Q3 2020 Canadian Pacific Railway Ltd Earnings Call
Operator today at this time I would like to welcome everyone to Canadian Pacific stirred quarter Twentytwenty Conference call.
Accompanying today's call are available at Www <unk>, our dot c.
Let me repeat that www dot C.P.R. dot c.
Lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key I would like to now introduce nagin Galveston, a VP investor relations and pensions to begin the conference.
Thank you Joe and good luck.
Morning, everyone and thanks for joining us today.
Before we begin I want to remind you that this presentation contains forward looking information and that actual results may differ materially.
The risks uncertainties and other factors that could influence actual results are described on slide two.
In the press release and in the ambient <unk> filed with Canadian and U.S. regulators.
This presentation also contains non-GAAP measures, which are outlined on slide three.
Joining us here today.
Keith Creel, our president and Chief Executive Officer, Nimble, any executive Vice President and Chief Financial Officer.
Jon Burke Executive Vice President and Chief Marketing Officer.
Well as Christa, Brian from the art joining from the IR team as well.
Todays formal remarks will be followed by Q in Asia and in the interest of time, we'd appreciate if you could limit your questions to one.
Chris and I will both be available after the call to answer any follow up questions you might have and with that to sell my pleasure to introduce Mr. Keith Creel.
Thanks, Megan and welcome everyone. Joining us. This morning appreciate the opportunity to talk about our unique CP store in these results that we just released to cheer.
Let me start my comments thinking or 12000 strong T. P family the men and women everyday that works.
Work hard to deliver service for the communities, we live and operate in as well as for the economy and for our customers the dedicate.
The dedication and pride it takes time.
The operate especially in today's new world that we're all living in.
Is this quite demanding and it's certainly warrants that recognition so I'm honored to serve with each one of these men and women day in and day out as we.
Produce for our customers as well as our shareholders moving on to the quarter, though let me say.
I have a tremendous amount of brought about these results. We continued our strong operational performance Mark and the team did a phenomenal job.
Focusing on productivity as well as balancing service stream late spring Lake.
This business just came back to the railroads still up 7% and 9% respectively.
Versus last year, but.
Sports.
[laughter] subsurface productivity.
[laughter].
I think.
Great like currently.
To be able to produce a trip planned components of it [laughter] is impressive.
It was impressive.
That's correct.
[laughter] space that we take great pride.
And leading the industry in driving and creating the safest railway we cant on a day to day out basis.
To produce train accidents improvement 14% year over.
Year over year in the quarter as well as personal injury stand up and material meaningful 26% or something I'm proud of.
So I will let John anything walk you through how our performance.
Played out manifested itself commercially and financially, but I want to pause for a moment and I want to talk about CPC future.
You know I can say this is proud of them are the results.
Weve released and we'll talk about today.
I'm Super proud of what we've accomplished in this pandemic, we think about what 2020 is bad it's been a challenge, but it's also been a year of opportunity.
You know the access the the announcement, we made at close of market yesterday.
Really it's a piece of that excitement to propel this company going forward with Maersk No. Let me back up to a couple of years ago at our Investor Day, We spoke about how we were going to take.
Take our land holdings, we're going to take our franchise strengths the footprint that gives us an ability to grow in all of our key market spaces.
And convert them.
Into service offering into a supply chain solution that is meaningful for our customer and how they penetrates and serve their markets. So that they can grow in a meaningful way in in term, we would benefit and grow with them and at the same time its a solution that creates a stickiness to the railroad that's true.
Value.
But quite frankly, it's hard to walk away from that matters to the customers not just the price game. It's not just the commodity it's a service offering that unique to CP into the partnership the strategic partnerships that we choose to.
To enter into and that we're honored to be a part of with our customers and this maersk announcement is just symbolic of that it's a textbook example of taking those land assets, creating a solution in partnership with the customer that allows them to realize there.
Goals and objectives running their business and allow CP to be part of something that is not only good for business. It's good for the environment. It's good for our employees. It's good for sustainability you don't you think about what it does in the city of Vancouver, you think about the the carbon footprint right now today before this the sale.
He opens up rough numbers 100000 truck lose a day that are moving on the highways the congested roadways of Vancouver.
We're gonna essentially shifted the railway this.
This model is going to allow a shift to rail transfer to this transload facility that is going to take those dray moves up the road the carbon footprint of that alone.
It's compelling.
To do this is something that this company is proud of its something that are I know a marketing team I've got to command, Jonathan Bob and the team and John Brooks. This has been a long.
Process, but I can tell you I can't speak highly enough of our experience with the Maersk team to like minded companies doing the right thing for the customers for the environment for their employees, it's a compelling compelling needle mover for us so as we execute this as we built the facility you know as we shared back in September the game.
Tom has been broken its being constructed now it.
It's going to come on second.
Second half of next year, but with this most recent announcement. This additional business. This realm move where we're going to be able to take product from Vancouver to penetrate could.
Canadian marketplaces with our franchise.
It's something that's very very compelling and starting for a company so its strategic multi year.
New partnership that we.
We look forward to stepping into and growing with for the years to come with Maersk.
Couple of other things to think about this pandemic.
I said at the very beginning with.
We can't control the pandemic.
We're going to focus on what we can't control, we're going to look internally and often crisis great opportunities. It's a crisis can be a motherhood of innovation.
So thats exactly what we did we ask ourselves what can we do to become a stronger CP.
Our shareholder for our customer for our employees, how can we become safer how can we become more reliable how can we control cost to a better degree and I can tell you. There are several milestones that I'll quickly touch on before we get into the color and the commentary on the quarterly numbers.
Detroit River Tunnel acquisition, when we announced last week again.
That's the fruit of efforts internally and area of opportunity if I go back to 2009, which predates My association with the company, but this company was in a position to know nine in.
And that economic crisis, where cash mattered.
Financially, we were not a very stable ground.
That's a key asset a strategic strategic asset that CP owned Tampa at that point.
Predecessors made a decision to sell what we saw.
We sold it.
We retained a certain percentage of it a small percentage I think rough number 16, 17%, but fast forward to 2020.
What opportunities are there again.
Where we can focus on becoming.
Safer more reliable controlling cost this is an area an opportunity with our cash flow and our financial balance sheet and our strength and we've always said our first call on cash is internally, where it made compelling sense to buy this asset back it's accretive to earnings it's accretive to our margins day, one so again.
Symbolic of controlling what you can control you move to the SD space, That's a place where you see and you will continually see.
Being.
Leaders of thought leaders a discussion leaders of innovation, but most importantly leaders of action and those are some of the things that we're proud about in this space. We have been working it is Steve for some time, we made the announcement.
About the solar panel piece, that's another project it in this pandemic again controlling what we can control. We began we broken ground. We are building a solar panel form at our headquarters in Calgary I think will be one of the first if not the only corporation in Canada. They can say when we finish this that we're powering or.
Corporate office with a zero carbon footprint, that's something we're proud of that something that matters to our employees and as we all become more socially aware of the impact we have in our environment. That's a needle mover for this company and again, it's something we're proud to lead in and discussion and most importantly in an action.
We think about technology, we think about safety.
We have been safety leaders for quite some time, but I can tell you. This is not a perfect sport, it's an outdoor sport itself.
And we never get there it's a journey, it's not a destination so along that journey, how can we become better at what we do how can we become safer how can we become more reliable hakan to control costs. Those are the things that we approach safety three.
Three prong approach it's people it's process, it's technology, we continually focus on the people that it's all about the culture, how do we get home safe every day the process. How do we do things are we doing it in a safe manner does the process make the most sense from a safety standpoint efficiency standpoint, and finally are we leveraging technology so were not.
When the pound our chest about this technology piece, but I can tell you it's something that not only have we have been working on we've been continuing to get better at it and we made some extremely important milestone achievements. During this pandemic in 2020 that will pay fruits of our labours for many many years to come not only going to say for railway, but also in a more efficient railway.
The trade inspection portal is a great example of that makes.
I'm extremely happy to announce the transport Canada has recently approved the use of our train inspection portal, which is located just west of loose John or Maple Creek subdivision to handle and create remote visual train inspections on our potash trains now I know, we're not the first ones to talk about these portals, but certainly CP is the first to receive the exemption and Ashley.
Operationalize and apply this so we've got a high speed camera system, that's going to do train inspections.
Capable producing full body resolution images that train speed to 70 miles an hour.
And it's safer, it's more efficient way to analyze the train and we've already proven that we can detect 87% more defects than traditional manual inspections, but when you operationalize that how does that how does that affect the bottom line, how does that affect service and asset turns well in this case alone. If you think about the potash strength that we move 12 to 15 trains a week, where we're moving.
Dental normal tonnage through loose jewel everyone. Other strains today are before this exemption before this technology was applied.
Was required to stop unloaded side for safety mechanical inspection, we're no longer required to do that so think about the implications to the assets in a very busy terminal.
You've got 15 trains a week not stopping in consuming two hours of manpower man hours to offers a locomotive time two hours of track time, you start multiplying it hits, the but the balance sheet. It hits your asset utilization across the manned side across the equipment side and locomotive side. So its compelling it moves the needle.
As part of how we continue to get better at doing what we do and continue to move the needle at CP, both from a safety and efficiency standpoint, Colwell technology is another space that we pioneered in the industry, we created a technology using.
Our waste side equipment detection to measure the heat.
Print that the brakes are applying to the wheels, so as opposed to doing a break.
A break leakage tests, we've got a technology that applies that and the movement of the train we know how each individual car is breaking.
We know where we might have a potential problem to be able to apply that technology to drive a more reliable fleet is what we proved with aside some of the technology and our coal fleet now.
That allowed it out.
And application an exemption to apply that to the potash fleet. So the goal in the potash fleet, both help Coldwell technology and we're not done there we're working on the Green fleet, we're going to work on the intermodal fleet. So anywhere we have a closed loop of equipment within our network, we still have additional opportunities to make strides in safety to make strides and efficient efficiency.
And to make additional strides in cost and the final thing I want to highlight that I'm extremely.
Proud of our team Dr. collagen and team we gave them a challenge you know were aware, we had some pretty high profile chat.
Challenging derailments toward the end of last year and early this year with with crude trains up at our northern territory.
Where we serve the crew more crude markets.
As a result of that obviously on dark territory, and that's where we don't have CTC to give us broken rail protection, which the preponderance of these crude routes are on the northern mine.
We went to the team we had a challenge we have to get broken rail protection.
So they went to work in a very short order of time took technologies from other industries and combined a methodology.
Effectively.
The railway the dark territory subdivision with the technology.
Roger that gives us broken rail protection by sending energy sitting electricity, a low level of electricity to create a circuit that if a train vertical railway to break that we're going to know before the train finds in the stark territory that solution that we've created internally. The team is created and operationalize and are executing today or.
Order comparison order magnitude not only do you get the safety benefit.
With the aborted derailments, which obviously has.
Enough positive benefits to fuel the investment.
Think about the additional efficiencies with asset turns with train speeds today those trains without broken rail protection, although subdivisions, we run a 25 miles an hour as this technology and this innovation gets deployed were able to run 45 miles an hour.
You've got a safer more efficient more reliable network as a result of this and the cost of this this innovative technology that our team came up with is a 10th of the cost the CTC.
We're doing the subdivisions.
I'm going to have dollars a piece versus if you were to go and try to apply that with the CTC solution do the math, it's compelling so.
So again country.
Controlling what we can control we continue to innovate at this company and these are just a couple of things and I don't have time to go for all of them I just wanted to provide a bit of flavor.
To the market that not only.
Do we day in day out create a unique investment solution with our results and with our customer connections, but these are some of the things we focus on that as an operating CEO I'm extremely energized about that make me extremely proud of not only what weve accomplished but most importantly about the future that lies ahead and how we're going to continue to sustain these.
Kind of results and be innovative leaders thought leaders action leaders that drives a compelling value proposition for investors for our customers and for North American Commerce.
So with that said I'm going to say the balance of our time for the questions are my time for the questions. Let me turn it over to John to provide some color on the markets and then they deem will wrap it up with color on how we brought it to the bottom line.
Right. So thank you Keith and good morning, everyone. So total revenues were down 6% this quarter to 1.9 billion.
Our teams are also down 6%.
Effects was flat will fuel was down 3%. So as expected third quarter played out just how we talked about it was very backend loaded we had tough comps in July and August.
I will speak to our third quarter performance by our line of business and provide some colors on and what I see for our outlook looking forward I will speak to the results on a currency adjusted basis.
So grain volumes were up an impressive 18% on the quarter revenues were up 11%. We finished the crop year very strong by moving 10% more grain than any prior year in our 139 year history.
Q3 was another tonnage record our fourth consecutive record quarter in Canadian grain.
A tremendous achievement made possible by close collaboration and partnership between the CP family and our grain customers.
There is a potential for a record crop in Canada, particularly strong in the CP draw territory and.
And we are well positioned to move the volume with over 3300, New high capacity Hopper cars in service as our high efficiency product is changing the way our customers manage their supply chains.
We're very pleased with by terrorists announcement yesterday to build another 8500 foot Greenfield elevator exclusive on CP in bigger subscription.
This development is very targeted in a growing territory that will expand cps competitive reach.
So by year end over 30% of our origin elevators will be transformed to 8500 foot model.
And to add to the good news story in grain I'm quite optimistic this year for our outlook in U.S. Grant.
After a few years of lower volumes related to the trade disputes export volumes through the PME W have accelerated and we.
And we were up by double digits on us green side on the quarter.
I see continued strength in grain on both sides of the border as we move through Q4 and into 2021.
On a potash front volumes are up 20% and revenues increased 13% a store.
A strong Q3, we expected came to fruition and we delivered a tonnage a record for the quarter.
Canpotex is sold out as we look towards December and.
And we have done they have done an excellent excellent job of diversifying their end markets with Brazil actually passing China in 2020 of Canpotex number one end market.
On the domestic potash side, we're also performing quite well as nutrient replenishment in North America improves after several poor application seasons Weve.
We expect domestic usage to remain high driven by increased demand for food supply and the need to continue to replenish the soil.
Our diversified book of business with a solid bulk base deliver steady growth and has remained very resilient through the pandemic.
Outlook of our AG franchise, a key driver in our outperformance year to date remains very strong.
Moving to coal volumes were down 23% on the quarter as a result of planned port outages.
However September has improved from a volume and revenue perspective, now that the Neptune facility is commissioning we expect.
We expect Q4 to continue that improvement trend.
The energy chemicals plastic the portfolio saw revenue declined 16%, we'll volumes declined 39%.
Good volumes led the decline through Q3, with only 5000 carloads shipped down over 80% year over year.
Excluding crude energy chemicals, and plastics volumes was only down 2% on the quarter and.
And volumes were positive in September.
Moving to forest product volumes were up 14% strong.
Strong demand in lumber continued strength in pulp and paper as well as strong hedge execution of our Playbooks enabled an all time quarterly volume and revenue record in our forest products line of business.
Continued demand from home renovations improving housing starts coupled with RCM Q acquisition will continue to drive growth in this space.
And that fee revenues declined 24% and volumes were down 21%.
Frac sand was once again the big driver in this decline as a result of the challenges facing the oil markets and shut in production.
Steel aggregates and other construction inputs, which were challenged by the pandemic gradually recovered through Q3 and were effectively flat year over year and up sequentially.
Since September excluding Frac. This line of business was positive on a year over year basis.
Moving to automotive.
James were up 11% setting a Q3 record as we welcomed FCTA to our Vancouver, and Calgary auto compounds and onboard and Globus I mean.
Im extremely proud of the hard work put in by the CP team to utilize our strategic land holdings and turn them into unique customer solutions in the automotive space.
In September automotive volumes were up 40% year over year.
Base auto the base auto demand about environment remains quite strong and coupled with our contract wins will drive continued strength and outperformance through the end of the year and into 2021.
Now finally, moving on to the intermodal side of the business quarterly volumes were down 4%.
On the domestic intermodal front revenues were up double digits, and we delivered an all time record quarterly revenue and volume in particular, our refrigerated Rtms were up 13 are up 13% year to date setting an all time record showing the strength of the CP franchise for this.
Central service.
Continued strong consumer debt demand from the big box retailers in Canada that ride on CP.
Well position us for a record finish as we look towards the end of the year.
In international.
Strike at the Port of Montreal weighed on volumes, but also created a tremendous opportunity for CP and the core to say John to showcase.
New acquisition that we received from DCM Q.
Diverting for ships to the Port Saint John.
Our strong partnership with DP World.
Yes, our hapag Lloyd in Merced help make this all possible and we are grateful for their ongoing support.
With the new capacity being added to the Port Saint John combined with CP, most efficient route to market.
I remain very confident that we will attract a new steamship line service offerings into St. John in 2021.
Now heading into the end of the year demand at the ports on both coasts remain high.
And looking out further our customers indicate that the pipeline of international ships look stable into Q1 of next year.
So finally as Keith spoke to in his opening remarks I'm Super proud of the work the team has done in creating our new strategic partnership with Mers just.
This multi year partnership as two key components for.
First the state of the art Trans load that we previously announced that is under full construction on CP landholdings and is co located at our Vancouver Intermodal terminal.
Again this is a unique rail centric solution.
As Keith said that we'll pull thousands of trucks off the lower mainland and create a competitive advantage for our customers.
And secondly, our most recent announcement yesterday, our multiyear contract to provide service for nurse out of the port of Vancouver, and the port of Montreal will.
Well certainly contracts in this international space can can be competitive.
CPV unique value of our land holdings.
Our trans load solution and our.
And our most efficient direct service to key markets were all core elements to enabling these agreements and this partnership.
So let me close by saying September came on strong as we expected and in talked about on our Q2 release.
We carried that momentum things are looking quite strong as we moved through October and we fully expect it to continue to the end of the year and into 2021.
As we've talked about we have a broad based set of opportunities that we are onboarding touching many of our commodity areas.
Not only includes now Maersk.
The new Transloads that we've opened in Montreal, our continued growth and opportunities with the cm Q, new auto compounds in grain facilities and.
And certainly much more to be excited about the width.
So with that I'll pass it over to Nadeem.
Thanks, John for the very impressive report an update.
I'm extremely proud of the results the team is delivering today.
Momentum we created in the first half of the year carried into the third quarter from an operating ratio perspective, we knew we had some headwinds to overcome sequentially with fuel lag and year over year stock comp, but our team of real railroaders exceeded expectations and their ability to control costs and deliver operationally on.
On the quarter with volumes down 6% stock.
Stock based comp headwind of 220 basis points in the casualty headwind of 60 basis points, the operating ratio increased 210 basis points to 58.2%.
The underlying railroad continues to run extremely well as we sit here three weeks into the quarter I remain confident we'll finish the year strong and with the best ever Q4 operating ratio.
As you've seen we updated our guidance this morning to reflect the momentum we've been building and our.
And our position of strength going into the fourth quarter, we now.
We now expect at least mid single digit adjusted EPS growth year over year, a tremendous accomplishment given the global macroeconomic volatility this year.
Moving onto a few of the more notable items on the expense side I'll be speaking to the operating results on an FX adjusted basis.
Comp and benefits expense was up 7% or $26 million versus last year. The primary driver of the increase was a significant share price appreciation in the quarter.
This 41 million dollar headwind was partially offset by improved efficiency and a decrease in headcount as we continue to bring employees back on the property in a measured way.
Fuel expense decreased $71 million as a result of a 29% decrease in the price paid year over year and lower volume.
Our fuel efficiency, which is 14% better than the industry average has improved 2% year to date, which has resulted in 35000 tons of cotwo emissions avoided.
Materials increased 6% largely driven by.
By increased locomotive maintenance related to bringing units back into service as volumes improve.
Depreciation expense was $195 million, an increase of 5% as a result of the higher asset base.
Purchased services was 275 million relatively flat by higher casualty expense in the quarter.
The team continues to effectively control spend and the debt real time to the changing volume environment as I've mentioned in the past the internal collaboration and constructive tension that CP is what sets us apart.
The teams work together in lock step to drive results and improve on industry, leading results as we continue to develop new ways of doing things better be it technology innovation innovation that Keith mentioned or through improving the operation.
Of Railroaders look to build on our success.
Moving below the line.
Other components of net net periodic benefit recovery were negatively impacted $13 million or 13%, primarily due to a lower discount rate.
Interest expense was up 4% due to a higher debt level, largely offset by a lower effective interest rate and lower commercial paper outstanding.
Rounding out the income statement adjusted diluted EPS declined 11% in the quarter.
We are continuing to continuing to look for innovative ways to stretch our capital dollars.
And maximize our return on invested capital in.
In Q3, our engineering work crews took advantage of an average of 15% more block time than in 2019, which translated into a 7% savings on the average unit cost of installation.
Year to date, we've already installed more cross ties than we did in all of 2019, and it and intend to install 30% more than 2019 by the end of the year the Sun.
The sufficient capital work has the network and terrific shape as we head into 2021.
Credit goes to Mark Red and his team for finding the right balance between engineering block time and operating to our plants.
We remain committed to $1.6 billion in capital spend for the year and managing the capital on the LOE for the long term benefit of the company.
Rest assured we continue to maintain discipline on capital deployment as evidenced by our adjusted ROIC of 16.2%.
We will continue to balance our shareholder returns the buyback is 60% around 60% complete and leverage remains in our targeted range.
First call on capital as Keith mentioned is always the business.
Still see upside in the stock lover than Detroit River Terminal acquisition was a unique opportunity to regain full control of a strategic asset on our network.
We continue to invest in our core area of expertise should be not finish the buyback before it expires in December you can expect us to announce a new buyback in the new year.
We expect to finish the year strong.
I'm excited about what lies ahead for 2021 and beyond so with that I'll turn things back over to Keith to wrap things up for going to the QNX.
Okay, well hopefully.
Hopefully you've got a good flavor.
That only what has driven these results, but most importantly about.
What fuels our resolve in our conviction about the potential that lies ahead for this company.
We've been on a journey at this company for quite some time.
Pivoting to growth we've led the industry. The last several years, even in the year pandemic challenges. This profile that this company continues to execute in lock step with our partners with their customers with these innovative solutions are accrued.
Our creating these outcomes that are unique in this industry unique for this company.
It certainly reflects the strength of the strategize.
We expect more of it we're not done this is a journey, it's not a destination that something thats woven into our DNA will continue to work hard to to meet and exceed our shareholders' expectations, our customers' expectations and our employees ex.
And our employees expectations.
With that said, let me turn it over for questions.
Thank you if you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key as previously highlighted please limit your question to one.
It will be a brief pause we compare the Q any roster.
Your first question comes from the line of Ken Hoexter from Bank of America. Your line is open.
Great. Good morning, Thanks for the update great outlook on the mid single digit EPS growth in this environment.
If you could talk a bit about the assets locomotives and cars things on the side line and the need to bring.
Costs back in the future as you flip into growth and also maybe your thoughts on the employee costs into 21, just given you always talk about that tension Keith between the cost and topline growth.
Well I can tell you. This can the tension doesnt change the attention that constructive tension and accountability is what allows us to continue to produce.
If we look at these key metrics and.
Look at employee productivity I look at locomotive productivity I look at car productivity, even as we bring this business back on we can we can talk about the quarter, where we draw.
Drove improvements across the board, but I'm I'm thinking about the fourth quarter now so if I look at this month.
Alone Weve got to a point, where we are inflecting positive on volume.
In order to RCM basis, we're at 8.6% this morning quarter to date month to date train.
Train miles are down 13.5% weights are improving year over year up 7% train links 8% crew starts 14.5%.
I share those numbers just to give you the same conviction and confidence that I have day in and day out this operating team understands how to manage resources to keep a constructive tension. So that we can sweater assets. So as we bring people back on it.
And we were down in the quarter about 8% on a 6% reduction in rtms, they're not going to be one for one.
We're going to continue to make.
To maintain our productivity measures, we're going to continue to invest and expect a return for those investments and work hard to grow the business. So that we can bring all of our employees.
Back to work that are currently still laid off which we still have several hundred but in addition to those several hundred part of the synergies on the headcount of course is just doing more with less as we retreated out employees.
Outside of those crews in the men and women that moved the trains day to day out in the corporate office and all the support functions, we became more efficient. So certainly we've not replaced for one for one we don't intend to replace for one for when we became more innovative more productive and in fact, if you think about the world We live in Ken how many less flights.
Are we going to take.
How many for hours are we going to be consumed in airports are in transition to meetings, how much more productive can we be so we shouldn't be one for one so rest.
So rest assured that's something we'll continue to work out to drive additional efficiencies better quality of life for our employees, but at the same time harvest the benefits of productivity.
And the cost synergies that allows you to generate.
Great. Thank you.
Your next question comes from Allison Landry from Credit Suisse.
All right. Thanks, guys.
Just given the recent volume momentum and the various growth opportunities next year that are really specific to CP and then considering that productivity improvements you've made this year in terms of train length and wait.
How feasible in the mid Fiftys LR in 2021, and if you could speak to you.
What you think the earning power of the business for the next couple of years. Thank you.
Well, it's a great question now.
We've been accused of sandbagging, a bit but I would be doing that if I said thats not the art of the possible late 2021 is that if things go our way and these things play out the way we think they may play out in the economy doesn't have some staggering shock event that I cant predict that's in the art of the possible wallet leading provider.
More color, but certainly this is a railway on a journey.
Not that were seized and focused on.
Mid Fiftys operating ratio, it's just a natural outcome of our profile in the way, we execute day to day out that.
That allows us to compete the marketplace may deem to provide a bit of color to that yes. I mean, if you do the math based on the guidance. We've given you based on our outlook for Q4 kind of in that high.
Hi, mid fiftys level for the year.
And certainly in this.
In this environment.
Rails are benefiting from lower fuel surcharge and the benefit that that has on on the operating ratio doesn't have much benefit from an income point of view, but it does help dealer.
So.
We've always talked about improving on our performance and so for already at kind of that level.
We assume we're.
We're going to improve next year, and we're going to get the benefits of operating leverage and the unique growth story that that John.
Line. There is no reason why we can't have a mid fiftys level of operating ratio for the year.
Uh-huh side of what we can control, which is fuel and stock comp and so.
No reason why not why we can't do that.
Thank you.
Thanks Allison.
Your next question comes from Walter Spracklin from RBC capital markets. Please go ahead, thanks very much good morning, everyone.
So I want to come back to your use of land is kind of a teaser for new contracts and and really this is kind of contrary to prior management team, where you were looking for a broad sale.
Sale of your land and I'm, just curious, perhaps John can chime in is how much.
Revenue conversion opportunity do you think you can take using your land is a teaser to achieve.
More myrisk more forward more and more deals like this where you tie them in not only to win a contract but to win it for for multiple years and correct me if I'm wrong here this month.
Multi year is longer than your normal year with.
Intermodal customer if that's correct.
Yes, so Walter.
Only if Keith brought us back to when we talked about at our Investor day.
This has been a key cogs in the whole growth engine in the story of how we've laid out our strategic playbook, so commodity by commodity.
Where the various locations that we can take our land assets and create these solutions I don't know if I can put a number on it but looking forward other than I've got over a 1000 additional acres out there that were.
That were actively actively working on we've created essentially for.
New auto compounds on our land, we've we've opened two trans load.
Developments.
I think there's certainly more opportunity there, we're just getting our our new facility up and going and in Montreal.
You look you look at Vancouver, you got it additional hundred acres beyond where we're building the numerous building the transload facility that is right for development.
So we were keenly working on that and and then you look at what we've just done in Chiller Park in the Chicago market. We've just opened a new auto compounds, there, but being well positioned in the city like we are I think has a ton of opportunity as the begin to think about how the.
How these housing markets, how this home improvement market, what the forest products industry needs to do.
Further develop some of that area. So I'm not sure if I can put a number on it but if you go back and you start looking at at all the opportunities that we talk about whether it be also IP all in the Alberta Heartland using our land assets I think were honestly in the mid innings of this ball.
Game in terms of what those opportunities can drive as we look into the future.
Really good color appreciate it thanks.
Your next question comes from Ravi Shanker.
From Morgan Stanley. Please go ahead.
Thanks, Good morning, everyone and then Dean can you give us a little more color on the threeq to Fourq or walk please.
He said the best ever or expected in Fourq, you are going to work some of the puts and takes there and then.
And if I can try and sneak in the second question for Keith.
Thanks for the SGN Tech focus why now is it because of the availability of the of the technology is it because of the timing because of coal bed is it because of increased demand from your customers.
Got it and what's what's driving that that push towards energy focus for great roads.
Let me take PST first Ravi then I'll turn it over to needing to provide the color on the walk to the or.
Listen the world's changing around us we're all living in it we're all becoming more environmentally aware, it's no secret as well, although we were already on this journey.
We've got a shareholder that express.
Their focus and their expectations and their concern about the environment. So number one shareholder our largest shareholder nadeem and I.
Two years ago, or I guess, it's almost coming up on two years ago, We had the honor the opportunity to speak at their Investor Investor Day, and we had a private meeting and we discussed SG we discussed how this.
How this entire space not only.
Is that the right thing to do for the environment. It's also a differentiator for the rail industry. We have been leaders, we talk about the benefits and leaving rail versus truck.
So we decided we committed then that we're going to be innovators, we are going to be leaders in this space. So as.
So as technology has developed.
As the opportunity in space and time to think about how we become thought leaders action leaders in this space, making in the team layer pits Glenn Wilson.
External.
Partnerships that we've created we focused on how to.
How do we lead in this space we're leaders in safety, we are leaders in financial performance, we're leaders in service performance.
Leaders and customer relations, we're trying to be the best possible company, we can be realize our potential across all spaces and this is a space with the ESG that it.
That it matters more than it ever has.
It certainly has our attention it has our focus.
Our employees get energized by the environment is going to benefit from it so.
So theres never been a more appropriate time and again this isn't just a flash in the Pan this is becoming woven into the way. We think we'll take these applications will operationalize them.
If it makes sense as we go across the property I think about the solar garden aspect Brigid approved the concept in Calgary that does not mean that were anywhere remotely close to being done.
You know that the amount of money it takes to invest in that because it is becoming much more affordable and reliable in the return on that in and of itself from a financial standpoint. This compelling you.
You layer on top of that the social benefits to that as well as environmental benefits to that it's just a compelling value proposition that we'd be remiss not to be executed.
Sure Robert just on your second question around the O R. I think the biggest.
Sequential change will be the fact that our revenues are going to be much.
Much stronger in Q4 than they were in Q3.
We've seen the strength coming in the first three weeks, that's going to be extremely positive too so our operating leverage as well.
If you think about the the stats that keeps shared as far as some of our.
Crew and Trey.
Train density performance, and which all supports our operating leverage and will improve our help improve our operating ratio at the end of the day.
The other point.
Points I'd make our we had a very high casualty cost in Q3, and I fully expect that to to change in Q4.
And and we'll see what happens with stock based comp certainly that's been a headwind throughout the year.
Based on our performance and you know.
Certainly.
Expect that to continue to an extent, but but we will see that's a bit of a wildcard.
So I think those are the major items I pointed suit between Threeq you in Q4, so really benefiting from operating leverage and a rebound in volumes.
Great. Thanks, both.
Your next question comes from Sandy Chen from BMO. Please go ahead.
Good morning, and thanks for taking my question.
Maybe.
Thinking about 2021 and.
Got it if you help explain the RPM growth opportunity for you if I look back and going off maybe three years.
In a cyclical recovery and then economic recovery and I think was the success you're having in the commercial side, we've kind of seen volume go up between.
Mid single digit than high single digit than RPM and the challenge going into 2021, you have pretty much all the segments kind of working on.
Moving in the right direction, I guess, including grain.
Okay got you asked is there scope would kind of mid single digit high single digits in 2021, given what you know now about the CP specific share opportunity then what's kind of coming in may.
And the pipeline from a grain and again all of them.
Market.
Well look I'm not in a position to give any guidance on 2021 rtms quite yet we're we're certainly putting all the all the elements into the blender as we speak to see where that that lands, but I will tell you. This.
If you look at Q3 Q4 this year full year exclude crude were positive.
I think that tells a remarkable powerful story.
That we've been saying we can do this without without crude.
We've done it on the strength of all the things I talked about.
With Walter's question in utilizing our land assets.
We haven't even caught the big tailwind of three really relates to RCM Q acquisition and in a number of the opportunities we're going to bring on related to that.
Of course.
Maersk will will certainly bring a a nice revenue opportunity for 2021 for us but but.
As that develops over overtime.
As Keith spoke about that that's going to be a trends formational revenue opportunity for for us. So im bullish on 2021, obviously, we'll we'll have to watch how.
Endemics getting economic and all the various things Keith spoke to that our loom.
Our looming out there, but if the trajectory continues.
Yes, I'm I'm I'm anxious to see what we can deliver in 2021.
Yeah, I would say John's being a bit.
He has been a bit humble here for a bit modest if things go our way in the economy plays out the way, we see playing out with these.
Initiatives that we've talked about with these contract wins with our business mix there.
The range is you're talking about we're not going to commit to them today, but certainly those are within the art of the possible into business potential of this company and our business mix.
You go fatty.
Great I appreciate it.
Your next question comes from Chris Wetherbee from Citi. Please go ahead.
Hey, Thanks, Good morning, maybe sticking on the revenue opportunities John can you talk a little bit about sort of going back.
Sort of going back to the Investor Day, you had a a line of sight to a number of potential opportunities you closed on several of those as you think out to 2021 can you give us a sense of maybe what still out there in terms of specific opportunities. You can go after and then maybe thinking kind of about the international intermodal side, obviously, the Maersk condition is really interesting.
Can you talk a little about how currency, John sort of might might be able to be sold out over a period of time.
Yes specific to the.
I like where we sit today in sort of our mix.
Chris as it relates to the international intermodal space, Onboarding, where school will be a significant milestone and an opportunity for us. Thanks.
John is going to be interesting.
I am.
Im feeling really good about bringing a steamship line.
To direct directly to CP into that terminal in 2021.
But I think the art of the possible longer term is quite exciting.
I think similar to the dynamics of being freight transfer from the West coast of United States up to Vancouver, and also up to Rupert.
The same dynamic of going after business in New Jersey, and New York and in working those same opportunities is very real obviously, we hear so much about near shoring.
Whether or not and how that plays out in the coming years global yet to be seen but we again, we think Saint John is it is very well positioned to capture some of that opportunity.
And then just also I would say its share the share shift opportunity out there in that just frankly, our competitor as as long serviced and really been the only alternative in the Maritimes for a number of years and now with our new access into the port and over two.
Hundred miles shorter route.
We think theres going to be just some natural gravitation towards towards CP in that area also so.
But it but it doesn't stop at international in his part of that same John as team Q opportunity. We think we've got a great domestic intermodal opportunity. There we've got a beautiful please piece of land that.
For for Automotives that Globus and others are starting to use.
Effective now it provides great diversification in our merchandise franchise.
Particularly for us products that has been strong.
So theres the Phantom Q is a is a big part of it.
You know I already spoke about in our pipeline coming on later this year, we just had Pam Pembina open a new LPG facility.
We've talked about all the all the green opportunities and above and beyond that don't forget Weve got our diluent recovery unit comes.
Coming online at Hardisty in mid 2021, that's going to give us some more resiliency in that crude by rail market.
Yes, I think so the way I think about it.
Chris the way I think about the same Q I'm extremely.
Im extremely bullish about the opportunity that.
Saint John represents.
For our customers now as well as future.
As well as for our employees the Innovativeness the entrepreneurial spirit of the people in Saint John that Port.
[music].
Graphically its advantaged by distance Tidewater to key markets that will serve there.
They are in the middle of an investment capital expansion going from effectively 200000 Teu capacity to in partnership with with CP with the province.
And with the key stakeholders division is by the end of 2022, that's going to be an 800000 Teu capacity terminal.
So think about the growth between 150000 T use.
Which is today and what 800000 looks like which will be key success enablers getting that from tidewater into the more.
The markets internal the candidate as well as the us Midwest it's compelling.
In every other benefit every other associated revenue stream Thats created as a result of that it's an economic lifeline to to say John is it economic to platform for growth.
Feel a distal growth for this franchise and a great service offering for our customers 2021, you're going to see a same ship flag I'm confident.
Planted in Saint John and Thats going to begin the journey in the March from 150.
To 800000, I said this in just a year year and a half ago I think at the bank over the east that's going to be a major gateway it's.
It's going to be a major gateway in the future for Canada for can you.
For Canadian Pacific for St. John in for our customers and set them. We're super excited to be part of an honored and proud to be a part of.
Thanks for the color appreciate it.
Your next question comes from Steve Hansen from Raymond James. Please go ahead.
I'm just going to ask a similar question in another way on the land strategy, just trying to get a framework here or a sense for what inning, we like the the last strategy. I think you described the thousand acres that working on but it's still at two to three year five year seven year development strategy that we'll see continued benefits.
From or where are we at thanks.
Well, we've got we've got land in the bank deposit is a savings account I guess, we could play it out we've got different playbooks, Steve, but certainly over the next two to three years Weve got some contracts some ideas concepts in discussions in play that we'll see additional revenues be converted because as those land strategies, but I can think out 5% to.
Seven years from now we're not going to consume that all every key market.
Vancouver, Theres, a phase two thought about what we might be able to do that additional 100 acres.
As we develop those business opportunities, it's compelling it could mean more than what this transformational opportunity, we've just announced means for us.
Creating stickiness, creating additional revenue streams I can take that thesis in case to shut.
To Chicago, where I'm at today in our terminal and this in detail in the capacity that we're going to unlock is we continue to re purpose that yard I can think about shell. The park. We've opened this auto compound we're not done there I can go to Toronto I think about the compelling footprint, we have at bond, which is in a strategic location.
To double essentially the business, we handle as we bring the business cases alone I think about Milton.
That facility in have itself compelling value generator. So this to me you should expect.
Every 18 to 24 months at least for the next five year time period, there's going to be one of our strategic Playbooks that go from concept.
To application operationalize the conversion, bringing additional revenue to this railway that's going to fuel growth as well as create unique supply chain solutions that create that value proposition that.
Makes it a value offering not a commodity.
Not it's not in our interest to do contract swapping.
We're going to pick our partners wisely, we're going to create value for them and in turn dealt value. The service, we give them a we think thats the way to win business, we think thats the way to not only when it to retain it into continue to fuel earnings as we go forward.
Appreciate the color. Thanks, Thank you.
Thank you Sir.
Your next question comes from Jon Chapelle from Evercore ISI.
Please go ahead. Thank you. Thank you good morning, everybody.
John your revenue for RCM held in pretty well, especially the most of the headwinds that most of your peers experienced in Threeq you. How much of this is pricing for service specific to CP and we know how the volumes kind of progress through Threeq two ending in a much stronger than they started was it similar with revenue per TM and should we see the same type of momentum through.
October in Fourq, you I think.
I think I think I see a little bit of acceleration on that sense for RPM as we move into Q4.
On the pricing front the team.
The team is staying disciplined.
[music].
And again I know I talk about this all the time, but they're part of their compensation is based on staying disciplined.
But look you couple that I think customers are certainly benefited from lower fuel prices.
And frankly as capacity continues to tighten we are seeing it in the truck spot markets.
Some of the shorter haul lanes for sure and but honestly as rail capacity.
Titans on both sides of the border.
Quite bullish as I look ahead to our pricing capability and again to your point really based on the value of our capacity that we have and our service offering we provide Keith mentioned in earlier.
Trip planned performance through through this past quarter and through the pandemic staying in that high I think 80, 788% range.
As compelling to our customers as they look to save money there depending on quicker cycles. So.
So I see ongoing opportunity in this current environment on the pricing front.
Great. Thanks, John.
Your next question comes from Ben last Friday from Deutsche Bank Capital markets. Please go ahead.
Good morning, everyone.
Could you talk about fortunate to bring more volume so were destroyed so all in all though over the medium and longer term and whether do you see murder and many unfortunate these fall where we can see in Q and the Detroit total thanks.
Well I think been while we talk.
We talked about the hearing a lot about our opportunities for the CMS, you and I think that naturally as a.
Perfect connection with the Detroit River tunnel and.
The thought of having steamship lines that can.
Look to bring traffic through the.
To the Midwest.
And leveraging that Roading advantage certainly went into our thought process. It wasn't the sole driver, but certainly we would benefit from increasing volumes and increasing opportunity to control our own destiny.
So that's that's what I'd point to.
As far as additional M&A.
They are being number short lines, a number of opportunities that have been.
In the market the last 18 months I would say.
We are very focused on rail M&A, that's that's going to be where our attention is.
And it needs to be.
Connecting with our network, where we can provide value there have a better service opportunity for our existing customers enter new markets or look for.
Look for even operational benefits.
I'd say that we will continue to look at it.
All his deep our powder dry.
Financial Wherewithal.
Free cash if you look at.
Our performance.
The next several years, our free cash generation and.
Theres a network fit strategic fit we will continue to pursue it.
That's great color. Thank you very much for the time.
I see going on.
Your next question comes from David Vernon from Bernstein. Please go ahead.
Hey, good morning, guys. Thanks for the time.
Just real quickly as you think about the.
Essentially we received on the essential oils and the Palm Springs.
Something specific about that you keep that allowed you to kind of get that leads and what's your expectation for when you might be able to roll that technology out to the west.
[music].
With a growing part is all about proving the technology out obviously for transport Canada.
To allow us that exemption thats something thats its been in the works it's been in the process going through proving our case that we have an improvement in safety that it's actually not just about productivity is most importantly about creating a safer.
Environment that we operate in so that has to be proven out weve through the data through the technology. We've we've proven initially that we can do this so we're going to.
Walk through this we're not going to try to run through this we're going to make sure that we can.
Continue to drive safety improvements as a result of the technology with which bodes well for our case for change as we look at those additional fleets. So.
Right now I look at this this portal technology that we've deployed we've got one in service now.
We're on a journey.
Rough numbers the capital it's about a 4 million dollar expense to deploy these were going to do another one in 2021, we're going to do one more in 2022, we're going to do at least three to try to cover the network and then depending how the.
Application of this goes and depending on the progress with the regulators we prove its case you could see us expand so this is a journey again much like our safety journey, it's not going to happen overnight, it's going to be incremental change over the next two to three years, but we'll continue to move the needle.
Right.
Thanks, and if I could just squeeze one last one in that that step up in more than say John capacity on that's a pretty material increase multi year.
Total intermodal volume right now is very good.
Additional need for Capex in that quarter will sustain that kind of growth do you think you can get that amount to grow through more we just think its inception.
Yes, the capital plan that Weve laid out when we purchased the CPQ taken that from effectively a short line railway to the class three main line CP standard railway is covered.
Over our three year plan, we don't have to change that at all the capital that is required to get from that 200000 to use 800000 has already been approved.
Through the province.
DP World is worth.
Is working lockstep with the port Saint John to convert.
Existing footprint that existing terminal so the money's protected the journey has started the timeline, it's going to be completed by the end of 2022 23 and beyond.
We've got a world class terminal, that's going to become a world class Gateway and we're going to do our part in the partnership to help enable.
That vision into a reality.
Forward some of that capital work into 2020 and take advantage of.
Track time and availability with volumes down during the pandemic. So just.
With our approach wanting to get.
Track infrastructure up to CP standard sooner than later, yes.
Yeah from a service standpoint, and asset turn objective by the end of this year. The objective is to be able to get from Saint John to Montreal within 24 hours.
48 to Toronto, 72 to Chicago, and obviously were going to exceed that once we get this.
Full capital spend deployed but thats, what the objective is to create that compelling service offering in that marketplace.
Hi, Thanks and congrats.
Thank you.
Your next question comes from Seldon Clarke from Deutsche Bank. Please go ahead.
Hey, good morning, Thanks for the question.
When you think about the incremental growth opportunities from here that.
Essentially being enabled by the thousand or so acres of land that youre sitting on when.
When you compare this to to your typical business wins and the incremental capital needed to support.
Accommodate additional volume opportunities.
How does this type of growth change either the returns profile or.
Overall capital intensity of the business.
Well said and I would say that.
We factored in some of the.
Some of these growth aspects into our long term capital planning process. So we will contribute the land and the great thing about these partnerships. They truly are partnership so it's it's us committing some of our land capital.
Some cash capital through the building of.
Some of the infrastructure, but in many cases as the customer also committing their capital as well and when we look at our returns.
You've seen our our ROIC continue to increase we generate.
Meaningful returns to that.
That are required if we are going to contribute that type of land and additional info.
Infrastructure capital it would be in line with what what our ROIC kind of.
Reported ROIC is so.
Beyond that its not detrimental to our our overall returns.
Okay I appreciate the time thanks.
Thank you.
Your next question comes from Colin or death from Scotia Bank. Please go ahead.
Thanks, and good morning, everyone. So just on the sense about the and wanted to come to some.
Few things so on the E. CP side looks like defense brought DM are very strong I think in the last two quarters, how much of that spend would you say is driven by more favorable mix as says crude by rail is down and also the liquidated damages that you are collecting.
Yes, so it's significant it is.
The sort of the run rate we've seen.
Really through all of 2020.
I would expect to continue to see as we move into Q4.
And again, we structured all these crude by rail.
Contracts with that Backstopping, if we're going to come into service in the capacity weve required some sort of liquidated damages.
So naturally if the market turns and the opportunity to haul that freight presents itself.
That will change a little bit and if it doesn't we'll continue to collect that and you should expect intend to continue to see that similar run rate going forward.
Okay. Thanks.
Your next question comes from Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks morning, guys. So the Dean can you just clarify if the fourth quarter has got any gains assumed in there or if thats upside to the guidance and then just as you think about the earnings and cash flow and how theyre holding up so well does that give you comfort and maybe raising the.
Leverage targets going forward.
Sorry, Scott that first part of the question can you just repeat that yes.
Just if there is any gains on sales assumed in the fourth quarter of node or if thats upside to the guidance.
Any gain on sales would be upside to the guidance we gave.
And as far as leverage we've had.
Discussions with with the rating agencies just.
Committing to our approach to capital allocation, but also.
Sure.
Mining them just how we've performed through this pandemic. So the defensive nature of our business the defensive nature of our business mix and I would also highlight the operational excellence that are.
Our team.
As shown.
In times of crisis that we've gone through and macro challenges have gone through I think thats being.
Well received and appreciated by the rating agencies.
Not going to say that we're going to change our our leverage targets.
We have been operating kind of at the high end of our range, which is that that to 400 to five range and.
I think we're comfortable at that level.
You know we need to do something.
Short term because of a unique kind of opportunity to to to spend capital.
I think we're we've been given the freedom and the breathing room to do that and it's justified by our ability to operate in this down downturns.
But to say that we're going to take our leverage up to three or three and a half I wouldn't go there at this point Scott.
Okay, and then I know there was some talk about maybe a 50 60 million dollar gain is that not likely in the fourth is that more likely next year now.
The mature again models right.
So theres potential.
The mechanics of the DRTV transaction.
We would get a gain.
The write up our of our existing ownership that 16.5% would be written up and we get a gain on on that.
It all depends when it closes though so.
It has to.
Pass for regulatory approvals to do.
Four.
To be realized and whether that occurs in 2020 or 2021 remains to be seen. So we just felt it prudent not to include it in our updated guidance and if it comes on comes in addition to that.
So be it but.
End of mental nature of our business is whats going to generate that.
Digit and above EPS growth.
Very helpful. Thanks, guys. Thanks, Scott.
Your next question comes from Tom Wadewitz.
Yes.
Thanks Lance.
Hi, yes, good morning.
I think your we as you're talking about growth that highlight the VAT.
Value by extending the franchise both in terms of the land Bank you have so to speak in the.
In the CMP. So Keith do you think about maybe more aggressive inorganic expansion.
Spanning the reach of the franchise.
On a multiyear basis is that something that given all the success you've had with leveraging current franchise.
You think inorganic and kind of bigger.
Extension of the receipt of the reach is something that you know.
It is in the cards in the next year or whatever three to five years.
Tom that's a that's an aspiration all thought and certainly could be possible that Canadians point, we're going to keep our balance sheet stroll, we're going to keep our powder dry and we're going to look for those accretive opportunities.
That give us a compelling value creation.
Stuart if we can extend our reach we can provide better service longer length of haul more competition than we're going to be interested.
So theres nothing eminent I am not going to suggest that there is I don't want you to misconstrue my thoughts.
But what is an absolute as this company is always looking for those value creation opportunities and if we can do that and create a more powerful franchise.
For our shareholders for our customers and for Commerce in North America, then it's a discussion that we're willing to have and we're going to look at.
Maybe if I can ask a different wrinkle on it as well does it make you less likely to consider.
Kind of major deals given all the growth that you have in the pipeline you just kind of more likely to focus on executing on your plan.
No and I don't I wouldn't suggest less likely I would suggest this when we look at it.
Other potential deals or if I were to evaluate another deal.
Is it complementary to what we're already doing what we're already doing because I can tell you stand alone we have a very compelling value creation opportunity in front of us So I'm.
So I'm not going to allow something to distract the focus of the leadership team.
Well, what if it's going to have to be compelling because we can continue we will continue to execute we've been leaders in the industry. We've got initiatives that we've.
That we've talked about that are coming into play we've got some we havent talked about we've got these land assets, we're not resting on our laurels, so standalone, it's unique and compelling opportunity.
With that said that that strength serves to strength. So we have an opportunity that comes along that complements that story.
Then obviously, we're certainly willing to couple of that too.
This powerful train network that we already have but.
But again, we could do that with or without.
So I wouldn't say, it's less likely had to say it has to make sense and if it hits those metrics and it hits those those qualifiers for us than obviously.
We'll take a look at it.
Okay, great. Thanks for the perspective, thank you.
Thank you to.
Your next question comes from Jason Seidl with.
Please.
Please go ahead. Thank you aren't really good morning, guys keep your pipeline looks really strong value from here on.
On Elds, but I'm going to take a closer look under the Hood. There has been a lot of obviously you talk about the demand that has come back not only in the rail industry, but across the supply chain, we've seen the global supply chain constrained in many many places so much of this a snap back do you think is just a function of restocking from very low inventories and how.
How much do you think is just pure underlying demand coming back from the consumer.
The consumer other places.
Hi, Steve.
Put a pin on that I'm not sure I'm not.
I'm not going to suggest that there is not some additional tailwinds because of restocking.
But I do think I'm bullish on the overall economy, we're in the middle of a pandemic.
There is a gap we all see the same store sales that were empty that has to be feel that as we go forward I am optimistic view I do think the vaccine is coming for this horrific disease.
Diseased that we've all had to battle I think that life will normalize a bit in 2021, I think that we had a very strong economy going into that.
Pandemic and I think we emerge with a stronger economy once we get pass.
Past the pandemic past the election I think the fundamentals are there and I think they get even more compelling is the result of some of these opportunities have created as we as we are in we take offshore stuff and bring it back to the North American continent, and what does that do for us in job creation, what does that do for us in rail freight demand.
Just for CP, but for the entire industry.
So I'm bullish on the economy I'm bullish on the opportunity right now there is some.
Tailwind obviously from the restocking.
But I think again, our own unique opportunity before the pandemic without restocking even.
A discussion topic, we had.
We had a very unique first quarter that was counter to what the entire industry was doing so as we come out of the pandemic. We're a stronger company, we have more opportunities coming online than we had going into the pandemic in 2021.
That fuel that conviction so we're in a good place.
I think it outside of any kind of cash.
Catastrophic shock to the economy that I cant predict will continue to be at a strong place and I think the real industry overall again.
Is in a strong place to provide.
The field of to come.
To continue that economic prosperity in North America, both in Canada, as well as the U.S. and Mexico.
Well on knock on wood that Thats. The case, Keith just a follow up really quickly you mentioned near shoring or without obviously getting specific are you talking with multiple people about near shoring certain operations from abroad.
No no. Okay. Thank you appreciate the time thank you.
Your next question comes from Brandon Oglenski with Barclays.
Please go you want it.
Good morning, and thanks for taking my question guys.
Real quick at the end of the call here I don't know if you guys mentioned, how big the Maersk opportunity will be in and keep I think I understand it is taking congestion out of the port infrastructure, but thinking longer term controlling what you can we.
We saw your competitor get into some service issues as they took on a lot of traffic or are there things that the port needs to do longer term to remain competitive and keep taking share on the west coast.
From a capacity standpoint is that just for clarification, yes, and just the unintended consequences of the no show.
15 service patterns, and where you might find the next bottleneck.
Well listen the port of Vancouver, and obviously, that's a that's where our bread and butter comes from the ones. We're most focused on and on.
And our Canadian network.
Theres investment.
Being deployed across the entire spectrum now you've got investment that's transpired.
Dan a deltaport you've got.
With our partners at GCT that capacity has been brought a lot it hasn't been fully consumed obviously theres talks about additional opportunity to build whether it's an extension to the.
To the existing.
Infrastructure, there or a new terminal.
Both those concepts are in play if I go to the south shore. The expansion that's in process with centers Thats coming online next year Thats, a substantial increase in capacity the work that we've done.
Redesigning the port on the South side again, the work that customers like that terror have done the work that Neptune is.
Completing relative to the coal supply chain as well as their throughput capacity G. Three there is a.
There is a lot of things a lot of needles that have moved and investments that have been made in Vancouver, that's creating capacity for growth.
For the next 510 years that allow us to create supply chain reliability, which I think is unique value creator compared to some of the west coast experience that our customers.
If it had been faced with so I think we're in a good place.
Not going to suggest that we don't have to continue to invest there is infrastructure plan that is being rolled out an investment will continue but I think we've made a pretty good did it and I think as we become better operators.
We operationalize and optimize and improve some of the existing infrastructure that gives you a whole nother lock step increase in capacity that the benefits the port of Vancouver, and unique legal benefit Canadian Pacific is being part of the solutions.
Okay with that let's wrap up the call today again I'll I'll fill.
Finished for US started thanking you for your time, hopefully you've got a bit more color Inc.
And could appreciate the pride that we feel at this company for what we've accomplished I'm extremely proud of.
[music].
The World Class Railroaders, we have that enable these results that we get the share to date the conviction the enthusiasm.
But.
It's not wanting were convicted were compelled we're most excited looking forward about what is yet to come for this company 2020 will close strong the momentum that we carried into the fourth quarter will execute on dry.
Driving improvements in service in margins in financial performance 2002.
2020, we want to be even more compelling for us we'll continue its our objective in certainly our potential to continue to be leaders in this industry and servicing cost control and growth in earnings in 2021, So with that we look forward to discussing our.
Our fourth quarter results in January.
Have a safe day stay healthy and I wish everyone, a blessed Thanksgiving and Christmas holiday.
Thank you. This concludes today's conference call you may now disconnect.
Yeah.