing technology to the railroad industry and into safety culture at CN.
He will also highlight these outstanding performance in fuel efficiency.
James and Keith will speak to the expected ex expected sequential volume trend.
For the quarters ahead, and we know also by now you know our long term commitment to the grain business and the major investment that we've announced here today.
Just to name will give you color when I was told the balance sheet and especially one noncash charge that we are using to force PSR fruit or by trimming noncore parts of our network.
So in summary, a good quarter in the middle or recession.
We quickly learn how to operate under the new normal that Colby 19, four quarters to come.
We proved again, our cost resiliency that will help us deliver into near term.
And we reaffirm our confidence in the future by maintaining our dividend policy reaffirming our 2.9 billion dollar capex in 2020, and announcing a new one of that $50 million investment for 2021 targeting the long term grain export business on that note I will pass it on for Rob.
Alright, Thank you Jay Jay our results in the second quarter are showing you the strength diversity and team and over operating model in these extra ordinary times the team reacted quickly and aggressively.
We adjusted resources to declining volumes increased productivity and efficiency and served our customers all of that while improving our overall safety record with less injuries and less actions on a year to date basis.
Finally, we will see some lasting structural changes falling cobot 19, and I'll provide you with some so some of those examples.
I'm very proud of the C. N team that proved again, our culture of operational resiliency as we're leading the industry on many fronts now let me walk you through some of the details during the quarter. The team responded accordingly to the significant volume drops in Rightsizing, our resources filing for locomotives shops as well as.
For additional switching yards.
We laid up one out of every three locomotives over 20000 railcars restored while our active online car inventory was down 20%.
And approximately 4000 employees were furloughed this year.
From a productivity standpoint for the second quarter. The team set an all time best ever fuel efficiency record, while avoiding an additional 29000 tons of cotwo emissions and saving an additional $7 million and fuel expense directly from our fuel efficiency initiatives in execution.
Sequentially fuel efficiency improved 8% from last quarter that means we moved 8% more tonnage the same distance with the same amount of fuel.
We continue to be North America can class one railroad leader in fuel efficiency using a little more than eight tenths of a gallon of fuel per 1000 gross ton miles.
Train weight and train lengths reached all time historic levels as we're able to move more freight on every train starts.
Crew starts were reduced to 21%.
While rtms were down 18%.
Productivity exceeded all time record levels and train speed was up 5% year over year.
As I noted last quarter. We also took advantage of the additional time on or tracks with fewer trains operating to strengthen our infrastructure.
As a result, we've seen or rail and tagging productivity improve up to 25% year over year.
Also as I've mentioned previously from a mechanical standpoint, we reacted with a plan in a purpose by laying up our least reliable locomotives first and lane them up and good order status that allows us to get them back into service quicker when needed during the quarter, we've seen locomotive reliability and availability percentage.
Does improve year over year, while locomotive dwell was reduced.
Fully utilizing our assets, while doing it with fewer shops and less head count.
You can see that we once again demonstrated our culture of our culture of operational resiliency, even during a tough quarter and we continue to look ahead to further improve our efficiency through challenging times.
Now let me highlight some of the initiatives, we're building on and that will provide lasting structural changes.
The idle locomotive shops in switching yards will remain closed we will continue to improve train size year over year.
Fuel efficiency initiatives will continue to produce record outcomes more of our training will be performed virtually.
And we continue to advance the capability of our handheld mobile devices that all train crews have now.
Through this digital Digitization process, we have an art, eliminating some 30 million printed pages of paper annually at CN.
We're moving hundreds of shared printers, and kiosks terminals, while reducing the cobot related exposures associated with them.
Further on the technology forefront, our automated track inspection program in automated inspection portals continue to provide benefits with our train accident ratio reduce 22% year over year.
Finally, our operations team is tied very closely with James and keys teams matching resources to projected sequential volume return and we are ready and prepared for additional waves of coven.
That I'll turn it over to James.
Thank you Rob like all class one railways, we saw significant decrease in demand related to the pandemic.
At the same time, thanks to our unique geographic reach we set all time records in the quarter for Canadian coal Canadian grain West coast propane and wood pellets.
Prince Rupert gives us a structural advantage that cannot be replicated and create supply chain resiliency that helps our customers when in their end markets in good times and bat.
We set new records for Green for the last four consecutive months, our customers have invested heavily and new country elevators on CN, a new export capacity in Vancouver.
And I know sport. These investments we will be acquiring 1500 additional high capacity Hopper cars for 2021.
That would create capacity for us to continue to set new records for Western Canadian grain through next year.
These new high capacity cars allow us to ship up to 20% more wheat and 40% more canola using the same train resources.
Rating and overweighted benefit for CN, giving the commodity mix of our business.
Wood pellets in particular with a good news story in Q2.
Our year over year volume growth of about 15% has come from expansion projects across British Columbia, Alberta with more production coming online through the end of 2020.
We set an all time record for West coast export propane volume in the second quarter and reached a new sustainable run rate of 70 cars per day.
Working with our partners all to gas and really terminals.
CN Prince Rupert supply chain offers propane producers access to the best Netback markets in Asia, and we expect to see continued growth in west coast propane exports via Prince Rupert through the balance of this year and next has all to gas continues to set new records and Pembina starts up their new facility early in 2021.
Cool unload that really terminals of 3.2 million tons for the quarter was an all time record as well.
West Coast coal volume was up over 22% in Q2 compared to the previous year.
There is a slow sequential recovery in our manifest franchise and we expect that may was a low watermark for our Carla business.
Our lumber franchise in particular started to recover late in Q2 with commodity pricing improving by around 40% from April to June.
We expect to see sequential growth for the balance of the year and now seeing demand at pre kobin levels.
The crude oil price war in demand destruction caused by the pandemic severely impacted our crude frac sand and fuels business much more than our general manifest in bulk business.
We are seeing demand come back for diesel ethanol and frac sand with sequential growth from Q2 into Q3.
We continue to invest in lockstep with our customers to facilitate carload growth.
This is made possible by our continued ability to price ahead of railway cost inflation across all business units at CN.
I'll now turn it over to Keith.
Thanks James.
The reach and scale of our network and the variety of products and services that we offer have allowed for our consumer businesses to be resilient in the face of volatile demand.
The acquisitions of 18, our Transacts have amplified our industry, leading refrigerated services. This allowed us to grow in the consumer and grocery freight waves that we saw in Q2.
CNS wholesale partners were also able to drive growth in these segments.
Our Q2 overseas business fared well in the face of lowered consumer demand and significant trans Pacific blank sailings by the ocean shipping industry.
We see significant volumes for July and August on the West Coast and Prince Rupert could see a record in July as carriers Reinstitute vessel calls previously scheduled for blanking in Q3.
We also see additional vessels being scheduled for AD hoc service as container sitting on the docs in Asia require more capacity.
Strong customer relationships and our extensive network reach has helped CN to win a large portion of these reinstituted and AD hoc vessel calls for Q3.
Grain records were not only set and James is carload segment in June we move 60% more containerized grain versus Q2 of last year.
The success of the grain container terminal in region, China has been a great addition to the network.
Our CSX steel will enter changes from the ports of New York, New Jersey, and Philadelphia sequentially grew in Q2.
In automotive, we're now seeing a welcome to rebound in volumes with the majority of the plants, we service continuing to produce during what would otherwise be the traditional summer shutdown as Jay said, we're focusing on the long term, even as we deliver results during challenging times.
We're focusing on costs Rightsizing resources and assets in our multi modal operations initiatives are underway and intermodal terminals, our auto sports as well as our subsidiary operations.
Our supply chain partners continue to invest in the long term future of our ecosystems.
For example in Vancouver, DP World Center is bringing on more rail capacity as we speak and then Halifax, a Super post Panamax Crane was delivered to PSC a few weeks ago.
Scions reach and network scaled the diversity of service offerings in the structural and capacity improvements that we and our supply chain partners are implementing will produce mid to long term growth from the consumer businesses.
Ill now pass on these is land for the financial perspective.
Thanks, Keith overall, the point I'd like to me is that our strong balance sheet and disciplined cost management allowed us to manage well during a challenging time, while continuing to invest for the future.
Starting on the presentation I will summarize the key financial highlights of our second quarter performance as we continue to provide essential services.
All the North America, the North American economy.
Revenues for the quarter were down 19% versus last year at just over $3.2 billion.
As part of our continued efforts on PSR an asset rationalization.
We recorded a noncash charge of $486 million in the quarter, resulting from the decision to market for sale certain non core lines for ongoing rail operations.
Our adjusted operating ratio is 60.4% up 290 basis points versus last year.
Adjusted net income was $908 million or 342 million lower than last year with adjusted diluted EPS of $1.28 down 26% versus last year.
The impact of foreign currency was favorable by 13 million on net income in the quarter or two cents EPS.
Turning to page 13, let me highlight a few of our key expense categories on a constant currency basis.
Labor and fringe benefit expense was 18% lower than last year.
Overall headcount at the end of the second quarter was down 5100, a 19% decrease year over year.
Purchased services and material expense was 11% lower than last year.
This was mostly the result of lower outsource services trucking and Transload and material expenses.
Fuel expense was 49% lower than last year, driven by 39% decrease in price.
20% lower workload and an all time record fuel efficiency.
Now moving to cash on page 14.
Despite a very challenging demand environment I'm extremely pleased that we generated over $1 billion of free cash flow in the quarter and close to $1.6 billion through the end of June nearly doubled the amount generated for the same period last year.
We are the best railroad to go through this unprecedented pandemic with the highest investment grade credit rating in the industry and in late June Moody's reaffirmed seasons credit rating of eight to with stable outlook.
In fact, our leverage in times of adjusted debt to adjusted EBITDA at the end of June was lower versus what we reported that the end of Q1.
We have plenty of liquidity and we continue to issue commercial paper at rates that are lower than LIBOR.
We opportunistically price on April 29, a 600 million 30 year bond at a coupon of two point, 45% the lowest rate achieved by a class one railroad and the second lowest ever by any corporate in the U.S. debt capital markets.
The company will continue deposit share repurchases in these economic circumstances, and we'll reassess on an ongoing basis.
Let me finish by saying that as you know we withdrew our guidance for the year on our last earnings call. We are still not providing guidance at this time, which is consistent with most companies in North America.
Our scenario analysis for free cash flow that we provided in Q1 still holds.
So to sum up during this quarter from a financial perspective, we have clearly demonstrated the resiliency of our franchise delivering value to our long term shareholders on this node back to you JJ.
The team is right.
Let me wrap this up before the Q anyway, so as we speak here operation that fluid.
Our yumi sequentially slowly improving.
And we are carefully, causing some train crews and above to resume some training for the 2021 demand.
As we look ahead, we remain bullish and we also had the culture of resiliency.
This quarter should give you no doubt that we're ready for anything whether or not or will it goes back to normal in six months, while we have prolong pandemic.
We have to team to get this Doug.
With that Patrick will now we'll take it over to to get questions. Thank you.
Thank you. Please press star one at this time you kind of question.
The first question from traditional from BMO. Please go ahead.
Good afternoon.
Good afternoon, Thanks for taking my question here.
Just so quickly if you can give us some.
Insights into the yields.
The petroleum and the.
Material segment were up 23%, what's kind of behind this and if you can maybe help us to identify.
Then there were.
We did a damages on the crude by rail business and kind of how should we think about the.
Rollout of these liquidated damages and go into 2021.
Yes, So I think James will put that in more in detail, but broadly speaking I'm not sure exactly where that are you, referring but we are collecting liquidated damage and it's going through a revenue so James.
Yes, yes that ades recall, when we got back into the crude by rail segment in 2018 secured long term contracts with with the associated liquidated damages that payout over the length of contract. So these these payments come in.
Every month every quarter until these contracts run out or hopefully the customer start shipping at their prescribed contract levels.
On the yield mix question fatty what we you driving out there.
Ill provide more island.
I'm I'm just looking at the freight revenue per RDM that you've reported core the petroleum and metals and minerals that were up.
Pretty significantly on a year over year basis, what's what's kind of behind those in Greece Jihad.
And that's when we had a significant change significant change your mix on the Frac sand and crude oil side these tend to be.
Very very long haul moves very heavy RTL moves that just are not with us at.
This time of time because of the.
Primarily because of the crude crude oil price crash associated with the demand destruction and coal that.
Yes, so we're not doing as much crude we're not doing as much as long as long haul crude not doing guys most products and and we're still collecting.
The the take or pay portion of some of the contract commitment customers made what US. Okay. Hopefully this help you with your question Friday.
Thank you.
Thank you.
Thank you.
The next questions from Ravi Shanker from Morgan Stanley. Please go ahead.
Afternoon. Thanks, good evening everyone.
JJ International Intermodal has really been a growth engine for the company for last several years.
Can you help us understand how you're thinking.
Near shoring as.
A potential.
Maybe even a risk to the growth of international intermodal overtime.
How does CN and your Port partners continue to add value.
If you can share going to what kind of discussions you're having with your shipper customers potentially moving their supply chains to North America.
Okay. So let me start so we are very bullish on the strength of the.
Consumer in North America, even even more so on the consumer living the west of the Big City, because we have a tree course network and we can access some highly populated area and the consumer disposable income is very key to see on future.
The product that's most suited to exploit the consumer spending and disposable income is intermodal.
And the business coming by the Port is definitely one of our mid and long term strategy to increase our business in that space in two ways. One is to try to earn market share. It is a north American market. The border does not exist when it comes to supply chain and therefore, we're looking to outperform the calling me which would.
The outperform the part of the GDP those related to the consumer and play a bigger role in the us market and competing hard with the east coast and West Coast Railroad that use puts in Westport West Coast Port.
You want to add some color that to some feedback you're getting from the specifically customers that keep sure.
Those that supply their needs, whether its retail or manufacturing in North America.
They've been not only looking to China over the years, but they've also been sourcing products from southeast Asia, and and that is still growing those plants are still being built and.
And what we're seeing is the farther south you go.
The more economically feasible. It is to maybe go through the Suez Canal, and then going to the east coast. So that is one of our strategies. As you know is the three coast access that we have at CN, which is unique to.
Than any other railroads does not have that and that is why we have the strategies in place.
How facts Qubec city, that's why we see all these infrastructure projects on the east coast for Us as a as.
Risk mitigation, I guess and as an aggressive standpoint to go a track that business to North America through the gateways that we service on our three coast Sylvania to wrap this up revenue ready to answer your question directly as post regarding near shoring I think the reality is there will be in country sourcing for all this stuff.
Thats deem to be essential to our country medical device eventually vaccine and anything related that's bought by our government who are going to be willing to pay more for those goods that are essential to the current time, but when it comes to consumer product.
It's still going to be quality price and.
The consumer is going to look at the price tag number one there both in the two in the country of origin, maybe sometime.
And maybe most of the time, probably not so I think.
Near shoring of Ray of day to day consumer goods, especially the lower value one.
It's not going to happen, but if it's a very high value goods.
Something at a try something electronic or computer chip, yes. The labor costs, you could do that remember the U.S. dollar is very strong and that's a bit of a challenge to bring in manufacturing back in North America.
Thank you for the very helpful. Thank you.
Thank you.
Thank you.
The next question is from Cherilyn Radbourne from TD Securities. Please go ahead.
Good afternoon Cheryl.
Thanks, very much good afternoon.
So in your Q1 conference call, we talked about how at that time Recalibrating resources weekly and some cases, it's been twice a week. So I was just curious whether that's still the case or whether this stage shippers are able to give you more visibility than that.
Rob is on top of that Rob.
Yeah, we we continue to be very tight with James and keys teams in terms of the expectations out there and that's been part of our success here in the second quarter and how we've been able to quickly rightsize our resources.
We are doing it weekly biweekly in terms of keeping.
Our employees cut in that are on furlough.
And as far as our locomotives.
We did that with the purpose as we laid up locomotives. We we laid up the lease reliable and we laid them up in places, where we could get to them quickly. So yes, we stick we remain very tactical throughout this shirlon and we're ready for whichever way. It continue whichever way. It may go here, if I may add to what Rob said in June.
We pulled carve out of storage for the automotive sector. When we recall some crews in Michigan.
And as we speak in July the lumber business has picked up and we're calling back crews for in the lumber geographic market and putting causing service.
And the business out of Rupert right now is very strong that's another area, where we are we have been recalling some crews selectively be very mindful of their cost for the same time, we are an enabler of the economy, where in the neighborhood of recovery.
And when some of these segments start to come back we need to be there for them.
And we are.
Great. Thank you. Thank you.
Q.
Thank you. The next question is from Ken Hoexter from Bank of America. Please go ahead.
Hey, great good afternoon.
Jim maybe digging into that your thoughts on employees, you're down 5100 year over year, maybe just talk about your your or Rob your thoughts on increasing that sequentially and then cost per employee was was flat year over year. Your thoughts on where there are lots of onetime costs that you you held back on in the quarter that we should see going forward maybe.
Just talk about the pace of return of cost. Thanks.
Rob.
Yes, so we.
We have since our low we saw the trough in terms of volumes in late May and that's really where we spiked or solar most.
Employees on furlough, you know as we got into the summer season with vacations and also an increase in volume we selectively call back employees, but it's not on a one to one basis.
As volumes can come back in and we're very methodical about bringing them back.
Especially as we go into the third quarter and just as just on talked about.
We're still trying to figure out what the future volume is going to be so we're very very careful with all of our assets not just employee resources, but also our locomotives in cars as well.
Yes, and some of these differential are some of them are furlough that is that we hope that we will have enough business support to call them back and some enough further meaning their permanent. So we don't have we don't have over 5000 people and furlough, it's more like 2000.
Through thousands and your thoughts on the cost.
You can say that target.
Well the cost per and also the back half of was just your thoughts on the cost per employee, which was flat I just wonder if there were one timers that you pulled out during the quarter that are going to come back.
As it moves through the rest here.
Thank you Evan colors on that.
Well the.
The.
Theres a bit of incentive compensation that created a benefit in in the quarter, Ken and and maybe that's because when you look at employee and when you look at.
Inflation, it's still running around 2% wage inflation so.
But there is some benefit related to incentive compensation.
That that has provided some benefits in the quarter.
All right.
You got to thank you can.
Thank you.
The next question is from Chris Wetherbee from Citi. Please go ahead.
Yes, Hi, Chris afternoon.
Hi.
So curious if you could give a little bit more color on the on the line sales the announced and then maybe if you think forward.
If they're non core maybe what that might mean from a cost savings perspective would this be accretive from an hour standpoint, as we go into the back half the year.
So there are no and core as you say you want to pick that up your work in that project pretty much yes, So hi, again, hi, Chris So yes. They are noncore as you remember many years ago, we did rationalize our network in Canada.
And we've never really done in the U.S. Andy's noncore lines came with that when we bought the double you see there really non core lines in Wisconsin to or non core lines in Michigan and non core lines in Ontario.
Again.
You know with the cost with the cost structure of a have a smaller operator and on a class one railroad like us.
And the ability that sometimes they have to get some funding from the government I think there will be better suited to run these lines than we are and as you know these lines will continue to feed in into our mainline and continue to and we'll continue to benefit from the long haul. So in terms of all our benefit and so on and so forth the I would say.
Chris stay tune I think that I think that this is a good step and as you know this is part of PSR part of PSR is you rationalize some of your network and you have better operators in terms of their cost structure operate some of the.
Noncore lines and we are but then still keeping the line haul and business coming to your main line. So we're quite excited about this and and its Doug just shows you on the market that we're pushing on PSR in every fund that we can.
Yes, it's on the fundamental of.
Making sure we have a network that's a.
Has a cap recall, where it's needed.
And in some cases short line up here could actually get capital from the state province, or government, which would all have access so it's about a model for those.
For those non correlating that we're selling.
Okay. Thanks, Chris Thank you very much thank you.
Thank you. The next question is from blend them apart from the Chardan capital. Please go ahead.
Yes.
Good afternoon could you maybe provide some color on the latest question with respect to the potential proceeds for the the assets and.
Whether you would use the the amount to a buyback some shares or any thoughts about the the proceeds you who you might use.
Just I mean listen we're going to try to get as much as we can't for these lines obviously.
We.
We're hiring.
Bankers to help us market them and so on and.
And so I'm not going to lay out what we expect because again, we're going to shoot ourselves into foot. When we auction. These these lines out than what we get for it but hopefully we get the we get a good amount, we get but they're worth and.
And then you know, we'll see what we do have the cash again, our use of cash policy Doesnt change at CN been once you know its first use of cash is towards the business and and then we'll look at shareholder distribution first and foremost dividend and I'm quite proud of our 7% dividend growth. This year I'm quite proud of the consistency of our dividend, which.
16% CAGR since we privatized and as you know, we view share buyback to get to a targeted leverage level. Because this is at the flexible tool. So.
The cash will come and and and when it does then we'll figure out what we do but our use of cash strategy remains the same that's why it's a investing in a business dividend and share buyback.
Thank you for the quarter hasn't been well that's great. Thank you. Thank you.
Thank you. The next question is from Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks afternoon, guys. So you had a slide with some structural cost changes any anyway to quantify how much that is and then on the yield side yields overall were down any way to think about some of the moving pieces for the third quarter on either Rev per car rep for our team so.
Thank you Rob can talk give some color into where we think but as subs permanent.
Take down than our costs and regarding the Rtn question that sequencing product.
Maybe just linking that to that well, let's start with Rob yes. Thanks. Thanks for the question Scott. So so I mentioned some of that my my opening comments in terms of some of the shops in some of the yards that will remain closed we don't anticipate those being open back up in terms of locomotive fuel efficiency of course, I quantified that in there in terms of what we.
What we got on the quarter and we'll continue to see record fuel efficiency here with some of the measures. We have in place. So we'll continue to see that going forward. The train design in terms of what we're doing with train length and train weight that'll continue we'll continue to see those improvements.
Year over year ended the quarter so.
Those are some of the structural changes, we're looking at and we see that continuing here for the near future.
And just yeah, I think as Scott in terms of sent for RPM and we're not we're not going to.
Provide guidance and sent proteomics quarterly basis, but all I can tell you we don't necessarily managed the business on central Rtms mix that we have is the mix that we deal with I think what we manage as price and we're quite a quite good and Keith and and James and their teams have done quite a good job actually to manage price I mean, the price that we're getting is still.
Above rail inflation, it's solid pricing, we continue that way and and that's so you can expect that to continue into third quarter in the fourth quarter and going forward.
That's right. So some of the takeout will be permanent and different if they spacing the month of June our mix change because the automotive business as you know scope, which is a very lightweight revenue that business was almost disappear so that big impact in the second quarter.
Mix, what's happening in the automotive business, namely.
As an example.
Thank you think James your point.
Okay. Thank you go ahead.
Hi. This is your point on the auto piece that the yields should start to get better has as autos coming back.
No. The point is more is that I mean, I think in May we were down 90% in automotive. So if you look at the impact on the C. In total book of business you had an impact on the the distortion for example between gross ton mile and revenue ton mile and what it does to our so called mix of business.
But what's important for us is for each Carlo to make money and we merger that to revenue through cost ratio. The RCR, which is a reverse over an operating ratio and when it comes to pricing. We don't look as you know on sent for our TM because when you look at Cempra ATM, you're looking at noise, what exchange mix length of haul the you name it.
I provide their car the customer provide the car what's really important it comes to prices same store price.
Which is the same thing as a retailer does.
The sales this year compared to the same save lives here, what's my spread and anything that doesn't is not the same store sales doesn't go that calculation of same store price because now to different sales you'd have a comparable and love. These different sales are huge impact on the.
What you call the cent per Rtms. So that's why we're not focused on sent for our team. We're focused on same store sales and we're focused on the revenue to cost ratio, which is a reverse of operating rate.
But per unit. Thank again customers. Thank you.
Thank you.
The next question is from Cormark Cooped up from Scotia Bank. Please go ahead.
Thanks. Good afternoon. My question is just going back to previous target for operating ratio.
Do you discuss or the Investor day before how do you think about the operating leverage and capital intensity heading into 2020 Onest volumes recover further and you bring back more employees and pull out some seed from the storage.
Well right now and maybe I can start and Rob can that in right. Now we do have capacity will know network capacity that we built the last two years capacity liquid if we could have used this year. The calling me and then make than that hit us. So obviously, we have capacity for growth.
We also have qualified people would have to maintain equipments fix locomotive on train and these people are in Florida, So and I feel for them and we hope the business come back to a point, where we can recall many of them. Eventually hopefully most of them by 20 to 21, as we get much more efficient and Rob talked about train length and train weight.
The number of people for top model, if you wish goes down that six and if it can savings.
The overall philosophy and operating ratio is not to be the lower stuff to be worse, we want to have an operating ratio, which is very cost competitive at the same time allows us to be able to grow organically with our customers as customers business to offer to us Rob.
You want to maybe share your philosophy and operating ratio yeah. So.
In terms of operating leverage going going forward here into the third quarter I mentioned some of the things we're doing and we'll continue to do we're not bring it back resources on a one to one basis and that will continue to provide.
Benefits for Us when you go through a quarter like we did we're able to test and really press the edges in terms of what we're capable of and we found some of these opportunities through that process again, I talked about fuel efficiency train lengths. These are things that.
When you talk about setting records.
At CN, that's something that saying something right. This is a storied long storied history of operational excellence and when you start to set records and we set a number of them here and second quarter I really speaks to the team that speaks to the operating model and we've really done a nice job and we continue to leverage.
Here going into third quarter, yes, so competitive operating ratio.
But also focus on business growth and focus also on inorganic growth.
Things beyond just rail thing, but things that we'd be at credited to rail. That's why we have made some acquisition and joint venture.
Thank you.
Thank you.
Okay.
Thank you.
The next question is from Brian Ossenbeck from JP Morgan. Please go ahead.
Hi, Brian Hi.
Hey, good evening. Thank you.
Question for Rob on the technology on the operating side.
Can you give us an update on the inspection cars looks like you're moving to phase two under the effort.
Next month with some reductions on visual inspection is you got transport, Canada on board it looks like growing up for some sub divisions. So maybe just give us an update and how this is progressing well to expectations and at what point do you think would be able to quantify some of the benefits either from a accident production perspective workforce perspective or even.
Capacity additions richer.
Very timely question, Rob you want to God I love to take that one. Thank you for the question.
So we continue to make progress just as you talked about in the US of course, we have a pilot program going on with the Fr Ray we are transitioning to phase two as you speak as we speak here as we go into August what that will mean is 50% less manual inspections and what that means for us is that.
You know all around or autonomous track inspection program, it's really about.
Having a safer more reliable network it does reduce costs and it unlocks capacity on our network by embedding. These in revenue service trains versus a human being on the track. So in terms of quantifying it we've seen our train accident ratio down 22% year over year and certainly some of that can be traced back.
Of that we've tested the line in the us.
17 times more than traditional testing right now so in terms of strengthening the line in terms of turning our employees into fixers versus binders.
All of that is coming through and then in Canada, we're starting to.
To see.
The results of our work with transport, Canada. So we do have an exemption there to begin testing that we will continue to follow the same pattern that we had in the U.S. again ultimately this makes a safer more reliable network, we do see costs fall out just from the safety aspects of it and and it doesn't look.
Capacity as we go on.
Usually potential and.
You are going to hear from us in the must become that we're adding resource we want to help out.
Rub with a top tier talent as to how we are we implement and rolled out to technologies for the rail operations are more to come on that.
Thank you Brian Okay. Thanks for an update.
Thank you.
The next question from Walter Spracklin from RBC capital markets. Please go ahead.
Walter and good afternoon, everyone. So just on the on incremental costs here you guys did a pretty good job of keeping cost contained in the quarter.
So the or.
Degradation was less than 300 basis points, just curious obviously your your cost efforts didn't it obviously probably improved through the course of the quarter in so as you exited the quarter would it be safe to say that youre there your ability to eliminate or impact from continued volume decline during the third.
Third quarter potentially the fourth.
We'll be moderated such that we don't see a degradation in the operating ratio or we or are they coming out in the way that it's still likely to see some degree of or degradation as we go through the quarter here.
Excluding fourth quarter with the.
With the strike lashed last year, just focusing here in the third so just slate you ought to look in your Crystal ball.
And look at my Crystal Ball, Walter first of all the and I.
I mean at the end today, what we do on costs and what the team did that to your point on on the second quarter was quite remarkable and we've got to remember that we have some headwinds that are quite fix that we have to deal with than I had mentioned that at the beginning of the year.
We have about $130 million of depreciation that we have to deal with.
And we have another used to be $70 million on pension now with them betterment in pensionable payroll, it's down to 50, but it's still 50, so we have $180 million of headwind and a few slides that every quarter. This is Scott that we have to deal with so I think that Oh the.
And we'll be into putting in Q in Q3, I mean, as you know and JJ made the point, we've never been enamored with you are at CN I think that we'd rather be a 20 billion dollar 60% of war.
Dan than the 15 billion dollar at 59.
Just do the math, so I think that at the end of the day.
We will continue to manage cost and we manage both the short term and the long term. So we do make decisions on the to make sure that that we know that our report cards coming out every three months and the come to the report card will come out in October and you guys will look at the bar and all of the metrics, but we're making decisions as well to make sure that.
We're well prepared for the winter coming at us and whether we'd like it or not we have a winter in Canada and for 2021. So yes, we so stay tuned I didn't really answer your question on how the Youre will look like because I'm not but at the end of the day.
We we're very pleased with our allowing Q2 and I'm, telling you to stay tuned for Q3, maybe just on the on the headwind the from depreciation it's a headwind short term because of the capital program. We did last two years, but the same time. It says that we're ready to handle much more business. So that headwind eventually become how we're going to be able to grow with the economy is when the economy grows.
The or wise, we create product that can gain market share so.
That's a whole card for 2021 and James has this program that we announced today on the grain. So these railcars we'd be built.
We now most of them between now and Christmas and delivered to see in the first 15 days of January so there'll be very helpful to contribute to the revenue of the next winter.
Thank you Walter Thank you.
Thank you to next question is from Brandon Oglenski from Barclays. Please go ahead.
Brendan Hey, good afternoon, everyone Yep. Thank you for taking my questions.
Keith you sounded a.
Phrase it relatively bullish about intermodal prospects looking into I guess quote unquote peak season can you talk about some of those opportunities you mentioned in your prepared remarks to think about you know carriers, adding back.
Rotations and that Youre, winning some of that incremental business.
Sure.
Okay and as I said earlier, we believe in this Smith of the consumer in North America.
And.
The market where that shows the most number one is that the model you see that a bit in lumber and automotive, but where it is something to really exploit where the product is really tailor made to drive the Cogs consumer economy, that's intermodal Keith.
Sure.
Wasn't fund going through the beginning of the second quarter and in hearing about blank sailings and also the.
The challenges that our customers were having the fact that they thought that was going to be going into the into the third quarter as well. So it's it's great that we add that we've seen a lot of the blanks that they had for Q3. They reinstituted those calls and right now you know on the West coast.
We have much less.
Noise around the blank sailings and we did during Q2 in fact, they are actually they are adding 11 extra loaders in Q3 on the West coast.
Nine on the West coast into on the East coast that those types of things in the discussions that we have with our customers.
And the fact that our boots on the ground folks.
In Asia are telling us.
The strength of what's going on with orders from North America, those give us the confidence that I can sit and talk to Robyn and ask him.
No.
We have that discussion about being prepared as I said Rupert is probably going to have a have a record and in July and we see the same thing for a for August as far as the volume solid on the West coast.
Just say, maybe you want to add something something about transics than a year after the acquisition.
Yes, you're able to accomplish for Transics. That's another shorja. That's another piece of business that were quite bullish.
And I'm happy to report that after a year and I think Keith and the team is doing and did an outstanding job integrating transacts with our overall CN family as you as you know.
And then.
Big projects are investments, we typically have internal audit of going in and auditing.
The business case, and auditing the return and reporting directly to the board so they're not all done yet, but but close and I'm happy to report that the return of the investments both in transaction each in our will deliver.
Higher than our than our typical ROI threshold that we use at CN of 12%. So this is a good accretive acquisition and we're quite pleased and as I said I said before Keith and the team is doing a hell of a job.
Managing this and and frankly there'll are as we speak is is now the best in class for these types of companies like if you look at GE behind Theres. Some of the others that are best in class trends exits right there with them yet the amended for Transacts is to compete with the best the best like GB onto the who are.
They're not a trucking from there are a little firm.
They have increasing the amount of rail to do since last here.
Thank you Brendan.
Yes, Thank you Jay.
Thank you.
The next question is from David Vernon from from Bernstein. Please go ahead.
Hey, good afternoon everybody.
Rob I wanted to focusing on the train lengths and train weight gains that you had in the second quarter could you talk to weather some changes in mix or maybe just lower volume on the network allows you to kind of extend that and what the outlook should be kind of them here should we be expecting in this 990 500 feet long lengths.
Range for the rest of the year, even through the winter months or should we be expecting this kennedy the come off as volume comes back.
Rob Yes winner winter all bets are off.
And whats the winter brings and then we can to have that discussion at that point.
As far as the changes we've made.
We do view those is structural and mix or no mix. What we've done is really take what has been delivered to us and make the best out of it. So we're looking at a significant volume drop that we saw this quarter and we took action part of that was increasing train size and reducing.
Crew starts.
And a lot of things come with that when you do that bigger trains lead to greater training fuel efficiency leads to better utilization of your locomotives. We saw train velocity improved all during this period as well 5% year over year. So.
We plan on keeping trains big.
And looking for more opportunities that are out there.
Thanks for liquid as you know fit no physical constraints that may come back into the network as volume kind of recovers.
We continue to invest in capacity investments, particularly in Western Canada, I think you'll see us continue to do that that will allow us to continue to maximize our train size. So right now our plans are to continue to keep trains big.
That's right we have construction activities rise we speak here on the port of Vancouver put a bank for the Rupert as well as the north playing through bank through Rupert is where we are adding siding during the summer. Thank you for your question.
Thanks, guys.
Thank you next question from Seldon Clarke from Deutsche Bank. Please go ahead.
I said, hey, thanks for the question.
As it relates to the 1500 grain hoppers need plan on purchasing and 2021 is there any way to put some numbers around that opportunity next year as it relates either volumes or productivity in and how that differs from some of the previous long term guidance you've given around grain.
And does this maintain capex in your more normalized range for 2021 or how should we think about from that perspective. So maybe I'll take the first park and just bank and talk about the Capex of 20 to 21 without getting too deep into detail. So definitely these railcars are more productive.
Therefore, you can move as you know the Canadian grain cap you get paid by the ton mile.
So the more you can put in a car you get more revenue per car. So obviously the yield of a car, which has a higher payload or the profit yield of a train has a higher payload because each cars heavier in east coast shorter you make the business more profitable that's why the business case is compelling to ready and.
As long term and the grain business. So it is it is it is profitable. It is a it has a good return and the new form without the grain cap says there is there is a compelling case to renew your fleet, but as long as that fleet has a higher payload how your payload per train up per car.
CN is a little more north and my competitor in term of where we are indicative of temporaries and a little more note. These little more canola canola is is a lighter crop and the impact on the revenue per car light their crop of these different car is actually beneficial to us we heavy we even have a better return.
And then if we were moving a lot of weak for example.
In terms of revenue impact without getting too deep into detail you look a book of business on Canadian grain, how we do usually and obviously, we'd like to do more of that and I think James there was a decision issue, but it can isn't government on the grain cap and it's sort of favorable to the CN Isaac this year term of either the M. Ari.
Yes, I think we had an out we did benefit on the Emery.
Compared to.
The railway Encana by about 5%, so we're very happy with the outcome of the.
Emery for next crop yes.
As of August 1st the MRV is revised and it turned out at CN has a 5% favorable spread on that just laying regarding the capex for next year, maybe yes capex for next so listen I think I think seldon, whereas I said in my opening remarks, I mean, we're not we're not providing guidance still I think we're going to see we're going to look.
To see how the recovery and how the recovery sticks, it's still I think we see signs of it and but at this point, it's a little bit choppy. So I would say stay tuned on that one I mean, we'll we'll see in Q3 and then early Q4.
We'll go through all of our bottom up top down exercise and and obviously, we need to go to our board and make sure that they approve our capital and blow, but what I'm, what I'm going to say to you is the big two years of the our Capex investments of 25% of revenue is behind us and I think that going forward.
Will be lower than that and as you know our historical rate has always been in the 20% range, but but we'll see I mean, if we don't need to invest we won't and to JJ Xpoint right now with volumes that we have in that two years of significant investments. We've made we've got plenty of capacity and we're still now putting some this year on very targeted areas in.
Perfect and very targeted areas in Vancouver, and we have we're very pleased to have the health in other government or the port of Vancouver same thing in Rupert with the government. So and those are dealing with specific pinch points that we have and.
And again, we think of the long term and those pinch points as been with US for long time, we're happy that now we got attention of people to help us.
Fund for some of these things and that will create value to us for the next for the next 510 15 years, Yes, we'd love to find project. This project for your good return.
And we love to find projects, where the capital just this capital for 20 to 21 slice only $50 million already approved by the board. So we can placed the order in the coming weeks. There whats important is the asset will come to us at the time, we needed first week of January Sylvia credited to the next winter.
Movement of grain, which is typically peak time. They would also be acquitted to the fall of 2021, which is also a peak time. So its capital that will go to work right in the first two weeks of the year, Jim I might just to add there from an operational efficiency standpoint, we'll be able to move 8% more cars on the same line.
Strain that we do now with these new cars and move an additional 20% to 30% more grain depending on the commodity per train. So we get immediate benefits from it creates occurred or capacity right away. Thank you for your questions Holden.
Thank you.
The next question comes from Jon Chappell from Evercore ISI. Please go ahead.
Good afternoon, and good afternoon good afternoon.
Did you say three pretty unique challenges in the last three quarters with the strike the blockades and the a and really steep recession and youve managed it incredibly well as you look to headwinds maybe finally, becoming tailwinds for the first time any year, how do you feel about the capacity service customer positioning in wins to return.
And to growth and really to grow the bottom line at a greater pace than even the topline when the carloads and plus.
By Disney has been special time between the our labor disruption in November.
The rail blockade, where we felt.
We weren't getting all of support even though even though we have injunction everywhere and then right away having the pandemic I think what it shows as CN resiliency is very strong I mean, the management team that we have but down to people who run train people were run trains are independent people, who are a lot of people have the unfortunately to stay at home.
And because of a you know a safer at home we have to work very hard to make their working conditions, such as everybody would keep coming to work and by the way, even though our headquarter is somewhat empty a lot of us kept coming any on average.
I wanted to people are reported as building here every day from day, one and is still report to work every day since the beginning to spend them. So what it does it creates confidence I think it create confidence that we can do with whatever comes at US. What are we have a second wave of pandemic, which as possible and we are ready and prepared for that.
Well, we have a strong recovery, which were ready and prepared for and hoping for.
That would be a good thing, but we.
We don't plan for this we plan for the worse, but then are ready to be exploiting whatever it might come at US CN is focused on growth. So we are we're always thinking and in that line. So as much as we work on our cost because via cost either is quite effect quite important. We're also working on a pipeline.
Line of inorganic growth and you heard that we having new chief strategy officer at CN.
And the Marine whatever board members is heading a new Board committee on long term strategy in these two things I ready to address some of the fundamental challenge there isn't a railroad is yes from time to time without disruption pandemic rail strike or Oh blockade, but the real fundamental issue there how do we grow long term as an industry.
Beyond coal beyond the cyclicality of crude and some of that has to come from inorganic growth has to come from initiative that we need to initiate as opposed to wait for customers to big business to us.
So I think putting all that in kind of where we're at right now is a wherever eyes and our short term, but we also have a lot of specific effort on long term and I Didnt mentioned earlier that Rob should get help over the next few months here.
Some of other Thailand, joining CN that will help us where the beef up the technology side.
Thank you great. Thank you.
Thank you.
The next question from Jason Seidl from Cowen. Please go ahead.
Thank you operator can you guys before talks about some of the shops in locations that Youve idled.
Due to the slowdown some cold it can you talk about the outlook on what you think you're going to be reopening of as business comes back and how we should think about those cost as it later through the quarters.
So Rob has had a merchandise yard shops, Rob you want to take that yeah sure will I think I mentioned that there in the beginning this part of our structural changes. So we don't anticipate opened in those up.
Again, if if it's certainly won't be anytime soon will take something more than what's going on right. Now there was always some yards right, but absolutely we shut.
For yards and four five shops them. So what we've seen with the rationalization of our locomotive footprint and actually gets locomotives in the right place to begin with gets it to where our materials and into our online inventory is actually reduces materials in the long run by having it there and we're seeing it in terms of reliability.
And availability in terms of getting the locomotives in the right shop with the right people to work on them and get them back in service. So we see the structural present calculation Jason yes. So these were so okay. So those are close because I think you used the words closed end idled and I didn't know if they were some could be reopened. So these are close permanently.
That's a permit and along those line you could see the same logic as to why we are doing.
Putting for sale. Some short line is it's that's also a structural change along the line of.
Idling or closing some merchandise yard and or shop is when we look at a U.S. network, we decided that some part of the network is better than others and that's also part of looking out the long term for PSR.
That's part of this is why we did that at this time back in this quarter do you think your sales will close this year.
Well pick we just thing you want to well I mean, we'll do our best well we're hoping.
Obviously, but as I said, we've we've hired bankers to help US package. This thing and and you know the we will be very discipline.
And auction go out and auction out and so on and.
And we'll see how we'll see how it's going to go so.
If we can close this year, we trust me, we will but we want to be discipline and we want we want to be we want to have the best value for them.
Because again remember that this business will continue to be fed on our main line. So we need to have the best operator to come in because they will continue to manage these that noncore lines and that business will come to us on our main line. So.
I think we're quite pleased about this and.
And we'll see.
Realistically six months my views short time six to 12 months. This these things that come together, but the key is to be disciplined and the key is to have a good auction process and the key is to maximize the value and get the right operator that sticky.
All right appreciate his son, gentlemen space I think is.
Thank you.
The next question from Allison Landry from Credit Suisse. Please go ahead.
Thanks for squeezing man.
Oh.
Hi, so that slowed lumberyards had deteriorated.
A year over year.
Since 2018 in the last several Lee said, yes velocity cause a lot of on the wrong direction.
Vulnerably. This is at least partly driven by thoughts ticket volume side is there that's something from a mix standpoint are you focus on the train length. It away from this lots of yard closures that are.
I Didnt deterioration and how do we reconcile these weekly public metric.
At the structural improvements that you made in the quarter attitudes. If you could just you guys. So to speak to where you optimize network fluidity. Thank you so Rob will pick it up but what we did on dwell was a conscious decision as it relate to how we optimize cost Rob.
Yeah. Thanks for the question Allison and loved to answer that one and really from my perspective, it's on a concern in fact, it was part of our planned responds to the significant volume drops we saw here in the quarter. When you look at the increase and well we have on a very low base to begin with so you've got to take that into consideration, we're talking about adding an hour.
Sure so to the CCAR cycle, that's measured in days in sometimes weeks when it goes offline to other railroads and then you look at what we were able to do with train length and train weight, All time records bigger trains drive greater fuel efficiency and utilization of our locomotives.
And as a result were able to reduce crew starts 21% greater than volume reduction our active online inventory was reduced as much as 20% in the quarter. So increased well did not drive additional cars online train velocity improved 5% to big part of a car cycle. So we made up time there.
And.
When you look at our employee production productivity eclipsed all time highs from a service standpoint, three straight months of delivering all time grain.
To the payment to the to the ports and then our domestic intermodal service really is never run better so.
We made the right calls in the quarter and we'll continue to focus in on what's important.
Thanks for the question.
Thank you. Thank you.
Thank you.
The next question is from Tom Wadewitz from you'll be it yes. Please go ahead.
Tom.
Yes, hi, thanks for the question.
I wanted you talked about I think some optimism on intermodal improving international intermodal and some.
Constructive commentary and the sale and could you see happening in third quarter.
You have a quite a few longer term drivers of growth I was just wondering if you could give some broad comments on.
How you think about volumes in third quarter fourth quarter can you you know should we think about volumes down mid single in third and now is there any can you could a path to get to volume growth in fourth quarter.
Yeah, I recognize it's not a lot of visibility, but just wanted to see if you could offer some broader thoughts on how about volumes might play out in second half.
Maybe I can start and.
Keith can chime in so important this strong export is not as strong.
Comment made earlier by key that we have more loaders loaders has basically the reverse of Atlantic when when it when shipping line loaders, I mean, it actually adding vessels into schedule because of the strong import but the export is not as strong right from North America.
You want to look out in time to the next few months, what things look like Keith.
Yep.
As a as Jay said. The addition of these extra loaders is kind of the reverse of the blanks and and that's a positive thing for US and then talking to several of our customers, whether they're north American base or overseas.
They've done a really good job managing their capacity and they've done a really good job of creating a market where they've been able to keep the rates in in good stead. So.
There is pent up demand right now there we are kind of being a peak season, I would say right now and.
If the discretionary income of the people that are doing all this buying weathered said.
The home of the.
D DIY why folks that are putting in the decks are painting and now if that keeps up.
And if the strong business that we've been handling like the refrigerated goods that are that are happening now whether we're in a pandemic or not that I think thats going to continue to grow with what we brought on with transact and H. and our and our other wholesale partners that have keeping that business strong.
I don't think that we're going to see unless there is another another wave of the pandemic I think that are the contacts that I talked to they're seeing it stay strong into at least in the beginning of the fourth quarter, we'll see how it goes but that's kind of what we're planning for right now with them.
As they give us a heads up over the next two to three months.
There is a surge from the retailer, which is reflecting back in shipping nine and back into the port activities into a different consumption, which is I would call. It the stay a phone consumption.
People building a deck there relating to how's that painting. This funding money that back yard that putting a pool, where I mean these are the things up there is a high amount of disposable income that goes into it. So some supply chain the out of whack some supply chain and warehouses full because people don't want to buy those stuff and some of it.
Warehouse that relate to what I just said.
Sort of the stay at home expense around the house and on the backyard media supply chain 90, and you try to get a barbecue.
You may not quite get the kind that you're looking for you just going out to buy whatever is left.
At home depot, so we see some of that to where some some container needs to move fast because of.
Consumers spending as many differently this summer.
Thanks for the question.
Okay. Thank you.
Thank you I would like to turn the meeting back over to Mr. Anthony.
Well. Thank thank you operator, thank you for joining us today, maybe I can just.
Use some closing comments, we're very proud of our.
End of quarter result here the team has been able to do the best of.
What came out it was very quickly we kept everybody safe.
We unfortunately had to do quite a few layoff. Good news is were thought to recall some people back to work. We also start to get some some asset backed into in the business you see from our causes NRT M. every week that there is some sequential growth.
We would love to see more of it.
But we'll track the economy in the meantime, Rob is working very hard and as costs and we're very lucky staying focused on long term business I mentioned the work that we do and strategy.
And the work that we're doing with.
Things related to inorganic growth, which have nothing to do with the most of what we talked about here today. So stay tuned CN is ready for anything whatever we have a slow recovery or second wave of dynamic or a better is better business look outlook sometime in October November. So we'll see thank you for joining us today.
Hi. This is the end of the call. Thank you Patrick.
You're welcome.
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