Q4 2020 Kansas City Southern Earnings Call
And there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded it is now my pleasure to introduce you to Ashley Thorne, Vice President of Investor Relations for Kansas City Southern Please go ahead.
Thanks, Jason Good morning, and thank you for joining Kansas City, Southern fourth quarter and full year 2020 earnings call before we begin I want to remind you that this presentation contains forward looking statements within the meaning of the Securities Exchange Act as amended.
Actual results could materially differ from those anticipated by such forward looking statements. As a result of a number of factors are combination of factors, including but not limited to the risks identified in our annual report on form 10-K for the year ended December 31, 2019, and in other reports filed by us with the SEC forward.
Forward looking statements reflect the information only as of the date on which they are made Acs does not undertake any obligation to update any forward looking statements to reflect future events developments or other information and with that it is now my pleasure to introduce Kansas City, Southern's, President and CEO Pat <unk>.
Okay. Thank you Ashley and good morning, everyone welcome to our fourth quarter earnings call I'm going to go ahead, and just move directly to slide five with the.
A summary of the quarter and a couple of comments here as the headline indicates.
We really had a strong quarter.
And in the fourth quarter of 2020.
With some significant challenges and we will talk about the challenges and the impact they had on our results a couple of times here.
And and you can see here revenue declined.
5% versus previous year.
And that was impacted by the teachers outage in southern Mexico blocking our line from Lazar partners to morale, Yeah in Mexico City, and we'll share some detail and and the impact of that in the.
And the comments that follow.
And obviously fourth quarter results.
Particularly operating ratio and earnings per share of <unk>.
Revenue, obviously impacted by that event as well as some elevated casualty expense, which was really an unusual quarter I think Mike Upchurch has told me that was.
<unk>.
The highest casualty related expenses that we've had in well over 10 years.
If you look at the chart at the bottom of this slide we've.
Shown operating ratio and earnings per share in a way that.
Tried to highlight comparable results to prior period as well as.
Focusing on some some of the core results I will mention in the adjusted operating ratio column, the $62 four last year to 62.
62 does include the impact of some of these significant challenges and unusual level of impact.
Mike Upchurch will again will cover this in more detail later, but.
About one point on the operating ratio due to the large glass Roe outages.
And about one six points to 160 basis points related to unusual level of casualties.
So with that we will put 2020 in the books and move on to slide six which I think is probably more interesting to all of you on the call, which is our outlook. We're reinstating multiyear outlook here, obviously withdrew some of our guidance over the course of 2020 due to the circumstance.
Is that everyone's aware of.
So we.
Are you expecting revenue growth for 2020, and the double digit range that Mike NAV, We will talk more about that in a few minutes.
Operating ratio, we are targeting 57, 5% and 2021 and 55% to 56 in 2022.
EPS $9 this year, increasing to $10 50 to 11 range in 2022 Capex for the next couple of years around 17% of revenues and free cash flow in excess of $700 million in both 'twenty, one and 'twenty two so I think the punch line here is we feel.
Feel very good about 2021 and beyond.
We think we've got good visibility to our business pipeline and cost improvements and we'll cover both of those over the course of the next several minutes and we feel that we are set up very nicely for 2021 to have a terrific year.
Assuming of course that we have a little help from the economy, the pandemic recovery and stability in some areas.
That we're not so stable in 2020.
So again, we'll get into a lot of details here and I'll come back at the end for some summary comments with that I'll turn the presentation over to Sami Sonic.
Yeah. Thank you Pat and good morning, everyone.
And thank you for being on this on this call.
I would like to start on slide eight.
By thanking.
The operations team for.
All the hard work and resiliency in the face of it.
Incredible adversity, and I think Pat touched on some other items.
I will repeat a repeat a bit here, but.
No.
We are running trains and servicing customers in the middle of the worst pandemic that humanity has seen in the last 100 years and.
Like all the other railroads onshore.
We have we have a lot of cases, we have.
650 cases of Covid and on any typical day, you have about 5% of crew was marking off.
Because of Covid.
So we have to face that challenge and simultaneously with it we had this lockheed for 59 days in the la vital area.
It was a teacher protest, which is unrelated to the railroad.
Compounded with it a hazmat to all that.
That came into effect.
In Mexico that are reduced.
The maximum time on beauty for crews.
And affected us by about 280 crews per months in Mexico.
Which is which are significant and causes delays for trains now thankfully.
This has not tool has been.
Reversed at least four for a couple of months.
And that we have seen already an improvement into velocity other network in Mexico, because because of that change.
People will also flow back in October that will have two hurricanes that came in the middle of all this and.
The combination of and then the derailment that that path touched on.
Which was in the Houston area, which is the main out of trade between the U S. In the Mexico.
Traffic and it it stopped the lines put about two days it was a very unfortunate one of one other kind of pipe type event.
So that clearly had an impact on velocity and dwell and you see it on the chart here, but simultaneously was all this and while the volumes were essentially flat with Q4 2019, the Atms as you see what omni 1% lower.
We managed actually to handle all this with us.
They had gone from which is significantly lower than the year before.
Transportation head count is 9% lower mechanic on 7% lower engineering, 6% lower.
And you also have to keep in mind that you know in Mexico. We were not allowed in all took up people. So.
So we use attrition and then a lot of other cost actually have taken place in the U S and and and the traffic we have used in plenty plenty since the pandemic started has been to reduce train starts which reduces school starts and mixed trains longer. So the trains are longer by 14% and the crew starts.
Came down by 14% and a very beautiful side effect of that is fuel efficiency. So we gained 5% on fuel efficiency and the locomotives have come down by <unk>, 5%. So we managed to.
To continue the DSR journey into service our customers the best way, we can in the middle of a pandemic.
And and we had a significant surge in the Monterey area in particular from refined products, which serve by like 81% in Q4 last year to Q4 'twenty.
2020.
And it was all focused on the Montana, which day.
Weighted congestion and net yards so.
We have our people working on Christmas Day Christmas Eve.
You know the intensity and the passion is definitely there.
And we came out of it. So so this is a good news if I go now to slide nine the next slide.
I just wanted to position, where we are now on the journey and what we are going next in 2021, which is what has been driving all other guidance. If you recall in 2019, our whole emphasis was on velocity and and the revenue was growing.
By 8%.
And.
You know the whole whole focus has been on trying to cycle. The cars. So that anytime you cycled the cause fast.
Like Green went down from 28 days to 18 days cycle from Kansas City to Mexico, and Mexico City and back.
You go back and you've got more loads. So you've got more revenue. So that has been the emphasis is in phase one and phase two which as you know 2020, including the Q4 net to just finish that way.
The results on the emphasis is like I said has been on train starts and train lengths and you see it here in the graph a significant increase in.
In train lengths now and the end of 'twenty 'twenty, we started actually converting into the phase III and phase three is trying to do the combination of both we want to kind of maintain the train lengths, we lumped to even increase it by probably another 5% and at the same time, we want to regain the.
You know that we have seen in phase, one and the way to do that.
Is to remove the limitations that we have been facing in.
In Q4 in particular, because we have been essentially testing the limits and hitting the constraints, which is helping us now focus all our energy.
Laser focused exempt infrastructure, we know that plenty around long trains you need long sidings for train meets.
Otherwise you have to bucket a long way before the other train comes by because that's the only location we already have a 10000 foot.
Lighting, so siding extensions and Jeff.
Few minutes when we talk about the infrastructure projects that we have fighting Lexus is very important yards configurations are very important because of the tracks and yards in and switching lead is very important when you have a long train you have about a little over on two tracks on all of that so we are going to invest money, but we know exactly what day invested because we.
We have been hitting these things so it's not a radical exercise it's based on what we have lived through in Q3 and Q4.
Last year, neither agreements is another big area, where well do I really sounding things now and we are working very very close with the union because we have labor agreements that limit us. When you have long trains when you have more than 100 plenty clause on that day and you have to add brakeman. As an example, when you have more step out some more pick ups.
Our lineup for or do you have to add more brakemen. So.
Was that light.
Covid that has been set as of Monday pretty mindful that all of Mexico. We have do we have to work with the union to do find ways to run our trains with less crews because there's about a 175 people now that qualify under a decree because a precondition pals issues on stuff.
Like that so and and we have run very well since Monday.
There is a charismatic union leader in Mexico is very pragmatic man, who is working with US and we are very close here and we are creating win win situations that bode well for us because once the red light is all about once the COVID-19 is a little bit and it will be over one day, we are going to hopefully you.
Use the techniques and the agreements that are temporary right now hopefully they can be that if we do weighted in which case, we can with our run hopefully.
If fewer number of crews right now for men crews and many other or many circumstances. So that's another area.
The train schedule, which we call. The TSB is very important that we have been doing a lot of experimentation with that to minimize the number of times that just what's your car and that is Patrick are and you know we just found Keith as he had a lot.
Blogs, the cause and many other than lots of them again, a novel idea I don't Mexico than blood them again to Shreveport in U S and Jackson, maybe well we are doing things now to do this in Sanchez, which is a big yard so and while working with all the customers to do better.
Local and industry distribution and that's what we used to call. It on another railroad. The first mile last mile that is very important because that's what the customer sees and we're putting great great intensity and working with our customers.
And and monitoring pumping percentages as an example are we giving them. The number of calls a day asphalt are we giving them the right type of car because we have customers that have multiple types of cars, depending on you know.
Frames for automobile manufacturer doesn't example, so is it the right number of cars is it the right type do we get it in the right window. So we have a lot of intensity that it was going to be significant importance on trip plan compliance where intermodal as an example, and are beginning to see winning business because of that intensity.
And the cost somebody is going to be right at the center of our effort and we hope with all this will add another $50 million of savings and Mike Upchurch will get more into that so at this point I will turn it to Jeff He will it will go more into the infrastructure.
Okay. Thank you Jamie and good morning, I'll start my comments today on slide 11, and as Pat indicated we are targeting capital expenditures of approximately 17% of revenue for 'twenty, one and 'twenty two.
Expanding on those plans for 'twenty one capex. This map highlights some of the main focus areas related to those investments supporting our <unk> phase III goals of service volume growth train length and productivity improvements.
In the North zone in Mexico, we continue to have tremendous growth in cross border volume, which was 18% for the quarter as Mike NAV will discuss refined products volumes led this growth story at 82% higher for the quarter.
One dynamic we've seen this quarter are significant manifest volumes moving to multiple new trans loading terminals and both the Monterey and San Luis Potosi areas.
To support these new opportunities in the Monterey area, we are redesigning some local train services and a day.
New infrastructure projects separating monterey into separate different service zones, providing improved proximity to customers faster local cycle times and improve service designs.
We will continue with infrastructure work at our centers terminal to allow for additional blocking and building of trains at that terminal to more efficiently serve the greater Monterey area.
To improve receiving and departing of all cross border trends.
Reconfiguration of yard lead in and out of our Salinas Victoria in intermodal terminal and the addition of intermodal cranes will provide for significant productivity improvements in the terminal and support our intermodal growth.
Another characteristic of our infrastructure in Mexico is the density of customer facilities directly served off of our mainline which means the mainline can be blocked for periods of time, while spawning and pulling cars from those industries as more of these.
Facilities are constructed to the Monterey and San Luis Potosi areas, we will continue to modify our infrastructure with additional double main projects and new separated industry lead tracks. This will provide for more efficient switching for customers and allow more through trains to pass through the network unimpeded.
Last year, we started multiple siding extensions to support our PSS train length initiative and we will continue these into 'twenty, one and beyond as we look to capture additional productivity benefits with train length and more efficient meat past capacity.
Turning to slide 12, I'll provide some brief comments on ESG matters. Following our announcement. This week that we are committed to our science based targets initiative focused on greenhouse gas emissions reductions.
Fuel efficiency is a major component to achieving this target.
As illustrated in the slide we continue to see consistent improvement in fuel efficiency.
Accelerated these improvements recently under our <unk>, our operating model, providing both cost and environmental benefits.
While we are on track to achieve our current goal to reduce to reduce <unk> emissions intensity by at least 12% by 2025, our new science based target will establish an even more aggressive longer term goal.
As you can see there are several positive ESG activities on this slide one area I would like to highlight relating more to operations as our relationship with the Mexico Labor Union.
As Sami mentioned, we have talked in the past about some differences in our Mexican collective agreements and our goal to modernize these agreements to support a more efficient operations approximately.
Approximately 15% of our Mexico Tanney workforce is currently on Covid related leave with the majority out under the government mandated stay at home order. We've had several recent successes with the union related to our collective Covid response and have received tremendous support to minimize the overall impact to the operations.
The Union has allowed us to modify crew consist requirements relocate employees and modify some operating rules to provide for continuity of service during the pandemic.
We believe these recent successes paved the way for additional positive negotiations and operational benefits from 2021.
With that I'll turn the presentation over to Mike.
Hey, Thank you, Jeff and good morning, everyone.
I'll begin my comments on page 14 with update on our fourth quarter performance.
Overall as you already heard from Pat revenue was down 5% on a 3% decline in carloads.
If we were to hold FX and fuel price constant revenues would have been down only 1% year over year.
And also as you heard we experienced day nearly two months long teacher strike in the quarter, which affected the carloads moving in and out of Lazarus hardness.
Adjusting for these protest volume and revenue would each have been up approximately two 5%.
And sequentially adjusting for the protests fourth quarter volumes and revenues would have been up approximately three and 9% respectively.
Alright, looking at the business segments, chemical and petroleum volumes increased an impressive 18% driven by strong growth in refined products, which was partially offset by lower LPG volumes, largely due to market conditions and shifts in sourcing.
The industrial and consumer segments saw volumes declined 6% year over year and this was driven by weakness in our metals business. We are continuing to see lower demand for drilling pipe due to the oil market conditions.
And for metal products used in infrastructure projects.
The good news is is that sequential volumes were up 2% or 5% adjusting for the protests.
And we are looking for continued improvement here, we do have some new steel plants coming online here in 2021, and the appliance business has been very strong on strong consumer demand.
AG and Min revenue was up 3% on a 4% increase from Carlos and this increase was led by gains in our grain business, which posted a very robust 12% year over year volume increase.
Looking at the energy business carloads, and revenue were down, 12% and 16% respectively I.
I believe you're all familiar with the story here Frac sand crude oil and coal were all down due to weak demand.
And while it may be a while before the oil and gas industry is fully recover from the pandemic. We have seen a very nice increase in crude shipments as the economics improve and after the Canadian government lifted their curtailments. We certainly expect this to continue in the near term.
Looking at the intermodal information on the chart. We provided you a specific example of how the protest the fact that this business segment.
As you can see our year over year intermodal carloads and revenue were down, 7% and 20%, respectively, but removing the lateral business you can see our intermodal volume would have been up a very healthy 11% <unk>.
<unk> ROE impacts aside we saw very nice growth in our cross border and domestic business.
Similar to last quarter.
We're seeing inventory replenishment E commerce demand and tight truck capacity is being helpful.
Lastly, our automotive volumes were down 4%, we did see a nice sequential recovery is U S vehicle demand was healthy and certain finished vehicle inventories remain low in the latter portion of the quarter, we picked up some new business.
Specifically with the launch of a new electric vehicle, that's being produced in Mexico and shipping to Kansas City.
Incidentally is a very nice length of haul for us.
Fourth quarter core and contract pricing held up well, we're maintaining disciplined pricing strategy in targeting inflation or better pricing increases. We also continue to focus on yield optimization and win win solutions with our customers.
Turning to page 15, I'd like to highlight the performance of our cross border.
In refined products business.
Strategic growth areas performed very well with cross border year over year revenues, increasing by 17% and our refined products business growing an extraordinary 87%.
Which is very notable when you consider the COVID-19 impacts on refined product demand.
Returning to cross border for just a moment our AG men in chemical and petroleum business units, both achieve cross border volume and revenue Records and.
In our intermodal cross border franchise business delivered another strong double digit growth quarter we.
Continue to see excellent opportunities in both of these areas.
Turning to page 16 Youll.
You'll find our 2021 outlook.
As Pat mentioned, we expect double digit revenue growth in 2021 and looking at the slide we've provided in FX and fuel constant bridge to help explain our outlook.
Looking backward favorable COVID-19 comps, particularly in the second and third quarters.
Aided by favorable macro macroeconomic environment will provide 6% to 8% lift year over year.
Second we believe our unique growth drivers, including the refined product and cross border areas I, just mentioned will contribute another 4% to 5% to our overall growth.
As a reminder, the poor.
Arthur <unk> project, we talked about in previous calls continues on schedule and is expected to be operational in the second half of 2021.
And lastly, we expect favorable fourth quarter comps, resulting from lateral protests to provide another 1% of growth.
In summary, while not without some challenges we had a very solid quarter looking forward, while COVID-19 resurgence is a risk we're very optimistic about 2021, the combination of our revenue opportunities paired with increased service focus as a part of <unk> phase III.
We will drive an impressive growth year here for Kansas City Southern.
That concludes my comments I'll turn things over to our CFO, Mike Upchurch.
Thanks, Mike and good morning, everyone I'm going to start my comments on slide 18, as Mike indicated volumes declined 3% while revenues declined 5%.
And that was negatively impacted by fuel surcharge and FX the combined reduced our revenues by four percentage points.
We also experienced some negative impacts from the teachers protest on our laser aligned they will cover in more detail on the next slide.
Our reported operating ratio was $62 two that was negatively impacted by a one time impairment of a $13 6 million software development cost impairment.
And despite our challenges related to the last row learned protest and unusually high casualty costs. This quarter, we managed to improve adjusted or by 220 basis points.
Our reported diluted earnings per share were $1 80, adjusted for FX and the write off of the software development costs. Our adjusted diluted earnings per share were $1 89 up 4% over the prior year.
Turning to slide 19, I want to cover.
Our fourth quarter results that were negatively impacted by the teachers protest and the elevated casualties.
Though we are still feeling the lingering impact to these protests on our laser business as shippers have understandably been a little bit slower to direct traffic back to Liza row, we really view both items is largely discrete events that should not continue at those levels in 2021.
To better put out a quarter into perspective.
So you can see a bridge here of our adjusted operating ratio and adjusted EPS from fourth quarter 2019 to fourth quarter 2020.
The shortfall to our forecast from from the Liza ROE impact was about $23 million in lost revenue, which we believe impacted our Q4 operating ratio by about 100 basis points and EPS by about 13.
Per share.
Additionally, unusually high casualty costs added an additional 160 basis point impact to ror and <unk> impact on EPS.
We're disappointed in several high impact casualty events in the quarter, we do not believe the unusually high $26 million in casualties are reflective of our.
Normal operating trends and I actually went back 15 years and I can tell you we never had.
Quarter like this we were kind of snake bitten here.
So really as you look at the quarter.
So aside those those two events, we think our core earnings growth in the quarter was more around 480 basis points and <unk> 30 per share.
So turning to the next slide let's talk about operating expenses, our adjusted operating expenses declined 8% evidence of continued good cost management other than the previously mentioned $12 million increase in casualty expenses, we continue to benefit.
From strong cost management across the business as evidenced by declines in comp and benefits fuel equipment and purchased services.
And let me just touch on comp and benefits and fuel.
We'll see more details on slide 29 in the appendix, but comp and benefits declined 11% driven by lower headcount and work hours lower incentive comp and FX, our quarterly average head count was down 7%.
Savings of $11 million from lower headcount and work hours as a result of lower volumes on our network, but more importantly train consolidations driving fewer crew starts and reduced hours worked.
Mechanical reductions due to fewer locomotives and freight cars and optimization of certain G&A functions that we executed mid year for 2021, we expect our head count growth to remain well below volume increases as we continue to lengthen trains.
Creating further operating leverage.
Youll expense declined 34% in Q4, driven by our reductions to fuel price better efficiency and lower consumption.
And for 2021, we continue to believe fuel efficiency.
We'll be a large opportunity for us as we continue improving our cost structure and you can see more details.
On slide 29.
Turning to capital allocation on slide 21.
Free cash flow was up 29%.
Despite the pandemic to $554 million.
In line with our previous guidance of $550 million.
This clearly illustrates the resiliency of our rail operations operating during a pandemic.
And as proof of our ability to continue to generate substantial amounts of cash flow 2020, Capex came in at $410 million below the outlook of $4 25.
And despite the significant pandemic challenges that Tcs sustained in 2020, we actually increased shareholder returns by 23%, including a 26% increase in share repurchases.
And during the fourth quarter, we repurchased approximately two 7 million shares at an average price of $179 and 70.
<unk> 77.
And before I turn the call back to Pat Let me give you a little bit of color I think on our guidance.
Listen, we're really proud of the full year 2020 financial performance, we delivered despite operating through what we hope to be a once in a lifetime pandemic.
Our team at <unk>, I think from top to bottom really rallied against all odds and delivered terrific performance.
Sami indicated I'd like to thank really all <unk> associates, particularly those out in operations, who don't have the luxury of work at home up options like many of us do.
So during the year, we improved our operating ratio 250 basis points, while volumes declined 6% revenue declined 8%.
And that improvement was the second best or improvement in the past few decades only bettered in 2010 as we emerged from the great financial recession, when our revenues grew 23%.
As Mike mentioned, we feel really good about our 2021 growth prospects of double digit revenue growth. We have some easy comps, obviously, not just pandemic, but with Lazar ROE and when you look at it over a two year basis, you have a two year stack revenue growth of roughly 3%.
4%.
Economic indicators around industrial production.
Low business inventory levels high order levels.
Manufacturing PMI of greater than 60, and potential federal government stimulus and infrastructure spend gives us some confidence that we can grow exceptionally well in 2021 <unk>.
Additionally, we do expect favorable mix impacts and continued strong growth in our cross border business, particularly refined products and intermodal.
As it relates to our guidance of 57 five.
The improvement of about 300 basis points as only nominally higher than what we delivered in 2020.
And particularly in light of expectations, we have for revenue growth in 'twenty, one versus experiencing revenue declines in 2020.
Our incremental margin assumptions of 60 plus percent I think are very achievable as volumes returned to our network.
We've demonstrated obviously a solid track record of delivering <unk> savings.
We fully believe the $50 million target. We have for 2021 is very achievable and we have provided some additional details for you on slide 28 in the appendix and with that I'd like to turn it back over to Pat.
Thanks, Mike I think that was an outstanding summary.
And kind of a preview of how we see 2021 I will go back I know there are typically a lot of employees on the call pick up on some comments that my colleagues have made here and just.
Thank you congratulate you for your amazing and outstanding agility and resilience through 2020.
Im very proud of.
The results in the way everyone responded.
We thought we had things kind of dialed in in the first quarter. The second quarter. We went into full contraction mode and then before we even caught our breath there in the third quarter. We came in to full expansion mode and hopefully we're in a place here in the fourth quarter, where we are.
Have a little bit more stability, we think we've got good transparency in our business pipeline.
And and good transparency in our cost outlook.
As we move into 2021 so.
Again, as Sammy and Jeff mentioned.
I appreciate that.
The flexibility that all of our employees showed.
And especially call out the Mexican.
Cooperation we had with our Mexican Union says the.
The protocols, the health guidelines and protocols that.
That were in place from the federal level Federal government.
<unk> had a.
A real dramatic impact as the traffic light system changed over the course of the year from <unk>.
Red to Orange and then back to read in many cases required a lot of cooperation and an effort on the part of our our union colleagues to to help us get through that and continue to be able to maintain our operations serve our customers and.
Really thank them for the effort there so with that we will open.
The call up for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two due to the number of participants on this morning's call management will limit your question to one.
The first question is from Tom <unk> from UBS. Please go ahead.
Yeah, good morning, and thanks for the all the detail on the guidance.
Obviously, a strong guide and all the detail is really helpful.
Wanted to see the revenue growth is.
Yes.
It's pretty strong and I wanted to see in our refined products momentum in fourth quarter is very strong as well what do you think the risks are to that kind of I think youre, saying like 11% to 14% revenue growth in 2021 and 2022.
Yeah.
Is it primarily risk to refined products.
You know just kind of macro industrial economy risk or how do you think about that.
And the key assumptions underlying.
That strong revenue outlook.
Thanks for the question.
When we look at the risks I think at the top of that list is just the COVID-19 resurgence what could be happening.
That front.
We are expecting as Mike pointed out earlier.
Some.
Macroeconomic environment to cooperate here we're expecting.
The administrations certainly in the U S to provide.
The economic stimulus and what.
What happens with those I think might be considered risks with respect to refined products.
Grown even while the pandemic.
Has curtailed demand for product and.
And we do think that Thats going to continue we look across our business units and refined products Cross border growth I mentioned port Arthur earlier, all of those things are expected to move forward and while there may be some ups and downs, we believe that the the other.
Outlook that we provided is very reasonable.
Yes, I might just add.
Auto is off to a little bit of a slow start with this worldwide chip shortage.
And then of course, <unk> started off a little bit slow here as well, but.
January.
Yes.
Aside Lazar O for a second and fuel and FX impacts I mean, our volumes and revenue were up high single digits here in January now realized January doesn't make for the quarter of the year, but we're off to a pretty solid start here and feel pretty good about the guide here.
Okay, great. Thank you.
The next question is from Kenn Hoekstra from Bank of America Merrill Lynch. Please go ahead.
Hey, great. Good morning, Jami, Thanks for the Great run down and Pat Mike and Mike for the Great outlook, Jeff and Sami, Let me throw over to you given that the robust outlook assume you made some comments about bumping up against capacity, yet you knew where to spend does that mean, maybe constraints on mike's ability to hit that that double digit growth near term.
And then within that is there a difference in growth rate, you're targeting between Mexico and the U S. Obviously outside of the teachers strike rebound.
Well.
Very good question Ken.
<unk>.
Some of the limitations, we are hitting we are already sold and we are all well in January.
The example, I gave I gave some other constraints that we have with train lengths from a labor point of view.
If you have more than $120 you have to have a fuller man crew, if one guy doesn't show up while the whole train weights and all that kind of saying we.
We managed to do things now as the Union is helping us tremendously.
Covid is a catalyst in this case ironically, but it is already happening in welding January when it comes to infrastructure.
We have done some siding extensions that came live.
We have two between Vanessa Guy from Benjamin Mendez, which is an area of the law.
A lot of training needs and they come lives.
In Q4. So this thing is a motion already San Luis Potosi yard, we have been working on it for a couple of months and.
I think this months.
The main line <unk> in the middle of the yard now, it's not going to work which is stable.
When you are doing switching operation in the yard trains.
<unk> held out of.
Waiting to get in that is coming and it's coming online I think at the end of this month.
We have actually.
One of my former colleagues running engineering, we brought in from CN.
He is he was retired and.
And he is leading this effort and leading engineering and he is really stepping on the pedal likely.
We are doing a lot of the satellite.
Satellite service areas in Monterrey that Jeff is talking about channel.
Hi, Josh and I need them as fast as possible.
Absorb a lot of.
A lot of the volume and then the trick in the meantime, Ken is the service design, which is you know.
How do you design your own alerts to do things the smartest way possible like we.
We put some new claims in the intermodal terminal in Victoria Salinas in the Montney area, while now other building blocks a net.
In Panama.
And also we we lengthened the needs.
For the switching area.
And.
We are doing that now are taking look off off.
As an example, which is jobs before the bridge and I have my thoughts about the bridge, but.
I'll, let the infrastructure issue.
We have one bridge now Jeff has covered that in the past that we already have the permit to build the second bridge now obviously that is not going to have plenty of 'twenty, one but in the meantime, the windows I talked about that often.
Hopefully next week.
Shorten the window from $6 per $4 working very very closely with customs on U S side on the Mexico side.
These windows apps northbound versal solves bound.
Many trains will miss the window like I said before by like cap on our now they have to wait for the next window. So the short term the window the better it is but the nice thing is with this implementation and the Mexican peso was not having to cross.
All of the bridge.
So both of the sales side, the Mexican side and <unk> side.
Was four hour Windows exist stabilizes, then we'll go to zero windows and that hopefully will happen in the very short time short term like it will happen in Q1. So this thing is already in motion and we should not handle the growth.
That is coming our way because of the growth is actually.
Is there anybody.
Is very steep and this is why I was saying also that we are very focused on the cost from us very very focused on the customers.
We are putting things in place so that we don't have to wait for the customer complaint. Okay. We want to know any issue was the customer before the talks about even raising his hand, because we want to get all the volume we can get so so.
Shortly we have a lot of work to do some of it takes time construction.
But there are a lot of savings well, while we are turning the buys okay too to be able to absorb the volumes with what we have and.
I hope that answers the question Ken.
I don't know Jeff got it thank you.
Okay.
The mix issue that you asked about we do have an assumption of slightly higher revenue growth in Mexico than the U S.
Great. Thank you very much I appreciate the time and thoughts.
The next question is from Ravi Shanker from Morgan Stanley. Please go ahead.
Thanks, Good morning, guys.
So slide 28 is a very good detail on the PSL or walk by bucket from 19 to 2021.
Can you also share what that could potentially look like for 'twenty, two given the pretty healthy or youre guiding to if what can you do.
Yes.
<unk> made any assumptions around any incremental new initiatives in 2022, but the kind of carry forward benefit of what we're doing in 'twenty. One has another 30 plus million dollars of savings in 2022, and that's how we get to the roughly 250.
<unk>.
<unk> structural permanent cost savings that we will have generated out of our <unk> efforts.
Great. Thank you.
The next question is from Jason Seidl from Cowen. Please go ahead.
Thank you operator, everyone. Good morning hope everyone is healthy and safe can you can you touch on mix a little bit more on pricing and how we should think about it I know Mike you mentioned you have some new nice long haul automotive business that will be coming from Mexico up to Kansas City.
Wondering when that is going to hit how we should think about it is there any other mix impacts that we should be modeling it as the quarters move on in 2021 and 2022.
I think they will.
We'll certainly be some puts and takes revenue per unit on some of our faster growing segments like refined products will provide us with some lift I think to the extent that.
We will have some intermodal comps.
Related to last row, those might swing a little bit the other way.
But we believe in general that that revenue per unit should improve moving into next year.
Okay. So positive for the mix is going to be an overall positive with all the puts and takes as you.
Okay.
Between mix and the pricing increases that should be positive yes.
We'll get a few points.
Jason.
Yep.
Okay, and if I could squeeze one more.
Thoughts on the bite and administration.
The relationship is going to have with Mexico loved to hear that.
Yes, Jason.
It's early to tell but I think there are some positive signs I was on a call yesterday.
Range through the U S, Mexico, CEO dialogue with the <unk>.
New under Secretary of North America from Mexico, and talking about sort of initial outreach.
Yes.
They are currently feeling about the relationship with the U S.
Too early to tell and the old phrase actions speak louder than words, but I think there are some encouraging signs.
Small things that that small things I think fairly big things in terms of just the taking some of the attention away from the relationship I believe on the first day in office President volume signed two executive orders, one to support and work with Mexico and vaccine distribution in the second.
To withdraw.
A lot of the program and funding for building the wall. So those are things that.
That would appear to be intended in the reaction in Mexico was positive too.
The relationship on a good for us.
That's good to hear gentlemen, I appreciate the time and as always be safe. Thank you. Thanks, Jason.
The next question is from Chris Wetherbee from Citigroup. Please go ahead.
Hey, Thanks, good morning.
Maybe wanted to follow up on sort of the longer term or opportunity Sami we talked in the summer time about the potential to maybe get towards that mid <unk> Award and obviously you guys are kind of putting that into the targets as we move forward.
In the summer about different mixes and where you can find that opportunity you've given us this outlook through 'twenty. One in terms of the buckets that you go out sort of bigger picture should we still think that sort of labor productivity and maybe fuel efficiency are the biggest buckets is there anything that maybe you found that's been a little bit different or unique as you think about the network going forward.
Thank you Chris one other question on IATA call in the some of the analysis that you did that.
We felt is quite accurate.
And I think you are.
Saying that we can get to 55% which is.
What we are saying here on the guidance for.
For next for 2022, so yes the areas.
The fundamental thing is we are trying to keep the cost as flat as possible.
And that showed in Q4 like the head count is very low and then well try to keep the cost as low as possible and then benefit from the fantastic revenue opportunity that we are uniquely positioned to have at jcs.
The Mexico and cross border traffic and that is very unique to also as long as we can hold that cost and managed to absorb the additional volume was lumpy already have without adding too much from what we have.
That operating ratio is just going to keep coming down right I mean, that's.
So it's really it's going to be a combination of.
Oh cost takeout, but also revenue growth and the revenue growth is going is phenomenal I mean, when you talk about double digit now in 2021.
It does not allow comparing to easy comparable for Q2 was a pandemic and all of that.
If we can get that.
<unk> net revenue double digits revenue growth and try to hold the line and as much as possible.
<unk>.
On the cost.
I'm talking here about crews and maintenance on locomotives and car.
And get more fuel efficiency, which is way out of that train lengths comes in.
And keeping the illustrative spots to what are we all we monitor them every morning, Chris like we have targets we said.
That are below the pre pandemic talents Austrian stores, how do you check them every morning and shed the train lengths every morning and accrual starts we want to keep these to the gains that we made.
During the pandemic.
And at the same time absorb the revenue growth and then with more emphasis with some help from infrastructure and with some help from Lee, but like I said.
If we gain now velocity.
I mean velocity is an important piece to answer your question velocity is an important piece.
We hope we hope to increase the velocity by like one mile per hour.
Which is not very that's not very demanding and all.
It's not a very aggressive target. Nevertheless, it's a big target then there is a lot of money associated with net train lengths as long as our target.
And then tune efficiency. So these are the three buckets, but again, where they all are you have these buckets, both alfa velocity and it's so obvious to us now more than ever before you increase that velocity because the demand is there the demand is there and it's not just let me find products. It's green as an example, there's so much demand.
In grain.
We are focused on.
Improving the cycle.
That cycle down to fewer days that more chips per months was the same concepts and every time you go back you collect more revenue. So so this is this is the combination.
Keeping an eye on the cost but servicing the.
Other customers a 100% because the revenue is that the demand is there and we just have to go get so.
I Hope I answered your question, Chris Yes.
Very helpful. I appreciate the color. Thanks, so much.
The next question is from Amit <unk> from Deutsche Bank. Please go ahead.
Thanks, excuse me thanks, operator, good morning, everybody.
Mike.
The unpacking of the 'twenty one guidance was it was really helpful. I was hoping you could do the same thing on 'twenty two in terms of.
It looks like Youre, just assuming high single digit growth, maybe 70% ish incremental margins and maybe some accelerated share repurchase I was hoping you can kind of help us think about that and then I guess the recovery in <unk>. Following the blockades I think may be shipper confidence in that route has been negatively impacted there might be some rerouting too.
Other ports.
And over the road options I was hoping you could just talk about how the recovery has been as those blockades of cleared and what Youre seeing.
On that front. Thank you.
Mike do you want to cover Lazar Yeah, I'll go ahead and cover the Hasbro Youre absolutely right. It is.
<unk> to take a little while to.
Restore the customer confidence in that lane.
I will say that.
Customers want to be serviced out of that port out of that area and we do have customers that are are coming back to us we expect that that confidence will improve as we move through the first quarter and into the second quarter.
And those those shipments will pick up.
Certainly that's the case on the intermodal side of the house. There are other businesses that will immediately go back to moving products in or out of <unk> and let me give you a couple examples of that.
We move heavy fuel oil from Tula into Ladbroke hardness.
That is that that business comes back immediately and then we move steel slab out of lateral cardenas into the Monterey area and it's just not cost effective to do that other ways. So that flat business will come back quickly as well so the intermodal piece.
Take a little while for that to be restored, but other business segments.
Business unit opportunities will snap back very quickly.
And Amit.
<unk> 2022, I mean, I'm, probably not going to go much beyond what we had on page six but.
Yes. It is.
Certainly assumes a continuation of revenue growth certainly not at the levels that we expect in 'twenty, one given the easy comps and as Sami mentioned continued efficiency gains as a result of lengthening trains.
Largely going to be around labor and fuel.
We gave you.
Robust outlook on free cash flow and keep in mind that our board has authorized us to.
Tick up our leverage ratio to the mid twos, which is going to provide.
Some additional dry powder for buybacks that contribute to the EPS growth.
Net we're assuming here in 2022, so I think combined all of that should get you reasonably comfortable with some other numbers that we've guided to in 2022.
Yes that makes sense. Okay. Thanks, everybody appreciate it.
Yes.
The next question is from Allison Landry from Credit Suisse. Please go ahead.
Good morning. Thanks.
So I'd say there was some unusual challenges in the quarter.
The service metrics deteriorated quite a bit even in the last several weeks.
How quickly do you think you can start to reverse those trends and show improvement in speed and dwell.
And then if you can just share with the trip plan compliance was in Q4, I think maybe it was around 60% in Q3 that would be great. Thank you.
Well.
Good morning, Allison for the service challenges and in the numbers.
<unk> already started improving.
Allison and it is.
We can see it like it's it's measured every day an example, the <unk>.
Inventory accounts in Monterrey, Okay. It was up like $3200 now.
Now it's down to about 1800, 1700 cars, which is where it needs to be this is a very very nice number.
One month today gets filled.
Then we hold back traffic and Sanchez.
And then even can hold back task in the pipeline from the U S going into such as to go to monthly. So we measure every morning, and we'll talk about also on the morning call them, how many how many caused by having the pipeline in the U S heading to Montana, how many cars and Sanchez.
At four months and how many calls I havent montney and how many cars right.
I serve as the industries in Montana every day. So now we are beginning to serve as the industry is in the Monterey area.
About 550 cars a day.
We are well on.
Silicon adjusted in Monterrey, because some of that surge and refined products game.
As a surprise as a shock I mean, when you talk about 80 80, some percent I can't remember, it's 81% or 87%.
In one.
Sure.
Pretty much most of it is heading to Monterrey and then after that when we saw it actually moving to San Luis Potosi and started creating issues in San Luis Potosi, which is one other de Mexico.
We reacted and like I said I had the whole team working during Christmas and new year and the timing between the cleaning up the yard because at some point and to be able to order a road understand this if you if you if your stock Congesting yard you spend all your time.
Now Jimmy thinking trying to find the cars and moving all of them switching other costs. So.
Sadly I was wondering why will it take advantage of this of this lull and and what we're going to clean up the art and we did and now the accounts like I said and up from 3000 down to 1800, when you look at Sanchez.
Like 1500 cars, even 2000 cars heading to Monterrey.
In Sanchez now it's down to like 700, we still want to go down to about 300 400. So so this is clearly clearly coming under control and you'll see you'll see it when you talk to customers and we look at this.
Customer issues every day, and we talk about specific customers and how we can help them and the customers are working with them. The same way as the neighborhood is working with US the customers are working with US now, but many of them except that the work night shift and all.
So that we can run the industry jobs that that swap cars to them.
And pull cars.
At night, so that we have jobs in daytime and jobs up nine time, which actually gives us a better utilization of our assets and you don't do everything all at the same time during the day shift. So you can see it it's almost like the fluidity. The fluidity is back we'll see it one.
While the numbers come out.
You'll see it in the end of the last day and you'll see it in the dwell. So it is that Alison and then it is happening it is already happening likely.
Well not not as worried.
What was it.
And almost three weeks ago four weeks ago. It was.
We're working them hard okay and.
But now we feel a lot better so.
Allison the answer to your question on trip plan compliance were kind of low seventy's and in the U S and in Mexico, We had kind of dip below 50.
Late in the year, but back above 50 and need to make a lot more progress there.
Okay. Thank you guys.
The next question is from Brian <unk> from Jpmorgan. Please go ahead.
Hey, good morning, Thank you.
Maybe one follow up on.
Handling the growth and then just one on fuel economy. So sandy probably both for you can you give US a reminder, at least where you are now and maybe where you exited the year in terms of fuel economy between the U S and Mexico, and what assumptions you have baked into the guidance.
We believe there is at least some structural challenges in Mexico based on on the grade. So the split between the two would help and then just back on refined products, you've had tremendous demand even without really the overall market demand coming back. So it's clearly creating some challenges that you are working through but how do you expect that when the economy reopens from the VAT.
Teams become more distributed how do you expect you can handle an actual recovery.
In the broader market and not just the market share you've been enjoying so far thank you.
Okay.
Mike do you want to take the second one or do you want me to go first was why don't you go ahead.
Okay, I'm trying I'm trying to remember my numbers.
I can tell you I can tell you that.
Consolidated.
124 gallons per <unk> in.
In 2020, okay.
And we will add at 131 gallons per <unk> in 2019, so improved but improved by 5%.
Our goal in 2021 is 116 gallons per <unk>, which is an improvement of 6% and additional improvement of 6%.
And again this is a very very far.
Yes.
Let me a far cry from being perfect because as you know.
Although railroads all that 0.98 less than 1%.
That's on one I'm, sorry, less than one gallon per <unk>.
And actually our operation in the U S is in that range, that's about 1.0 and in the U S. So the U S portion is running very very close to what the other class ones are doing.
Gallons bookings ATM at one <unk>.
Mexico is more like 154.
Which has a lot of room to go and and and.
And we are continuing that.
No there are some very steep grades in Mexico, but but the thing we are very.
Any focus on now is the horsepower per ton.
This is a secret.
Get it with train lengths the more train lengths typically the tonnage is heavier and you tried to do it was the same number of locomotives. So your ratio of Spanish.
Or the opposite horsepower per tonnage.
<unk> goes down and the less HPT.
That's our fuel inefficiency.
One thing we are.
Really keeping an eye on and we created a very little tiny fuel desk.
Four people okay. So it's one per shift essentially.
We are monitoring to make sure that locomotives are shut down one day are not needed because when you come back with strains that have MTS zone, and then like Grand changed I mean, we take loads from the U S to Mexico, we come back with MTS, but the athlete position the locomotives to balance of power well that these locomotives on access so you want to shut them down so that.
That's just picking up every day some people who are not compliant with this so we shut down the locomotives and that is more relevant in Mexico that happens a lot more in Mexico also when you take grades.
The grades are let's say all of that ultimately well after that if you don't have grades we shut down the locomotive you don't need it for the rest of the trip. So you keep an eye on this stuff and you keep on Ami on the HPT and sometimes it's a fraction of locomotive in which case you say, okay. That'll go higher on <unk> seven <unk> eight which is the effect.
A reduction of the horsepower of that locomotives because named this case interaction and you cannot shut down the whole locomotive. So while it's taking a lot of measures. We are very focused on Mexico, two to get the games and fuel efficient we're getting gains in U S too because we added a lot of train lengths in U S. With 8000 now in the U S.
Which is which is very respectable.
In Mexico are running at about 6800, but we are trying to get those hdds and the compliance and we then.
Working with the union to add a bonus for.
<unk> added compliance was a table optimize over which actually has like cruise control that avoids breaking in acceleration and burning fuel.
And I believe we got that deal done.
It's a win win it's a bonus for protocols and it's very good for increasing the.
The compliance and getting more trip optimizer deployed so while working on a lot of fronts.
Mexico is the focus and again, we're just aiming for 116.
Consolidated total U S and Mexico and that is a far cry from the outlet so I won't be able to ask about the operating ratio.
That's why we still have a lot of revenue operating ratio we have room on June even after we do the 116, we have room on the velocity velocity target for next year on average for the year was 16 months what other between matches in the U S <unk> and U S from about 15 in Mexico 16 miles per hour.
No.
How long before it was 2021, so so we have rooms out of tools. So I keep saying, we still have we said that a lot of room on the cost and we still have a lot of room on the revenue so.
It's a nice place to be.
Okay, operator could we go to the next we have eight more in queue here.
Jordan <unk> from Goldman Sachs. Please go ahead.
Yeah, Hi morning, just a quick question on the auto saying I know you mentioned the chip issue and we've seen some of that as well.
Just two small on a global basis to have much of an impact on recovery given the shutdown in the second quarter.
Just curious your thoughts on that from thank you.
Well I can only.
Speak to what we're seeing here.
We are seeing.
Impacts ranging from nominal or nonexistent at some of our automobile manufacturers, but in other cases, we have Oems that have.
Not reopening their plants.
May not reopen facilities here until.
Early to mid February so I think the semiconductor chip that's hitting different people different ways, but it is definitely impacting us here in the first quarter.
Thank you.
Sure.
Next question is from Justin long from Stephens. Please go ahead.
Thanks, and good morning, Mike maybe just a quick question for you on guidance any way you could help us with that buyback assumption, that's getting baked into the EPS guidance. This year and next year in terms of dollar amount and you're buying back the share count and then maybe on.
Any color you can provide on spending for technology Opex and Capex in the next couple of years versus what you've done historically, just curious how much of a role technology will play in this growth that you've outlined.
Yes, I think.
On the buyback question, Justin we're probably going to stay away from exact number of shares I mean, a lot of that obviously depends on what happens with the price per share throughout the course of the year, but you ought to think about us continuing to apply.
50% to 60% of our available cash.
To shareholder distributions with the vast majority of that going to buybacks.
And also keep in mind, the leverage ratio that I mentioned.
Trying to keep that in the mid twos range should give us some additional dry powder in the back half of the year.
So I'll probably leave it at that.
On the technology spend.
I would tell you we've got a.
Chart in the back I think it's in the appendix.
But we talked about that maybe gives you a little bit.
Inside into technology spend.
Yes, roughly 7% I think of our total capex. So we continue to invest in technology.
Obviously with PTC fully implemented now we're going to continue to move forward with.
Various automation and.
Certainly have capital dollars in our budget to accomplish that.
The next question is from Allison Prolinea from Wells Fargo. Please go ahead.
Hi, good morning.
Talk to any guardrails that you may have in place from the growth side Youre willing to accept that you know obviously a lot of network improvements have been made so you want to protect that but obviously you want to leverage growth. There. How are you balancing two any color there.
Not sure I understand the question.
Guardrail to.
The guard rails in terms of like are you focused on profit like how are you working with your customers. Obviously, you want to take the growth and it seems like Theres a lot of growth out there, but you want to protect certainly that the improvements you made on the network. So how are you balancing sort of that incremental ROE that you are you willing to take on what the customer is there what kind of guardrails do you have in place that you sort of don't.
A piece of that network availability.
Earlier on I mentioned that.
We're working with our customers to develop win win solutions. These would be opportunities, where we can work together to improve our efficiencies it could be how we.
Spot and pole pieces of equipment or it could be on things like train lengths. So for example, if we have a customer who's.
Running as an example, 80 cars on a train on a unit train, but it would be more efficient for us to run 90 cars on that train.
We are working to incent them.
To get us to that 90 train car length, our train length. In this example, and then we're basically sort of.
Sharing in the benefits.
So that's something that we're actively working on with our operations team and customers and so far it's been received well.
Perfect. Thanks.
Yes.
The next question is from Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks, good morning can.
Can you just say relative to the revenue guidance whats in the plan for train starts and head count. This year and then Mike just want to understand that the free cash flow 700 million both years.
Is there a reason of earnings are up 20% or so in 'twenty two that you wouldn't see free cash flow growth.
Yes, we have youre talking about 2022.
We have some incremental tax payments that will happen in Mexico, youre kind of operating on a lag basis, where <unk>.
2021 cash payments cash tax payments in Mexico are based on 2020, which has depressed income levels because of Covid. So then your 22 payments will be based on 21, which will have.
Good growth in our income so thats why you are.
Free cash flow, maybe it looks a little bit low, but then we would expect that accelerated again.
Into 2023.
I'm, sorry, Scott I forgot your second.
It was just train starts and head count in the plant how much do you think there'll be yes.
I made a comment around head count.
We believe the growth there will be far less than.
Our.
Overall volume I would tell you.
Sitting here today, depending on exactly where all the growth comes from.
Think about head count growth, just being up a couple of points and we're going to try to through train length.
<unk> two.
Net operating leverage.
I know you track the numbers every month when they get reported and we've shown some pretty nice operating.
Leverage there from the standpoint of growth versus.
Head count and we would expect to continue to.
To see that kind of leverage.
The next question is from basketball majors from Susquehanna. Please go ahead.
Yes, good morning, and thanks for taking my questions I just wanted to clarify a couple of things on the 2022 outlook does the or target.
Assume any breakthrough in before man crew negotiations in Mexico and on the Capex.
Does that include any anticipated spin, but labor Radome bridge and maybe just an update on.
Where that stands and what that could mean for your capital envelope. If you go forward. Thank you.
Jeff you want to cover Laredo, Bruce can take the capital question first I think largely that project is underway. We are in design phase right. Now we're targeting completion of that probably early 2023. So we'll start to see some spend this year bulk of that spend will be 2022. We believe we can handle most of that within kind of obviously.
Within this current guidance.
As those design estimates are dawn and cost estimates are done that may that may tweak, one way or the other but largely absorbing that Laredo bridge as part of our normal run rate as the plan.
The next question is from Sean.
Basketball on the labor no. We don't have any specific assumption that we're going to get that breakthrough.
Just going to continue to manage us through train consolidations.
I think we may have mentioned head.
Head count was down 7%.
In Mexico, So we've been able to accomplish some of that savings just through train consolidations, but we're not giving up on that as Sami mentioned, we've made a lot of individual.
Progress in individual asks that we've had but no we have not assumed a major breakthrough.
Any of our guidance numbers.
Thank you Bob.
The next question is from Jon Chapelle from Evercore ISI. Please go ahead.
Thank you good morning, everyone.
Well, Jeff you laid out the investment plans in the near term on Mexico for all the obvious reasons of the growth opportunities there and we know about the bridge what are some of the investments in this side of the border regarding to trying to take customer.
Customers enter new markets, where you're targeting your investment dollars in the U S growth initiatives.
Yeah. That's a good question again is the focus has been largely on Mexico for structural reasons. The U S network has been built out over the years with kind of some of these longer sidings and so.
Right now we don't see a lot of restrictions don't see a lot of need on that although as we as we move into the future I think certainly we will continue to look at train length opportunities. We look at our core routes certainly between Kansas City, all the way to the border.
And continue to look at even even further expansion of maybe sidings to continue to expand upon as Sami mentioned the current.
8000 foot train length in U S, which is respectable as we go beyond that.
We are looking at some of the areas really know on the Laredo as you get closer to the border. We are doing some work in the Laredo yard itself this year.
Which really complements the cross border on the U S side. So so those are your focus areas, we feel pretty good about the infrastructure and.
In the U S being where it needs to be but we'll obviously keep our eye on things.
And we are doing.
Jeff.
Yes.
We are doing some some investment in Kansas in.
It can be done is in the Houston area and that is strategic because of.
The growth in <unk>.
Find products.
Mike.
Lot of a lot of demand from Corpus Christi in these areas.
<unk>.
That requires some manifest trains that need.
I need some consolidation some some switching so so without investing in it.
Not the big yard, it's a small yard in Kansas, but.
But that strategy is aligned to the refined product.
Strategy.
Yep, Okay. Thanks, Simon Thanks Jess.
The next question is from David Ross from Stifel. Please go ahead.
Yes, Thank you and good morning.
Just a quick question on the cross border process wondering if in the past year.
<unk> gotten any easier with U S and Mexico customs, if theres anything changing with the paperwork versus electronic documentation and the process that might improve velocity and turns.
Yes. This is Jeff I can I can talk on that yes, we have we continue to work very closely with customs.
More process related items, Sammy mentioned kind of the shifting of Windows. We currently operate six hour windows, nor a six hour windows.
We again, we've had some success recently those we'll shift those four hours share, which we believe creates a little more capacity a little more fluidity.
Continuing to work towards kind of a windowless operation there, but a lot of that is is in sync with customs and those processes. So we feel very good about those initiatives, where we're at the international crew initiatives that again.
It's kind of normal course of business now that continues to operate very well and we have opportunities to continue to expand that so.
Again from an overall process at the border we feel we feel good we feel confident in the relationships.
With those entities on helping us continue to modify that to continue to manage this growth we continue to talk about.
Is there any talk of a seamless border crossing kind of how some packages that move internationally clear customs in the air before they even get here would be possible to clear.
Before it hits.
Yes, we absolutely talk and again those are items that we have.
The coordinated efforts ongoing to try to get some of that here pushed through.
Hearing at destination.
In Mexico, <unk> got a lot of the grain that does have to sit at the border and go through some clearing processes. There. So yes. Those are absolutely the other components of what we'd like to do and see a truly seamless border crossing here into the future.
Thank you.
The next question is from Brandon Glinski from Barclays. Please go ahead.
Hey, good morning, everyone and I appreciate you getting all the questions.
Mike I think you said in your prepared remarks here that it was about 4% to 5% upside here on growth.
<unk> unique things to your network, how should we think about those as really kind of baked into the plan here I mean, I know the economies contribute but would you be is almost is agnostic to GDP and I know, it's been asked earlier, but any view on where we should be thinking volume and revenue for 2022.
Well I think we are.
Dance around the 'twenty to 'twenty 2022 question, a little bit earlier, so I'll do that again here.
With respect to that.
That 4% to 5% that are related to our sort of unique.
Growth opportunities here. These are things that are very much related to cross border business right. So it could be refined products that could be metals business.
Certainly intermodal business.
It's really a wide variety of things that we think that we haven't talked about near shoring at all here today, but we do think with U S MCA being racked up behind us.
There is there is more certainty for people to make decisions certainly the pandemic.
As.
Made people question their supply chains and the length of time, it takes to get things to the United States. So.
The fact that we operate in.
In the U S across the border and into Mexico, and vice versa.
That is something that is unique to us and it will serve us well moving into the future.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mr. Ottens Meyer for any closing remarks.
Okay. Thank you I appreciate all of your time and attention and good questions I.
I feel like we finished 2020 on a very strong note set up well for 2021, good visibility on both the demand and revenue growth perspective and cost side.
I think the only other comment that would be appropriate to make given most of you are probably in the eastern time zone and in New York as we're looking forward to a really exciting AFC Championship game Zone Sunday night and.
<unk> returned to the Super Bowl from Kansas City Chiefs. So thank you all and we'll see you on the conference circuit and back here in 90 days. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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